Today, cloud computing is most popular with small-to-midsize businesses (SMBs). Large enterprises tend to be more conservative, often citing security concerns. That will change as the servers that those large enterprises own come to the end of their useful life and CIOs look for money to replace them, predicts Michael Hugos, a consultant, former CIO and current CIO.com blogger.
At that point, says Hugos, "I think it becomes a CFO discussion about capital expenditure." CFOs may increasingly force the issue of replacing investments in IT equipment with the variable costs of cloud computing. In addition to the direct costs, a CFO is likely to consider the opportunity cost of tying up capital in fixed assets such as servers, he says.
And precisely because customers are crying out for reassurances about the security of cloud services, service providers will invest in making them secure-at the same time many enterprises are cutting back on information-security investments. "The idea that data sitting on a server in my server room is more secure [than in the cloud] is disingenuous," says Hugos. Underlying the argument, he says, are IT professionals trying "to convince the suits not to outsource my job."
Because many technology managers have a vested interest in fending off this wave of change, CIOs need to turn a gimlet eye on their staffs (and their own) cost projections, Hugos says. "I would give my estimate to a bunch of hard-nosed accounting and finance guys and see what they say about it."
Joe Weinman, a Hewlett-Packard ( HPQ) executive who is one of HP's chief spokesmen on cloud computing, predicts a more gradual transition. "I do believe most IT will move into the cloud for consumers and SMBs," he says. On the other hand, large enterprises have enough systems-management discipline "that the idea that a cloud provider would achieve better, meaningful economies of scale is difficult for me to believe."
For large enterprises, using a public cloud infrastructure will make sense in special cases, such as when they could profit from renting a large number of computers for a short period to run an intensive calculation quickly, Weinman suggests.
A big company also might use cloud services as a hedge against uncertainty in case a fast-growing new product or business unit stalls, Weinman says. "While you're growing, it's easy to say you should just buy servers and keep deploying them. But if you do enter into a period of decline, those assets are like concrete shoes."
Costs That Lurk in the Cloud
Dirst and Bolick agree that cloud computing also can have hidden or unanticipated costs. Bolick says he underestimated the cloud server capacity he would need to achieve an acceptable level of performance because he made the mistake of treating cloud servers as the equivalent of physical servers.