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Think the cloud will cut your IT costs? Not so fast, say CIOs

Contrary to the sales pitch, cloud computing does not guarantee an easy and painless way for the IT department to cut costs.

Listen to the hype about cloud computing and you'd think it provides a quick fix for the CIO who needs to cut costs in a hurry.

And while its on-demand model offers the promise of reduced spend and freeing the IT team from the drudgery of looking after physical infrastructure, CIOs remain wary about getting carried away chasing savings in the cloud. As Kevin O'Connor, CIO for the technologies division of stock exchange operator NYSE Euronext said at the recent CIO Event, the risk is that cloud computing turns CIOs into a ‘hammer mechanic’. As he explained:
"A hammer mechanic is a very dangerous guy, he's a guy that comes to fix a car and the only tool he's got is a hammer, so everything looks like a nail. We need to make sure we don't approach cloud computing as if it is a hammer and can be applied to everything."
He added:
"The problem with cloud computing is that some people are using it as an abrogation of responsibility. They're saying 'Infrastructure is all the same, we will stick it all in the cloud and it will come right'."
Any decision to buy cloud services should be an end, rather than a starting point, resulting from an analysis of how cloud services fit an organisation's strategic goals, rather than born out of a desperate grab to save money. If CIOs take more of a strategic view about how cloud services could benefit their organisation there is scope to free up tech teams to concentrate on adding value to an organisation, according to Ian Alderton, CIO for the Royal Bank of Scotland. "There's definitely opportunities in some of those vertical in-cloud offerings, such as CRM or core banking systems," he said. "For example a core banking system is not a differentiator, it's a commodity, and I just want to put it in a black box in a cloud and provision that. I can then focus on those areas where I can differentiate - such as time to market, cost and customer service." Indeed where organisations have shifted to using cloud services to meet everyday corporate needs, such as CRM, their experience has not always been one of reduced costs. The cloud in itself is not necessarily a route to quick savings, but just like outsourcing before it, is just another tool for the CIO to use to strike a better balance between delivery and cost, when it is appropriate for the organisation. Assuming you can use the cloud simply to slash costs is likely to leave you disappointed. As NYSE's O'Connor puts it: "If you think that cloud will save you money out of the box, you will get burnt".

About

Nick Heath is chief reporter for TechRepublic UK. He writes about the technology that IT-decision makers need to know about, and the latest happenings in the European tech scene.

25 comments
noxigen
noxigen

Let me preface my comments with the fact that I think private and public clouds definitely have their place. All the hype around cloud offerings reminds of the early days of virtual computing - at least in the Windows space. It was touted as the solution to all things IT where you would have less servers using less power, more space and deployment would be a snap. What a lot of organizations have found out is that they now have even more servers (virtual) to manage, including all the resources that go with them, because of how easy it's become to just throw a system on the network. Cloud computing has the potential to follow this same route if not used properly. Like any other good technology, it must be used to serve a real purpose and designed accordingly. Having said that, I'd like to see more public cloud based applications with better encryption and flexible access controls.

sandeepseeram
sandeepseeram

Cloud is cost-effective solution, It can definately cut operating & maintenance costs... just for an example, a school with 1000 students runs a School-ERP on there network.. expenses will be in Data Storage, Maintenance, Support, Software etc etc... a simple cloud solution can cut down prices...Offcourse depends on the cloud providers

OldHenry
OldHenry

Working at my second company with a cloud offering it appears we are doing a bad job of marketing. "The cloud" is not just something on the public Internet. That is the public cloud. The private cloud are those same technologies and operational practices in your data centers for exactly the objections in the article and the comments. The cloud refers to fungibal computing power that makes it fast, easy, and inexpensive to deploy computing power when and where you need it. For some applications that may be a SP datacenter. For some it may mean your datacenter.

Extremelydangerous
Extremelydangerous

Just imagine that you have all you documents, and data in the megaupload site. your legal and private documents (crypto or not...). Lucky me that I used megaupload only for backup purposes.. and nothing happens to my data, Now I settup another computer with 4TB and saved it. If Obama does not like a thing, he will shut it down...

MyopicOne
MyopicOne

At first I wanted to post a smart-arsed response, but then I decided to point out that my old CIO outsourced and cloudsourced most of his IT department in 2008. He was fired in 2010 because costs tripled and service/efficiency was quartered. I.e. the logical result of a hammer mechanic at work!

Dr_Zinj
Dr_Zinj

Do you REALLY want to trust your data and processes to the whims of 530-some legislators in Washington, and a myriad of faceless drones in the Department of Justice, the Commerce Department, the FCC, or Homeland Security? Well, do you????

sissy sue
sissy sue

But to me it seems like giving the keys to my house to a stranger on the promise that he is going to take good care of them.

Zegamega
Zegamega

Wow, hard to read if I was a Facebook employee, however, you may have some truth to what you said and yes we do get bored time to time. To me Facebook has a trick up their sleeve but we've seen it already and to me that's the way they keep changing the site display. Unlike any other social site, Facebook changes its features and display so continuously it forces users to re-learn how to do things and by that way it forces them to stay on Facebook because its easier for them to learn what they were comfortable with than having to go to a new social site and start over. Not to mention, that these new changes also give them a competitive edge of the way social media is developed, they have a mass tidal wave of 800 million users plus and you got to give those users a wave to ride that can be remembered and to me its the constant site layout changes, but of course not everyone will like the wave but they'll be willing to give it a try at least once cause its the fun thing to do at the moment. What can cause Facebook a definite crash is that they're going to design something that nobody likes and no one wants to ride that new 'hip wave' of their newly designed site and that's where we see their 800 million plus users swimming away to another wave to ride because they didn't enjoy the ride or its not worth it at all for them!

Trep Ford
Trep Ford

I don't know whether the media follows the sheep or the sheep follow the media, but to read the press for the last few years, you'd think the cloud was the solution to every IT problem ever faced. Nice to hear something more sane and balanced on the topic.

viveka
viveka

Recently I was consulting on the costs of cloud computing. Unfortunately, the rigor of doing the math seems to have been discarded, and replaced with estimates. As with any solution, it is a trade-off, and trade-offs are adequately documented from a CFO point of view. And there is the associated ambiguity when defining the risk. It does not take much to do the math. And the cost point trade-off actually disappears at a particular volume, when technology architectures are similar. My 2c. So, there are two sides to the picture. Cloud reduces costs up to a particular volume, and then the benefit analysis switches over to other criteria - business process optimization.

Ladavin
Ladavin

I agree that if moving to a cloud or ???service??? to provide a solution then you need to make sure that it is a smart business decision. But I also have to say that cloud or ???service??? solutions for small businesses is actually vary agile and tossing it under the bus immature and ignorant. As far as security goes let???s get real. Each solutions should be looked at and held to the standards of what the scope of the solution is requiring. To do anything less is negligence. SparkyVA said ???the security issues alone will keep me from the Cloud.??? But then says he is ok with carbonite and dropbox. Please tell us what the large open whole is security is with the ???Cloud???? I just don???t get why people are so negative to the cloud. Please have a basic understanding of the cloud before you start trying to knock it down. Understand that many different solutions fall into that range and to put an all-encompassing tag on it. Or say it is not safe or not cost effective is one of the most ignorant statements and more of a high school mentality. The last time we did see talk like this about technology was when people did not want to move there paper data off to a computer because they no longer had control over the paper or were there files were.

BALTHOR
BALTHOR

Is this entire countries hacking?"Let's knock America off the track"?

dconnolly
dconnolly

As has always been the case with outsourcing, the reasons to do so need to amount to more than trying to save a quick buck, or you are likley to be dissapointed in the long run. The cloud is just another pitch to an old game that uses current technology to create a potential leverage point with the services provider. When and where it makes sense, there is no reason to fear it, as long as you can measure, manage, and secure it....as if it were in your "own house"....then you can include it as an opption to your portfolio of approaches to delivering value to the business.

SparkyVA
SparkyVA

As with any new technology, sure there are cost savings to be had. But by whom? Those offering the services will price them as high as the market will bear. The result will be that firms that are currently efficient will find no cost advantage, while those who are inefficient will see this as a bonanza, and a way to get away from problems they have been unable to solve. That said, the security issues alone will keep me from the Cloud. I cannot afford to have my data visible or stolen so I take my chances with the things I can control. That said, I do find dropbox and carbonite useful in my business so I am partially using the cloud. Just not totally committed for the sensitive stuff.

melbert09
melbert09

Excellent article. I have always said that the Cloud can be a great tool where it makes sence both in Cost and Operations. Operations and performance are the things many people forget about when they see the cost savings sales pitch.

tom.marsh
tom.marsh

This will no more be the "permanent" state of affairs for service delivery than the previous candidates for that title which didn't work out... Those being: 1) Dumb-Terminals (DEC VT) 2) Desktop PCs 3) Client-Server 4) n-Tier 5) SaaS ... 6) "Cloud Infrastructure"

maxbuchler
maxbuchler

I agree to this post. You should adopt cloud services because it kills pains (and darlings) AND if it fit your business. You shouldn't adopt cloud services just because it is hype. At the same time you shouldn't forget that cloud services will increase and is one (the only?) of the future service delivery models (independent of if we call it cloud or not) so a good thing is to start look at it out of modern delivery model perspective. It might cost more to adopt if you go deeper in self operated services or similar. One way, except the CRM ex in the post, you can consider i e public cloud services as a cost reducer is if you as a company start the journey towards more standard and less customized. It will most probably be too extensive to continue to customize everything. @maxbuchler

melbert09
melbert09

Cloud solutions are not always the most cost effective solutions. If your not worried about performance and don't mind using shared resources like CPU and Memory. If you need dedicated resources the costs go way up and can easily cost more money than purchasing a physical server over the course of 3 to 5 years. But then again it always depends and you need to look at every solution individually. Sometimes it does make sense to put your services out into the "cloud".

HAL 9000
HAL 9000

If it was a Public Cloud as a Private Cloud is no different in costs. And then you have to start looking at the Security Model that would be used. It's quite possible that a Public Cloud Solution can cost considerably more than a Private Solution. Col

tom.marsh
tom.marsh

Fairly or not, "cloud" has come to be associated in many consumers' minds with "consumer" services like Google Apps/Gmail rather than professional grade services like Rackspace or Amazon ECS. Which is unfortunate because they're totally different, unique products. But thanks to the overly broad label "cloud services" consumers equate them as being "all the same."

tom.marsh
tom.marsh

Your data and processes are already subject to their whim if you're a U.S. based organization, so a U.S. hosted cloud is no different than the status quo in this particular regard. However, non-U.S. entities would be [b][i]insane[/i][/b] to use a cloud-provider subject to U.S. laws: Our government has clearly lost it.

MLFManager
MLFManager

I think you meant to post your comments on Jason's article called "Let's be honest, Facebook is a badly overpriced photo-sharing and gaming site", not this one.

HAL 9000
HAL 9000

Could be we have heard it all before and it was a Lie then and is just as much a Lie now. Any Business only goal in life is to make Money. They have no other aim at all and to that end they [b]Lie Cheat and Steal[/b] at every opportunity and are rewarded for their actions that if not directly illegal are at the very least Immoral. To believe that any Cloud Provider will be anything else is Stupidity and as such going in with your Eyes Wide Open is the only way to go. As to if a Cloud Provider is of any use you need to look at the Business that you run and realistically look at what if any improvements the Cloud will Offer. You also have to look at the down side as well. How much extra Insurance do you need to carry in case of a Security Breach which leads to Legal Action against your Business for allowing Private Information out into the wild. What if any Government Regulations does your company have to comply with and what can the Privacy Commissioner Inflict upon your Company when you breach the Law because you don't have direct control of the Data in question and rely on another to make it safe at the very least in a Physical Sense. Can your business actually store Data in the Cloud where it may be stored across country Borders? How much down time is realistically expected by the Cloud Provider there is yet to be any Internet Presence that is there 100% of the time. What happens when the Cloud Provider goes Broke? Can you access your Data, or will you have to buy it back, or Does it go up for Auction to the Highest Bidder or does it just Disappear like what has happened to the MegaUpload Site? Can you get Insurance Cover in the event of something happening to your Cloud Provider which stops you accessing your Data and Apps? In the event of a Merger with your Cloud Provider and another who's Policy will be followed. You may very well find yourself in a position where a possible Cloud Provider was dismissed because their Business Model was unsuitable for your needs and after a time you now find your Business Data in their Control and under the same rules that where so unsuitable earlier and very hard to move to another provider. Those questions and many more need to be addressed by those Companies who's Business Model suits the Cloud Offering, and they are mostly deal breakers for any Sane Business Owner CIO or whoever. Of course they are never addressed by those attempting to sell the so called [i]Cloud Solution[/i] who always claim a Big Saving in IT Costs and no major downside if any at all. OH and anything is [b]Cost Effective[/b] when you don't look at the Entire Picture, it's just the same as saying there are [b]Lies, Bloody Lies and Statistics.[/b] You don't need to [b]Directly Lie[/b] to a Potential Customer if you just ignore any of the above and don't inform them of the possible disadvantages that are know of at the moment. Naturally while it's impossible to advise of the [b]Unknown Disadvantages[/b] and those are the ones that Bite really hard when they do occur. ;) As to the rest of your questions I can't answer them as I'm not involved in any way with the person who you are asking. Col

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