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There's more to cloud economics than you know

By Kathleen Lau, Computerworld Canada
April 22, 2010 07:12 PM ET

Computerworld Canada - For those enterprises trying to figure out whether cloud computing is worth the effort, one industry expert said the cloud just might be the next big paradigm, as was the emergence of the personal computer and of open source.

Independent analyst Joe McKendrick said that to be considered massively disruptive to the enterprise, new technologies must offer a value proposition that is at least nine times greater than the preceding paradigm.

"Does (cloud computing) rise to the order of magnitude shift as did PCs and open source?" said McKendrick, during a recent Webinar on the economics of cloud computing.

Disruptors are typically the sort of IT resource and application that is available to unserved and underserved markets, said McKendrick. In the case of the cloud, it has been rapidly embraced in the lower end of the market by small businesses who otherwise would not have had the funds to take advantage of such computing capabilities, he said.

The emergence of broadband technologies and strained IT budgets as a result of a tough economy has really pushed cloud computing to the fore, said McKendrick. "It looks like we are at another inflection point coming out of this recession," he said.

Deciding whether to venture into the cloud is like debating renting versus buying a house, said McKendrick. But while the traditional TCO (total cost of ownership) model has been based on software licensing, initial investments and maintenance costs, he said it's probably time for a new model that better reflects cloud computing.

Basically, the value proposition of the cloud is that it's cheap and ready-to-use IT. But it's not always so simple because, for instance, said McKendrick, enterprises can't just "flip a switch" to move mission-critical applications to the cloud. Moreover, security concerns continue to linger.

The economics of cloud computing takes into consideration new angles, said McKendrick. In the case of a private cloud, enterprises must sort out which services get put to the cloud and who pays for them. And, in the world of cloud computing, businesses might take on a dual role of cloud user and provider, where computing resources are used by both employees and business partners.

Dissecting the economics of the cloud also means ensuring the full potential value of the cloud service is being taken advantage of. That full value can only be realized if the cloud service is integrated with the rest of the IT infrastructure, said Chandar Pattabhiram, vice-president of product and channel marketing with Mountain View, Calif.-based cloud integration vendor Cast Iron Systems Inc.

A popular cloud app like Salesforce.com, said Pattabhiram, must be integrated with the various applications residing in the enterprise like shipping and finance so users can extract the necessary data in real time to do their jobs.

Initially, integration may only entail a single app, but eventually, the need to more deeply embed the cloud service will grow. "Typically, needs will get more and more complex over time," said Pattabhiram.

Increased productivity is a definite value add for the enterprise when cloud computing is properly managed, said Pattabhiram.

Follow Kathleen Lau on Twitter: @KathleenLau

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