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Assessing the cost of private cloud

The high cost of private cloud requires a ton of due diligence on the part of CIOs and business partners.

This is the second part of a two-part feature story on private cloud. Part one focuses on the internal private cloud implemented at financial institution State Street. Part two delves into the challenges of building a private cloud and looks at what the future holds for this area of cloud computing.

As organizations scramble to become "digital businesses" -- using technology to create new business models and gain a competitive edge over rivals -- they're turning to cloud computing as a cheap, scalable IT platform on which to build. Indeed, research shop IDC predicts that half of all IT spending will be on cloud technologies by 2018 -- cloud will suck up 60% to 70% of all software, services and technology spending by 2020.

While business for the public cloud is booming, a recent Forrester Research study on cloud computing says private clouds will achieve "moderate" to "minimal" success in delivering business value to customers over the next five to 10 years. They're just too difficult for most organizations to fund and build, the report said.

The cost of private clouds -- infrastructure-as-a-service platforms run in a company's data center and managed by its IT staff -- can cost a cool $1.5 million or more (see "What is private cloud? That depends on who's defining it").

Pamela Wise-Martinez, chief cloud and enterprise data architect, Pension Benefit Guaranty Corp.Pamela Wise-Martinez

"Folks are starting to realize that the cost of private cloud is more than what they would like," said Pamela Wise-Martinez, chief cloud and enterprise data architect at Pension Benefit Guaranty Corp., a U.S. government agency that manages retirement incomes. And it's not just the software and hardware investment. "The cost of private cloud has to do more with your IT resources and the training of those resources and the managing of that software and making it 24-hour accessible."

Gartner analyst Alan Waite advises enterprise clients on the cost of private cloud implementations. During educational sessions -- to give people a sense of how to determine whether building a private cloud makes sense -- he would show a picture of a robot arm moving a ball.

"You spend a lot of money. You work for a long time getting it to work exactly right. And then you have this arm that can move that ball," he said. "If you ask the question, 'Was it worth doing, building that arm?' -- well, the answer is, 'How often do you move the ball?' If you only move it once a year, it's not worth all the effort you put into building that robotic arm."

Organizations need a clear mandate from the business before incurring the cost of private cloud, Waite said. Once they have that, he recommends a phased approach, starting with steps like restructuring their IT organizations and creating a governance framework.

Private cloud to the recovery

Business purpose may just drive Millar Inc. to a hosted version of private cloud -- meaning a workload sits in a fenced-off section in a public cloud provider's data center. The Houston-based producer of cardiac and neurological catheters employs 140 people and maintains a sales office in the U.K. and a research and development facility in Auckland, New Zealand, and is an avid customer of public cloud, relying on both on-premises servers and public cloud services like Microsoft Office 365 and Barracuda Networks as supplementary data backup, said IT director Todd Miller.

Todd Miller, IT Director, Millar Inc.Todd Miller

Miller said a hosted private cloud setup could work as a "disaster recovery model." IT would put virtual machines replicating its on-site servers in a public cloud -- probably Microsoft Azure, he said -- cordoning off its own private network. That would be linked to Millar's data center through a virtual private network.

"If we had a fire -- knock on wood -- or had something else happen to the facility where people could not get here or we lost physical servers," Miller said, "we could direct those folks via a VPN client very easily to the cloud and have them go ahead and continue their work."

That's about as far as Millar, which is regulated by the U.S. Food and Drug Administration, could go with private cloud "until the FDA comes forth with some very clear guidance," Miller said.

The future's a hybrid thing

Just as Miller sees it as a piece in his company's IT ensemble, private cloud probably won't be performing solo at most organizations. More likely is a patchwork of on-premises servers and public cloud deployments referred to as hybrid cloud -- or more accurately, hybrid IT. Research shop MarketsandMarkets says hybrid IT sales will reach a staggering 84.7 billion by 2019.

"Private cloud is not an island and it cannot be," said Forrester analyst Glenn O'Donnell. "It's got to integrate with public cloud services and legacy infrastructure. The mainframe is actually going to be part of this hybrid if you've got mainframe as part of your environment."

The Pension Benefit Guaranty Corp. is now weighing a blend of on-premises and cloud IT operations, including using the Microsoft Azure platform, chief architect Wise-Martinez said. When it's in place most sensitive data -- personally identifiable information, or PII, for millions of American pensioners -- would stay on the ground, while "commodity services" like human resources can go to the cloud.

The cost of private cloud has to do more with your IT resources and the training of those resources and the managing of that software and making it 24-hour accessible.
Pamela Wise-Martinez

Wise-Martinez, who has worked in several federal agencies, sees even more combining of IT resources in government, with more hosted private workloads plus more managed services -- meaning specialized cloud services running in government data centers, per government policies, "but completely managed by a competent third party."

First though, Washington needs to get over its general unease about sending the government's data off-site.

"Government doesn't want to be on the bleeding edge," Wise-Martinez said. "But they also don't want to be left behind, because what that means is that we're paying more for things than we should, or we're not being as effective and efficient in our resources because we're not taking advantage of new ideas, new technologies, new methodologies for designing systems. So the goal is really to find that sweet spot of trust and emerging technology and flexibility."

As for the cloud-in-a-data center, it's not going away, Waite said, but it will become less important as more people grow more comfortable with the public cloud and deal with the challenge of integrating increasingly diverse computing environments.

New "cloud-brokering" tools are emerging that allow for managing multiple environments -- on-premises and cloud -- and give cost analyses that show where certain workloads can be run most efficiently. But that's another story.

"I see a lot of organizations now struggling with, 'Well, I've got this multi-cloud, hybrid IT environment -- how do I manage it?'" Waite said. "And right now there are not good answers really. A very emerging area."

Next Steps

Expect to make mistakes along the path to hybrid cloud

Define this: What exactly is a hybrid cloud?

Add hybrid cloud integration to CIO core competencies

This was last published in January 2016

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