McKinsey report: Cloud Computing is way too expensive than conventional Data Centers

I’m not sure if they used the right tool to do the calculations. Clouds and Data Centers can be dirt cheap. Cloud AND Data Centers can be expensive. It’s all about how you translate the TOU’s , CPP’s and RTPs to actual and realtime costs. I am not sure if the report is used in the True billing context (as it should be).

The McKinsey study, “Clearing the Air on Cloud Computing,” concludes 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.

“The industry has assumed the financial benefits of cloud computing and, in our view, that’s a faulty assumption,” said Will Forrest, a principal at McKinsey, who led the study.

Owning the hardware, McKinsey states, is actually cost-effective for most corporations when the depreciation write-offs for tax purposes are included. And the labor savings from moving to the cloud model has been greatly exaggerated, Mr. Forrest says. The care and feeding of a company’s software, regardless of where it’s hosted, and providing help to users both remain labor-intensive endeavors.

Clouds, Mr. Forrest notes, can make a lot of sense for small and medium-sized companies, typically with revenue of $500 million or less.

Instead of chasing cloudy visions, McKinsey suggests, corporate technology managers should focus mainly on adopting one building-block technology of the cloud model, virtualization. Such virtualization allows server computers to juggle more software tasks, and thus increase utilization, reducing capital and energy costs.