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McKinsey: Adopt the cloud, lose money

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The logic - as ever with crowd-based movements - is self-evident: cloud computing will save you money because you will no longer need to own your own servers.

As ever with the wisdom of crowds, the truth isn't quite what it seems.

Sure, you no longer need to buy or run those servers, but along with the cloud comes a whole new bunch of issues that add cost.

First, there'll be the differing levels of service that mean that basic, entry-level pennies on the computing hour or annual subscription do not apply to customers that want guaranteed availability.

It's a cost stratification similar to getting a cell phone on contract. You end up paying far more to the service provider than the device - in the case of cloud computing, the server - would have been worth over time.

And then there's the ongoing cost of having to manage that relationship with the service provider, of re-architecting your applications or building new ones for the cloud, of moving your applications and data if you change suppliers or if your chosen supplier goes tits-up or - if you're really stuck and can't move and get lumbered with a new supplier like Oracle - having to swallow massive price hikes.

Step up consultant McKinsey & Co.

A company employers have an alarming habit of taking very seriously, McKinsey & Co has issued a report that says touted savings associated with cloud computing not only don't exist, but that you'll lose money.

Outsourcing a typical corporate data center to the cloud would more than double the cost, the consultant has reportedly said. McKinsey based its findings on Amazon's popular Web Services, saying the total cost of the data-center functions would be $366 a month per unit of computing output compared with $150 a month for the conventional data center.

Furthermore, McKinsey said, those touted labor savings have also been exaggerated. Software is still software, and putting it on a cloud does not mean you can finally get away from those tedious old tasks of providing support for the software during its life cycle and its end users.

Rather than move to the cloud, McKinsey has advised organizations to streamline their existing data-center operations through the introduction of server virtualization.

McKinsey said server utilization can be boosted to 18 per cent using virtualization - up from today's 10 percent. It's even possible to hit 35 per cent.

I guess that's where the McKinsey suits step in to tell you how to hit these numbers.

Companies would do well to pay head to McKinsey as they go forth and evangelize the placebo that is the cloud. It's going to cost customers more over the long run, not less, and it's going to increase the amount of work and logistical challenges when it comes to managing data centers because now they are in the hands of an external supplier.

Sun Microsystems in particular, now talking up cloud computing as a last-ditch effort for making money on open-source, should pay special attention, given that its chief executive is a McKinsey alumnus. ®

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