IT sourcing strategy guide for enterprise CIOs
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Ask CIOs what they think their data center facility will look like in five years and they inevitably start talking about the cloud, but not in the sense that data center ownership will go away.
Public cloud still small percentage of IT spend
Although spend on private clouds is growing, 2013 spend on public cloud services is a pretty small percentage of IT departments' overall budget, according to CEB. The business and IT strategy firm recently surveyed approximately 200 companies globally that represent $52 billion in IT spending.
In 2013, these companies plan to spend only 7% of their total budget on public cloud services:
- 3% on SaaS
- 2.9% on IaaS
- 1.1% on Platform as a Service (PaaS)
Still, this is up from the 4.5% of their budgets that these companies spent on IaaS and SaaS last year, according to the CEB survey.
CIOs describe a hybrid data center approach that involves a blend of many strategies: renting data center space, turning over some applications to a Software as a Service (SaaS) vendor or disaster recovery (DR) to an Infrastructure as a Service (IaaS) provider, and continuing to update and virtualize their own data center infrastructure and develop an internal cloud.
And this seemingly hodge-podge description for the data center of the future isn't a collection of strategies across several different companies, but within individual organizations.
Premier Inc., a 1,500-employee provider of health care data to a member network of 2,600 health care system providers and 400,000 doctors, keeps patient related information in one of its two data centers, one of which it physically owns and rebuilt last year, and that is virtualized to the hilt. The other data center facility is a rented, caged space for DR that only Premier IT employees enter at a hosting facility. Not-so-sensitive data, such as HR and payroll systems, have made their way to a SaaS provider, although Premier CIO and senior vice president Joseph Pleasant still has his staff manage these applications.
Does Pleasant believe that Premier patient data will ever end up in a public cloud? Probably not, but never say "never." "If the security improves in hosted data centers … I think that's when organizations will begin to do a cost evaluation as to whether or not it's cost effective to have their own data center," he said.
Data center facility economics: The tipping point
If he were involved in building a startup, Cliff Olson "would go completely cloud" because of the low overhead costs. "You may pay a little more per month, but you're eliminating a lot of [infrastructure management] headaches," said the director of infrastructure systems at FP International Inc.
But when you hit the midsize to large organization range with thousands of employees, the math isn't as appealing. "If you pay a monthly service fee to a cloud provider for the data needs of 10,000 or more employees, that is more expensive than the capital outlay for the infrastructure and staff to manage it yourself. Even when you factor in the operating staff costs and the depreciation of the hardware, it would still cost less than it would on an annual basis in the cloud," said Olson, whose Fremont, Calif.,-based packaging company has 500 employees and locations in the U.S. and Europe.
If the security improves in hosted data centers … I think that's when organizations will begin to do a cost evaluation as to whether or not it's cost effective to have their own data center.
Joseph Pleasant, CIO and senior vice president, Premier Inc.
Cost factors may be out the window with the bring your own device (BYOD) movement, which is forcing CIOs to be more platform-agnostic. "Users demand the ability to use any device they want to access everything they have, which creates a lot of technology challenges for IT to enable, staff and manage that -- you'll have to go to the cloud to balance it out," Olson said.
Right now, it's cheaper for a global 50 or 100 company to own their own data center facilities, but that may not last as long as they think, said Andrew Horne, managing director at business and IT strategy firm Corporate Executive Board (CEB), in Washington, D.C. "We are seeing very large companies looking at cloud strategies because they are not just assuming that 'the cloud is not for us because we're so big,'" he said.
According to Horne, two things will happen within the next two years that will tip even the largest of companies to the cloud in some way: Public cloud security and privacy flaws will diminish and the economics will become more appealing as cloud providers grow.
This comes from data center infrastructure managers and directors spoken to by CEB, who are "pretty bullish on how quickly some of those [flaws] will be resolved and how the economics will change," Horne said.
In terms of economics, the scale that cloud providers will achieve will outstrip what even the largest of companies can do themselves as cloud providers get more customers and technology continues to get cheaper. Cloud providers can build out and take advantage of these cost advantages more quickly and they have more flexibility as to where they can build data centers in locations with lower power and labor costs, Horne said.
The many flavors of hybrid data centers
Joe Perret, vice president of systems and technology at Elkridge, Md.-based Bell Nursery, would have "never predicted" a move to the cloud if asked two years ago. He just finished an on-premises Microsoft Exchange migration to Microsoft's Office 365.
What changed his mind? "The Microsofts of the world that have these data center facilities are making it efficient enough that buying space in them is cost-effective," he said.
Wendell Thomas, director of IS and IT infrastructure operations for Safe Horizon Inc., calls this a hybrid approach and believes that it is where most midsize to large companies will land with their data center facility strategies. The New York-based victim advocacy agency's 700 employees access email from a cloud provider.
"I see multiple flavors of hybrid solutions where a company may host email and other commodity services in the cloud, keep more critical services like telecom on an internal cloud or data center, and keep their primary data center, but put a redundant data center in the cloud," he said.
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