McKinsey Cloud Computing Report Conclusions Don't Add Up

McKinsey, the doyen of strategy consultants, published a report on cloud computing last week featuring a disguised real-world case study. While the report doesn't explicitly state the fact, it seems that the paper is a summary of the results of a strategy project with a financial services firm, which apparently engaged McKinsey to assess whether it would make sense to move all of its systems to Amazon Web Services.

The client appears to a be a good-sized company, since one of the pages lists headcount for the IT organization and compares the total as-is vs. post-Amazon migration. Today's IT headcount stands at 1704. In typical companies IT represents about 2.3 percent of total staff; this would indicate a company with around 75,000 employees (however, financial services companies are heavy IT users, so IT might represent a higher portion of total employment, thereby reducing the employee population of the company somewhat). We will return to the topic of total headcount later in this post.

In its description of the computing environment, McKinsey notes that the organization is primarily a Windows shop.

One unintentionally funny thing about the report is that, early on, it notes that cloud computing is an ambiguous term, with no set definition. In fact, the report notes, McKinsey found 22 separate definitions of cloud computing. So McKinsey immediately recommends a new definition of cloud computing, seeming to assume that everyone will now adopt it, and the whole indefiniteness about the topic will immediately be settled. McKinsey's definition isn't obviously wrong, but it doesn't necessarily have anything special to recommend it.

I expect we will continue to see multiple definitions for the foreseeable future; more to the point, that's a good thing, evidence that the field is rapidly evolving and new characteristics are springing up all the time. Anyway, we all seem to manage to push along with no set definition for the Internet, so I expect we'll survive this confusion as well.

In terms of the outcome of the report, three of McKinsey's conclusions stand out to me:

1. Cloud is more expensive: Amazon is significantly more expensive than in-house in terms of the cost of running computing capacity. In fact, Amazon is 144 percent more expensive--costing US$366 per month per server vs. $150 internally. Therefore, attention should be focused on internal data centers, because they're more cost-effective.

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