Cloud computing

Cloud computing
Published: April 21 2009 09:18 | Last updated: April 22 2009 00:44

Cold reality has a habit of intruding. The latest fad to feel its chill is the concept of “the cloud”, one embraced by the technology sector. On Monday IBM listed cloud computing as one of its three key initiatives for growth. Cisco, which dominates networking equipment, has been tempted by the prospects to move into making servers. Struggling PC maker Dell, meanwhile, aims to join Amazon in providing cloud-based services.

Nailing down the cloud is difficult because its definition has been expanded to include everything companies wish to sell. But broadly, it entails a business outsourcing technology hardware to a third party and then paying according to usage. In theory, commodity services such as data storage will move into the cloud and then be piped back into the building, as with power and water. Economies of scale will mean vast savings for business and fat returns for those running the clouds.

Outsourcing may be too expensive for most large corporations, however. Research from Mckinsey suggests that moving into the cloud costs much more than staying put. Using Amazon’s web services as a guide, the estimated price per computer per month would be $366 compared with $150 for a typical corporate data centre. The study also puts labour savings at just 10-15 per cent, as Luddite employees still need the help of IT support staff. Instead, the consultants suggest virtualisation – using software to make existing racks of servers run more efficiently – is the best route to saving money.

That may miss the point. Companies are unlikely to outsource entire systems in one go. Instead the cloud allows rapid expansion or cheap testing of new projects. It provides a way to expand without capital investment, and the cost calculation will be different for each organisation. But it does suggest that investors should avoid foggy thinking about the companies vying to provide cloud services.


BACKGROUND NEWS
Cisco Systems, the world’s biggest maker of networking equipment, recently said it would start selling servers, the back-room machines that are the workhorses of corporate computing, setting up a showdown with Hewlett-Packard and IBM.

The maturing of the IT industry and a steep slide into recession provided the immediate impetus for the move. But something else is at work. After a technology era characterised by the rise of the PC, a new centralisation is taking place in computing and the biggest suppliers of technology are being forced to respond. A catchphrase has been coined to describe this new approach: “cloud computing”.

Even Microsoft, a company that came to dominate the PC era, is racing to create one of the world’s biggest computing clouds, although it insists this will co-exist with existing forms of personal computing for years to come.

The economies of scale that come from consolidating computing in fewer places, and the availability of fast internet connections that make it easy to tap into this resource, account for the shift. As a result, data centres – whether run by large companies or by internet services groups such as Google – are assuming an increased share of the world’s information processing workload.


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