Massive economies of scale make cloud computing and storage inevitable. But if the scale required for economic clouds exceeds the capacity requirements of the largest enterprises “private clouds” won’t fly against their public counterparts.

Some cool implications:

  • Clouds favor smaller users. Large enterprises have too many economic and contractual risks to embrace public cloud infrastructure.
  • Public clouds are cheaper. As cloud technology evolves expect further increases in economies of scale that enable cloud providers to further undercut enterprise computing and storage costs while still earning a healthy profit on the services they provide.
  • Small is beautiful. And profitable. The low costs of cloud-based infrastructure combined with the global reach of the Internet drive large enterprises to focus even more on what only large enterprises can do – like developing and marketing trillions of dollars of toxic securities.

McKinsey weighs in
Ken Brill and his merry band at The Uptime Institute have a McKinsey discussion document available for download called Clearing the air on cloud computing. It offers the most concise definition of cloud computing yet.

Definition: Clouds are hardware-based services offering compute, network and storage capacity where:

  1. Hardware management is highly abstracted from the buyer
  2. Buyers incur infrastructure costs as variable OPEX
  3. Infrastructure capacity is highly elastic (up or down)

McKinsey also makes a useful distinction between cloud services and cloud infrastructure. Cloud services comply with two of the key requirements: hardware abstraction and elastic infrastructure. In a service the buyers do not incur infrastructure costs as OPEX.

Under this definition cloud storage and cloud computing are both clouds. Application is irrelevant to taxonomy. Google app engine is a cloud computing. Gmail is a cloud service.

McKinsey has a couple of key observations:

Clouds already make sense for many small and medium-size businesses, but technical, operational and financial hurdles will need to be overcome before clouds will be used extensively by large public and private enterprises

Rather than create unrealizable expectations for “internal clouds,”CIOs should focus now on the immediate benefits of virtualizing server storage, network operations, and other critical building blocks

In other words, there is lower hanging fruit for large enterprises.

The StorageMojo take
If history is any guide cloud infrastructure will find its way into large enterprises the way PCs and before them minicomputers did: through the initiative of LOB executives.

Enterprise clouds such as Cisco’s new UCS promise to enable the glass house to compete with the cloud house. That strategy is necessary but not sufficient: internal clouds won’t have the scale and the capacity to offer internal customers the variable OPEX and the highly elastic capacity.

Yet the glass house need only provide a fraction of the flexibility of an Amazon to win most of the business – in the midterm. In the long term nimble competitors whose cost advantage comes from cloud computing will force large enterprises to outsource non-essential data intensive services.

Cloud computing is entering the peak of the hype cycle. A year from now many data center managers will be mocking the unfulfilled promise of cloud computing, just as they earlier mocked PCs, minicomputers and Ethernet.

Like those successful assaults on the glass House, cloud infrastructure will take a decade or more to flank large enterprise IT. Smart IT managers will stay tuned to the cloud’s inexorable economies of scale.

Courteous comments welcome, of course.