Cloud, Cloud, Cloud, but Which & Why?

Who knew deciding what to do with the cloud could be so difficult?

While the cloud is being swiftly adopted by businesses (some of which are building private networks, while others are using outsourced service providers), according to industry observers, the introduction of this innovative technology solution is becoming disruptive and raising more questions than it's answering.

In a recent report, McKinsey aptly describes the dilemma facing companies as adoption of the cloud grows, and the challenges arising from its use multiply. Here's how the consulting firm describes part of the current problem:

As attractive as cloud environments can be, they also come with new types of risks. Executives are asking whether external providers can protect sensitive data and also ensure compliance with regulations about where certain data can be stored and who can access the data. CIOs and CROs are also asking whether building private clouds creates a single point of vulnerability by aggregating many different types of sensitive data onto a single platform.

After reviewing the McKinsey report, I drew up a list of questions that I believe CIOs at many companies are asking themselves and their senior management. The consultancy addressed some of these, and I'll put the answers offered by the McKinsey analysts (James Kaplan, Chris Rezek, and Kara Sprague) after each question.

I'd like to know what you think. My questions are in bold. Here goes:

1. Should companies refuse to use the cloud because of its inherent dangers? Refusing to use cloud capabilities is not a viable option for most institutions. The combination of improved agility and a lower IT cost base is spurring large enterprises to launch concerted programs to use cloud environments.


2. How much are companies spending on the cloud? Corporate spending on third-party-managed and public-cloud environments will grow from $28 billion in 2011 to more than $70 billion in 2015, according to IDC. However, total spending on the cloud is much larger than these estimates indicate because the figures do not reflect what enterprises spend on their private-cloud environments.


3. How much of enterprise resource management activities will companies host in the cloud? Eighty percent of large North American institutions surveyed by McKinsey are planning or executing programs to make use of cloud environments to host critical applications -- mostly by building private-cloud environments. At several of these institutions, executives predict that 70 to 75 percent of their applications will be hosted in cloud environments.


4. What kind of savings do companies expect from using the cloud, and how does this differ between private and external systems? Cloud environments will enable savings of 30 to 40 percent compared with current platforms. Using external cloud offerings can yield even more pronounced savings. Some executives cite examples of 60 to 70 percent savings by replacing custom-developed internal applications with software-as-a-service alternatives sourced from the public cloud.


5. What are the likely dangers from using the cloud? Using the cloud creates data-protection challenges in public-cloud services as well as private-cloud environments.

The cloud obviously offers a lot of advantages to enterprises, but as the McKinsey report shows, companies are still in the early stages of trying to develop best-practices for using the technology. That's not all. They are also struggling with the trade-offs that come from adopting the cloud as opposed to current conventional storage and ERP systems.

The greatest challenge, which hasn't been widely discussed yet, is the potential for widespread disruption if a major virus gets into the cloud and infects entire networks. The assumption is that this won't happen, and as a result, CIOs aren't directly focused on this problem. It's the next frontier in cloud business opportunity for hardware, software, and service providers.