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Hosting is dead. Long live the Cloud: Who can truly benefit from Cloud Computing?

There’s a lot of marketing hype going on about cloud computing as the fabulous opportunity to drop IT costs and save the planet from CO2 emissions. Large companies from all around the industry spectrum (telco, finance, retail, etc.) have been asking me to reveal them the secrets of big savings in capex and cost with cloud computing.

Sad to say, this is a totally misleading vision. My truth about cloud computing (at least about Iaas) can be summarized into three points:

1. Cloud computing true advantages derive from a win-win game between (few) large cloud providers and (a lot of) small-medium enterprises.

  • Large scale datacenter have better economies of scale than SMEs. This happens because IT services (either internal or external) have fixed costs of production (suppliers, labor, capital, …). Average per-user fixed costs fall when the total number of users is increased.
  • Virtualization is a technology that leads to even more increasing returns on scale, mainly thanks to increased IT consolidations. The common buzzword associated with this phenomenon is internal cloud.
  • At this point it should be clear that economies of scale and virtualization can be used by large companies to drop per-user IT costs. Well, why don’t let other not so lucky (that is, not so large) companies benefit from these wonderful savings? With negligible additional costs we can sell our IT services by adding a profit margin while still keeping the service price sufficiently low.
  • SMEs and single users will be willing to pay for high quality services with excellent continuity and availability levels, accessible anytime from any location by using (almost) any device. Which they could never achieve at the same cost with their own IT organization and infrastructure. And this leads us to the next point ….

2. Traditional hosting/housing providers are doomed to extinction unless they convert themselves as (big) cloud providers.

  • So far, I’m not saying anything new. However, in this point of the history several presentations claim that “Internal cloud is the first step towards cloud computing” or that “You cannot benefit from external clouds if you do not have an internal cloud”.
  • Let’s clear the fog… Any SME can use and benefit from cloud computing (in the form of SaaS or IaaS) without even knowing what is virtualization or internal cloud.
  • Internal cloud is just flexible consolidation via virtualization; there is nothing in common here with cloud computing.

3. The savings deriving from the adoption of cloud computing are non-existent for most large companies.

  • “Why large companies will not save money by using external clouds?” Because large companies already have the possibility to benefit from their internal economies of scale.
  • Although cloud computing makes the migration between insourced and outsourced serviced easier than just a few years ago (larger offering of outsourced services, easier personalization and integration, easier access), the choice between internal cloud (that is, virtualization, consolidation and increased returns to scale) and external cloud is simply the classical dilemma between insourcing and outsourcing.
  • New name (cloud), same motivation (outsourcing).

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