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A Place in the Cloud

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

There are good reasons for that: pivotal issues have to be addressed before companies are confident enough to shutter their own data centers in favor of Google’s or Amazon’s. It’s not clear, for example, that companies will always save money. Shifting the storage of unstructured data, such as multimedia libraries, to the cloud can reduce costs, Nirvanix’s Horton says. But a CFO would have to compare the total cost of owner shipper gigabyte of storage, throwing in expenses such as the percentage of building maintenance, physical security, and even property taxes allocated to storage systems, to make a valid comparison.

“It’s a highly individual calculation,” says IDC’s Waldman. “But what can be said is that cloud computing drastically reduces the start-up costs for new companies and projects, since there is no need to acquire hardware.”

Pricing and billing models will continue to evolve. Right now an apples-to-apples comparison is difficult. ENKI, for example, charges customers by hours of CPU time, gigabits per second transferred, and disk space used, while Terremark levies a monthly fee for a pool of computing resources. And even cloud computing’s largest ostensible appeal, a huge reduction in capex, can be a liability. Some customers are “resistant to switching their financial models from lump-sum expenditures to a flow-through-cash basis, often paid with credit cards or ACH,” Novikoff says.

In addition, for some applications, like accounts payable, a CFO’s priority may never be cost savings, points out James Zubok, CFO of Brainware, a developer of business-intelligence software. “The important thing,” he says, “is to have the information auditable and correct. CFOs are less concerned about how it gets done than that an invoice gets paid on time.”

The Not-So-Silver Lining

Left to their own devices, non-IT personnel could easily violate governance policies (and government regulations) by plopping customer data out in the cloud. “It’s dangerous when business units try to get around IT,” Microsoft’s Wilkin says. But like Linux, Blackberries, and iPhones, “cloud computing will allow business units to elude outdated IT policies until they can be updated,” Waldman predicts.

Other barriers to widespread enterprise adoption of cloud computing are only too familiar. “I have made zero progress in selling to top-level management of enterprises in terms of replacing a whole class of IT,” Novikoff says. “Moving to cloud computing can be seen as introducing unquantifiable risk.” Executives Novikoff speaks to grill him extensively about security, guaranteed uptime, and regulatory compliance and certifications, in that order. “The question is not just how secure is the datacenter, but how secure is the business process within the data center.”

Vendors will need a transparent mechanism for proving that their services meet data-protection standards. That could take the form of a quarterly report that shows the results of services regularly being tested against such standards as those for the payment-card industry. Hyperic, a maker of Web-monitoring software, already does something like that with performance metrics. Its free open-source systems-management tool peers inside Amazon’s cloud computing services to report metrics such as database query response times and system outages.

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