Commentary: Customers won't start cloudsourcing until data costs drop

Enterprises are coming to terms with cloudsourcing, but they are also recognizing that some of their early expectations for the cloud simply won't pan out.

Enterprises are coming to terms with cloudsourcing, according to my most recent survey, but they are also recognizing that some of their early expectations for the cloud simply won't pan out. This is going to change the risk/benefit profile for cloud providers because eventually those facts are going to get out. In the near term, there's an opportunity for cloud providers to step up and support the real world deployments -- getting a jump on competitors -- and that creates a similar opportunity for vendors that can support cloud infrastructure in some way.

What everyone has ignored in cloud computing, enterprises say, is the cost of cloud data storage. So far, the applications that meet business case requirements of cloudsourcing are typically those that have relatively little storage required, which hardly represents the majority of enterprise IT resources. Most responsible studies of cloud adoption (in which, modestly, I'll include my own) expect that penetration of cloud computing into the enterprise wouldn't surpass 30% because of pricing. What business buyers are learning is that basic virtual machine hosting à la Infrastructure as a Service (IaaS) doesn't address application support costs, and that strategy cannot be expected to gain much savings from economies of scale either. This, more than any other factor, is moving buyer consideration up the food chain toward Platform as a Service (PaaS) and Software as a Service (SaaS).

Enterprises to cloud providers: Data costs make cloudsourcing cost prohibitive

Still, according to enterprises, the big question surrounds the future of data costs. Providers exact a double penalty for cloud data: You pay for storage, and then you pay for access. Large databases that are churned regularly end up costing a fortune in the cloud. Transactional applications can't deal with summary data -- they create the data users are hoping to summarize -- so cloudsourcing them is difficult or impossible. IBM and other vendors have been pushing the use of summarized repository abstractions as the basis for cloud business intelligence (BI) applications, and this notion is a good one because most BI applications don't need to deal with detail-level data. The result is that BI apps have outrun just about every other mission-critical app class in the cloud -- they dodge the data cost problem.

In the small and medium-sized (SMB) space, the picture is brighter in some regards. SMBs are finding that the cloud's biggest benefit is dodging technical support costs, which are higher for the SMB because of the market's limited career paths for good technicians and limited technical resources available in local labor pools. National recruiting is outside the scope of most SMB hiring. SMBs also move around and store literally a fraction of the data that enterprises do, which means that SMB cloudsourcing costs are more easily covered by savings. 

It’s hard to get a good estimate for SMB cloud potential in a realistic survey because SMBs are less likely to have a handle on either their current costs or their potential savings, but it looks to us like well over half of SMB IT spending could be cloudsourced, based on our fall survey. That says that the primary target for cloud services has to be the SMB -- or even the consumer.

We're starting to see some interesting strategies to try to make cloudsourcing work better even at the enterprise level. The most promising approach is to focus the cloud data market on backup or deeper storage, which means creating a transparent storage hierarchy that starts on premises and moves into the cloud, with applications running to move information among the tiers based on policy. IBM, Oracle and Microsoft are all said to be proposing this sort of service, and a few startups have productized it in the form of storage appliances that virtualize such a hierarchy. The tools aren't perfect yet, but progress is being made, and this may be the most important technology evolution in terms of maximizing the cloud opportunity for providers.

About the author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecommunications strategy issues. Check out his blog, Uncommon Wisdom, for the latest in communications business and technology development.

This was first published in December 2011

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