Cloudonomics

One of the lingering concerns about cloud computing is determining when it does or doesn’t make economic sense. There is certainly a crossover point at which either the requirements of scale or level of service are such that the cost of the cloud exceeds that of a more traditional approach. However, determining where that point lies and the specific drivers that influence it, has been a subject of much debate.

Earlier this year, McKinsey and Company published a widely reported and much debated discussion document “Clearing the air on cloud computing” (see http://uptimeinstitute.org/content/view/353/319/ - registration required) that included an analysis suggesting that the costs for many of Amazon’s EC2 and S3 services rather quickly exceeded those of a traditional IT infrastructure when scaled to mid- to large-sized environments.

Recently, my old friend Steve Duplessie of the Enterprise Strategy Group generated a lively discussion in the blogosphere when he re-visited the cloud economics issue in two very interesting posts (see http://www.thebiggertruth.com/2009/09/reverse-cloud-economics/ and http://www.thebiggertruth.com/2009/09/cloud-economics-continued/). He points out that while a terabyte of cloud storage at $150 GB/month seems pretty reasonable, when you get to 20TB at the same rate the cost comes to $36,000/year, representing a point beyond which buying storage outright may make more sense.

Beyond quantity, the crucial factor to consider in comparing any cloud (or non-cloud) option is to understand exactly what you are getting for a given price. Most cloud infrastructure vendors currently position their services in the range of three 9’s or so (99.9 to 99.95%) of availability. For most enterprises, availability expectations for production platforms are more likely to land in the five-9’s realm, which would make the cloud a non-starter in these situations. Can this level of availability be addressed by the cloud, and if so, at what cost?

A recent Network World article (http://www.networkworld.com/news/2009/100509-pentagon-cloud-computing.html?page=2) provides a somewhat startling answer. Detailing the Pentagon’s Rapid Access Computing Environment (RACE) cloud services, production servers offering 99.999% can be had at the seemingly not so bargain price of $1200/month! Now, to be fair, the article does not provide details about what specifically is included, and I would expect that a system providing that level of availability would be highly redundant, and considering the targeted user base, incorporate a high level of security, as well.

Determining whether this price is reasonable or excessive requires an understanding of what it would cost to deliver a comparable set of services in a traditional environment – price without context is meaningless. I have no doubt that cloud providers will continue to evolve services levels and improve efficiencies, but the reality is that making a smart cloud decision depends first and foremost on a strong understanding your own costs and delivery capabilities.