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A Place in the Cloud

Cloud computing offers an enticing value proposition, but do the benefits justify the risks?

Over the past two years, Google has spent a whopping $5 billion to construct a network of state-of-the-art data centers. The company’s goal is to meet not only its own insatiable need for computing power, but yours as well.

Google’s investment is part of a broad movement toward “cloud computing,” a literally hazy term for a concept that takes outsourcing, software as a service, and similar rent-don’t-own trends to their logical conclusion. Think of it as a ubiquitous Wi-Fi hotspot that can satisfy all of a company’s computing needs, from software applications to data to communications and collaboration. No more data centers; everything you need is “out there” in the cloud, accessible for a fee. Or fees.

Your company may already be migrating to the cloud without your even knowing it. A recent McKinsey & Co. survey found that companies are increasingly moving away from being owners of IT platforms. Companies are spending 19 percent of their software budgets on applications delivered as services, the survey said. That is, they are eschewing the traditional model of licensing software for use on a company server in favor of subscribing to software that is housed on a vendor’s server. What’s more, 23 percent of executives think cloud computing is the best model for running IT systems outside a company’s four walls.

Cloud computing is a rebranded form of “utility” computing, a less-clever but more-apt description for the underlying model: computing becomes a utility that you simply plug in to. You would no more think of owning your own IT infrastructure than you would of owning your own power plant. Many of the products and services needed to achieve this vision exist today, but, as Frank Gillett, a principal analyst at Forrester Research, has noted, “The rising buzz about clouds is creating a cacophony of confusion.”

Cloud computing is not about handing off management of a data center. Instead, it’s about buying standardized IT capabilities — memory, storage, processing power, software — on-demand, over the Internet, billed according to usage. Companies could ditch some or all of their servers and other fixed assets and tap a virtualized pool of computing resources via an interface as simple as a Web browser.

“You can access a server with the exact capacity for a given application,” says Simon West, chief marketing officer of Terremark, an IT infrastructure provider. “When you don’t need the server anymore, you delete the configuration” from your agreement, thus seamlessly evading a common and costly IT pitfall, buying too much capacity.

Beyond its potential for greater economy, however, cloud computing has the potential to give business units faster, more-direct access to IT resources — one of business computing’s holy grails. “Cloud computing is really tackling how we manage the compute resources being utilized by a set of people,” says Dennis Quan, a director of development in IBM’s Tivoli division. “It represents a new level of efficiency in running and managing IT.”

A CFO may well ask how far this concept can go: Could cloud computing drive IT capital expenditures down to zero? Why buy a truckload of servers, after all, when the company can tap into Amazon or Google’s vast data centers and just buy processing power on an operating-expense basis? “The CFO is responsible for helping the company get the biggest bang for its buck,” says Jose Granado, a partner in the IT advisory group at Ernst & Young. “With cloud computing, companies — especially small and midsize companies — can realize significant cost savings.” The intense transactional workloads and other facets of large-company IT operations may not be as well suited to cloud computing — at least, not yet.

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