Cloud computing too costly for large enterprises

Cloud computing is not a silver bullet for large firms

A McKinsey study into cloud computing has found that the model does not make financial sense for large enterprises.

Clearing the Air on Cloud Computing (PDF) estimates that shifting the average datacentre to a cloud model would nearly double the cost to a company compared to running its own systems.

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

"Rather than create unrealisable expectations for 'internal clouds', chief information officers should focus on the immediate benefits of vitalising server storage, network operations and other critical building blocks."

McKinsey used data from Amazon's operations and estimated that the cost of cloud-based datacentre functions is $366 (£244) a month per unit of computing output, compared with $150 (£100) a month for a conventional datacentre.

The figures take into account the cost of setting up and running the datacentre, the tax write offs that the owning company can make, the cost of migrating to cloud systems and user support.

The report suggests that companies looking to lower costs should instead use virtualisation as a way to get more out of their systems. McKinsey said that server utilisation at datacentres averages at around 10 per cent, but that this can be almost doubled with virtualisation software.

Cloud computing does make financial sense for small and medium sized firms, which McKinsey classes as those earning $500m (£334m) or less annually.