Companies that Ignore Cloud Computing Could Be Left for Dead

Companies that don't take advantage of the agility offered by the cloud could be left for dead.

I wrote a few months ago in Wall Street & Technology about the dissolution of the corporate data center brought about by the undermining of data center economics resulting from colocation and proximity hosting. As one major tenant leaves the data center, the "rent" lost from that tenant is shifted to the remaining tenants, increasing their costs and reducing their profitability. Higher allocations force more tenants to leave, until processing costs force everyone out of the data center. It's the "last guy at the bar picks up the tab" phenomenon. I believed this erosion would take place over the next 10 years or so.

Well, it may be faster.

I was at a recent cloud computing event, which was hosted by Microsoft and Savvis, along with a number of firms' senior tech folks, and, to my surprise, the discussion of cloud services was very advanced. One executive noted that his firm thought of the cloud in four distinct classes: internal, external proprietary, external gated communities and external public. While the firm was not currently working on an external public strategy, it was very far along on the other three.

A second executive discussed the increased flexibility afforded by the cloud that allowed his firm to provision resources virtually on the fly. This enables the IT organization not only to deploy cloud-based applications quickly, but also to grab on-demand resources that would be difficult to run full-time because of budget constraints, he explained.

And a third attendee talked about the difficulties of procuring hardware. He said getting even a plain-vanilla server took a minimum of two to three months and that any capital expenditures (even a blade) needed to be signed off on at ridiculously high organizational levels.

The flexibility and agility challenges rang true. Who in a corporate development environment has not been frustrated by the pace of acquiring, developing, testing and deploying business-critical solutions? Then a fourth executive mused about the economics of using internal versus external cloud resources.

Noting that his firm has an internal cloud, the senior technology leader explained that the costs of using the internal cloud were three times higher than those of external services. Further, they could be provisioned in only month-long increments, while external clouds can be provisioned by the hour.

An Easy Calculation

Think about it this way. If a single, quantitatively intensive Monte Carlo simulation prices out to $1,000 for six hours of external cloud services, it would cost $3,000 to run on an internal cloud for the same six hours. But, because of the month-long commitment required for internal resource allocation, instead of this job costing $1,000 externally, it actually would cost $360k because of the 30-day, 24-hour-a-day minimum commitment.

For $1k, I could put it on my card. For $360k, … well, I am not so sure. Talk about misaligned incentives.

On one hand, the firm wants to ensure that its data and compute infrastructure are safe. On the other hand, if the barriers the firm puts in place to keep its infrastructure safe make the business uneconomical and inflexible, something needs to change, and I don't think it's the business need.

If the pace of technology development continues, and firms increasingly leverage colocation and proximity centers for their trading applications, and these colocation centers become de facto cloud support centers, we may see the demise of the corporate data center much sooner than I originally estimated. Whether it is 10 years or five, though, if we do not rethink how we manage our processing centers, resource utilization and corporate computing procurement, deployment and allocation processes, the firms with less-flexible and more-costly infrastructures surely will suffer at the hands of the quick and agile.

Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio