Large companies save more with private clouds -- sometimes

By going with in-house systems, larger companies can match the economies of scale that cloud computing service providers offer

Although cloud computing service providers can help companies cut IT costs, many large and midsize companies can achieve equivalent or greater savings with in-house systems based on the same technologies. But there are no clear guidelines that dictate when a company should keep their systems in house or when they should look for an external service provider, an IBM executive said Tuesday.

Large companies and organizations with thousands of systems may see greater cost savings from building a private cloud or using a hybrid model that combines public and private clouds. "If managed well, that's pretty close to the asymptote of economy of scale that lets you do it very, very efficiently," said Alan Ganek, chief technology officer and vice president of strategy and technology at IBM's Software Group.

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Cloud computing comprises a broad range of services, including application hosting and software as a service (SaaS) offerings, among others, that can be run internally or offered on a subscription or on-demand basis by service providers. Outsourced services offer several potential advantages, including the benefit of exchanging up-front capital investments for a variable cost structure that pushes most of these expenses into the future, as well as the ability to quickly scale up or scale down the number of servers required for a particular application.

Such services can offer "significant cost savings in selected situations, notably when the scale of an enterprise's computing resources is relatively small compared with that of cloud providers," Boston Consulting Group partners David Dean and Tamim Saleh wrote in a recent paper. These cost savings fall across several areas, including labor costs and power savings, as well as more efficient use of hardware and software licenses.

Figuring out which applications and workloads can be outsourced and which ones need to be kept in-house is a decision that will vary by company. Running large numbers of servers internally isn't the only factor that should determine whether a company will benefit from building its own cloud computing infrastructure. Risk factors, including compliance requirements, will ultimately dictate what companies opt to keep in-house.

"It also depends on what it is that you're trying to do, what type of applications," Ganek said.

In broad terms, the types of workloads that are generally most suitable for outsourcing to an external cloud provider are infrastructure workloads, including desktop workloads and communications tools, while database and application-oriented workloads are more appropriate for private cloud systems, Ganek said.

To illustrate his point, Ganek cited the example of Panasonic, which uses LotusLive, IBM's hosted email and collaboration service, instead of an in-house system.

"I'm sure that Panasonic has the scale to deploy private clouds, and I have every expectation that they will deploy private clouds for certain aspects of their business, but then you look at the specific challenge they faced with their collaboration tools -- the fact that their 300,000 employees are scattered all over the world and the fact their starting place had many different regional implementations -- using the IBM LotusLive cloud was very natural for them," Ganek said.

"There's no substitute to thinking through what the options are," he said.