McKinsey FUD Revisited

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One topic that came up during the panel discussion at the Under the Radar
event was about the recently released McKinsey report. Everyone was unanimous
in highlighting the “errors” in the report’s conclusion. Many people have
written extensively debunking McKinsey’s claims and the report also had support
for its claim from pundits who make a career talking about traditional software
world. Of all the analysis, I was impressed by the model put forward by Joe Weinman. He correctly pointed out to
the role of Cloud Computing in the enterprise IT, at least, in the near
future.

If McKinsey had studied, say, automotive transportation, the conclusion they
might have come to would be that, since enterprises and “cloud service
providers” — rental car companies — use the same infrastructure
components — cars — there really aren’t any economies of scale and the service
provider premium then makes rental cars financially unattractive.  In fact, the
rental car industry may have been “getting away” with an even higher premium
than the cloud computing industry; a Chevy that one can finance or own
for $10 a day might rent for four or five times that.

So wouldn’t the analogous conclusion then be that enterprises should be wary
of using rental cars, until that industry comes up with a better value
proposition?

He then correctly points out how the Cloud services fit in the enterprises
today

Rental cars and other “meatspace” utility services create value for customers
by cost-effectively addressing unpredictable or variable demand with dynamically
provisioned resources on a pay-per-use basis.  So do cloud services.  And, as
enterprises consolidate data centers, they’d best leverage content delivery
clouds and other dispersed infrastructure services available from cloud service
providers to meet interactive application requirements.

I am thoroughly impressed with Joe’s model to describe the role of Cloud
Computing in the enterprises. On the Cloud evangelist side, let us be clear
about certain aspects of enterprise adoption. It is totally unreasonable for us
to expect the enterprises to give up all their past investments and jump into
enterprise bandwagon overnight. If anyone thinks that enterprises will
immediately embrace the Cloud Computing because of the advantages it offers,
they are fooling themselves. On the enterprise side, I do agree that there are
some who are unwilling to change the way they are doing IT and they are the ones
I compare to dinosaurs on the path to extinction. A big chunk of enterprises are
reluctant to jump in for two reasons.

• They want the Cloud Computing landscape pass over the hype cycle and mature.
  We are already seeing signs of maturity and as we go by, it will only get
  better. We will see more and more enterprises jumping in after this stage
• Then, there are those companies with huge investments on datacenters and
  related infrastructure. We cannot expect them to write off all these investments
  and embrace Cloud Computing. The best they can do is to consolidate their prior
  investments and start using Clouds for the non critical processes initially and,
  then, slowly embrace Clouds over a period of time.

This will be the normal evolution of enterprise IT and any expectations to
accelerate the process is unreasonable. At the same time, if the critics of
Cloud Computing use this (slow) normal evolution process as an evidence to
debunk Cloud Computing, it just shows their ignorance. Enterprises will slowly
move towards Cloud Computing and while the transition happens, Joe’s rental car
model is the correct model to explain what is happening. I hope analysts take
some time to understand this before they come up with another report talking
about the irrelevance of Cloud Computing.