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Cloud economics: we emerge from recession thinking differently about IT

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Every economic quake leads to tectonic information technology shift. Is it cloud this time?

Cloud computing represents a paradigm shift fueled by the recent economic downturn, just as the PC revolution was fueled by the early 1980s downturn and economic restructuring. For those who weren’t of age at the time, it’s an era when we went from steel production to word processing. The North American industrial economy essentially collapsed, and wealth generation shifted to the information economy.

In a new ebizQ Webcast, “The Economics of Cloud Computing,” I joined Chandar Pattabhiram to explore the value proposition cloud offers to enterprises, and explore strategies for making cloud a reality.  The economics of the cloud are a compelling force, especially since we are in one of those times when organizations are anxiously seeking more cost-effective ways to automate and leverage their information resources.

Perhaps this is one of those times in history when everything changes rapidly, to meet the challenges of the times.  Emerging out of an economic downturn, look at the shifts that occurred in IT as a result of macro-economic forces:

  • 1980-82 double-dip recession: PC revolution followed shortly thereafter.
  • 1990-81 recession: Web revolution followed.
  • 2000-01 recession: Open source, Web services revolution followed.
  • 2007-09 recession: Cloud revolution to follow?

It’s important to note that these shifts brought technology to the fore that represented orders of magnitude efficiencies over the previous paradigm. With PCs for example, employees suddenly could access applications for less than $100 — such as spreadsheet what-if analysis — to do jobs that were once the exclusive domain of minicomputers and mainframes that cost in the hundreds of thousands of dollars. Likewise, Web access through free browsers supplanted expensive client/server frameworks.

Is this order of magnitude efficiency being seen with cloud? These days, a company only has to pay a few dollars a month to get started with sophisticated data center functions.

Cloud computing is riding on the wave of economic pain seen by enterprises attempting to come to grips with highly complex and interconnected systems and data. However, to date, most of the cloud action has been taking place among smaller companies and startups. Last year, McKinsey & Company published a report that suggests the economics of cloud may not apply to larger data centers with well-established legacy systems. Another study by Booz Allen Hamilton, however, suggests that government agencies may see benefits-to-cost ratios of up to 25x by moving to cloud data centers.

What about all those enterprises out there with existing legacy infrastructure? How can cloud work for these organizations? The bottom line is productivity, and this is what will Chandar says will drive cloud computing acceptance in enterprise during the coming decade. And as companies adopt cloud for various parts of their business, many end-users will end up within “swivel-chair” architectures, he warns. Some data will reside in the cloud, other data will be locked up in on-premise systems. Integration between cloud and on-premise applications is needed to drive cloud computing to the next level.

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Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure