Late last year I received a phone call from McKinsey & Co in regards to helping provide some insights into the cost benefits of moving to a cloud computing environment. For one reason or another we were not able to connect to complete the discussion, which after the last couple days seems like a shame because that very report has been generating a tonne of buzz. 

The McKinsey & Co. report titled Clearing the Air on Cloud Computing was recently made public and has been causing quite the uproar. Forbes, The Wall Street Journal, The New York Times and others have all written pieces quote the report saying "clouds are NOT very cost-effective"

According to the Forbes article, they (McKinsey & Co) conclude that outsourcing a typical corporate data center to a cloud service would more than double the cost. Its study uses Amazon.com’s Web service offering as the price of outsourced cloud computing, since its service is the best-known and it publishes its costs. On that basis, according to McKinsey, the total cost of the data center functions would be $366 a month per unit of computing output, compared with $150 a month for the conventional data center.

There a few problems with the main thesis of the report. First, the report assumes a fairly static & constant data center environment running 24/7. But seems to forget to mention the concept of elasticity.  They also completely neglect to mention the new reserved instance option for EC2 which greatly reduces the cost for more predictable usage patterns.

Here is my math for the small reserved EC2 instance

@ $0.03 a hour, a small reserved EC2 instance will cost you about $262 a year for the uptime, and $325 for the reservation or about $48 dollars a month. Compared to about $876 a year or $73 a month using an on demand instance (not including storage and bandwidth). This new pricing model brings EC2 inline with most VPS style hosting providers.

In reading the report it is obvious that the purpose of the report is to debunk the hype around cloud computing. The report generally is well written and for the most part actually quite well thought out. In terms of a providing a counter weight to the generally optimistic outlook from other market research firms, they have done a pretty good job in outlining the cons.

Worth a read.

• The Future of Cloud Computing: Let's Not Fret About Definitions
• Christoph Reich to Present at SYS-CON’s Cloud Computing Expo Europe 2009
• McKinsey Slams the Cloud
• McKinsey Report Aims To Keep Expectations About Cloud Computing Realistic
• Cloud Computing Debate: Booz Allen Hamilton Comments on Recent McKinsey & Co. Report