Clearing the Air on McKinsey's Cloud Report - InformationWeek

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4/30/2009
09:54 AM
David Linthicum
David Linthicum
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Clearing the Air on McKinsey's Cloud Report

The world of cloud computing was shocked last week with the release of the McKinsey report on cloud computing, entitled "Clearing the Air on Cloud Computing." As with any of the thought-leadership pieces pushed out around cloud computing, it was quickly picked apart by the pundits.

The world of cloud computing was shocked last week with the release of the McKinsey report on cloud computing, entitled "Clearing the Air on Cloud Computing." You can think of the report as a quick assessment of the value of cloud computing; however, as with any of the thought-leadership pieces pushed out around cloud computing, it was quickly picked apart by the pundits.

The report dared put forth the following definition of cloud computing:

"Clouds are hardware-based services offering compute, network and storage capacity where:
  • Hardware management is highly abstracted from the buyer
  • Buyers incur infrastructure costs as variable OPEX
  • Infrastructure capacity is highly elastic (up or down)"
McKinsey's report also asserts that cloud computing is really only valuable for small to medium-sized business, and typically not a fit for the Global 2000. Indeed, McKinsey claims cloud computing solutions cost more than on-premise solutions in many instances.

If you want to polarize the pundits, just put out a think piece on cloud computing and take a stand as to value, use, and definition. The world of cloud computing punditry was alive with blogging and podcasting, and at the end of the day, the McKinsey report was shot full of holes. However, there was some cogent analysis of the report, including this article by Bernard Golden, which that is the best analysis of the report I've found. Golden, like others, pushed back on McKinsey's findings, but he did so with compelling arguments.

"While the report is interesting for a number of reasons, not the least of which is that it demonstrates how big-picture strategy firms view cloud computing, it glosses over a number of issues, with ambiguous calculations and comparisons. Four in particular stand out:

  • A single example does not reflect all possible scenarios:
  • The headcount numbers don't add up:
  • Don't forget capital expense for facilities and associated assets:
  • The issue isn't utilization rate, it's cost per unit of computing capacity.

The core issues I have with the report, as Bernard also found, is that the value of cloud computing, including SaaS and other cloud computing components, is really based on the situation. Thus, it's difficult to say that cloud computing is effective for one type of enterprise and not another. I've found that cloud computing is compelling for both large and small enterprises in certain situations, and not as compelling for large and small enterprises in other situations. It all depends upon the business requirements and the existing technology they employ. Also, I do use "unit of computing" as a measure of the value of cloud computing, when comparing on-premise to cloud computing. Moreover, I make sure to consider all in costs, which includes some less-obvious costs that are significant when doing an on-premise-to-cloud-computing comparison.

The trouble with reports such as McKinsey's is that they provide a good excuse for management to pass over cloud computing, sighting the report as proof that it's not a good fit. However, each enterprise has its own computing requirements and existing architecture. The value that cloud computing and SaaS brings will vary greatly from business to business, but the size of the business is rarely the determining factor.The world of cloud computing was shocked last week with the release of the McKinsey report on cloud computing, entitled "Clearing the Air on Cloud Computing." As with any of the thought-leadership pieces pushed out around cloud computing, it was quickly picked apart by the pundits.

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