Consolidation, Virtualization Higher Priority Than Move to Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
REPORT
October 6, 2011 Companies: AMZN, BBBB, CRM, EQIX, GOOG, INTC, MSFT, RAX, VZ
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Reverdy Johnson, [email protected], 415.364.3782
Adam Lesser, [email protected], 310.500.0833
Summary of Findings
Data center consolidation and virtualization are higher priorities
than outsourcing infrastructure among enterprise and government.
After IT staff have prioritized internal infrastructure cleanup, they
will evaluate whether to move to the cloud and which systems to
move. Cost, security, reliability and control will be key in evaluating
whether to enter the cloud.
Wide-scale shifts to the cloud are not taking place. Cloud services
are growing faster among SMBs.
Enterprise and government agencies are focused on software as a
service (SaaS) rather than infrastructure as a service (IaaS). They
are interested in hosting low-risk, discrete software applications
such as CRM or e-mail in the cloud.
Companies are developing hybrid solutions to keep data and highly
integrated systems in-house.
Other items of interest:
One-fourth of sources said the cloud does not save as much
money as originally thought.
Some government agencies are beginning to specialize in
offering cloud-based services to other agencies.
Government consolidation of legacy applications is proving
more difficult than expected.
An opportunity exists in the analysis of ―big data‖ in the cloud.
Consolidation,
Virtualization
Priority Over
Cloud
Security
Largest
Concern in
Move to Cloud
Private Cloud,
Hybrid
Solutions
Gaining Steam
Enterprise IT
Personnel
Government IT
Personnel
Data Center
Operators
Industry
Specialists
Software/Service
Providers N/A
Hardware
Manufacturers N/A N/A
Research Question:
How much of the crop of data centers will be outsourced over time, and what is the
timing of this trend?
Silo Summaries 1) ENTERPRISE IT PERSONNEL These three sources are engaged in virtualization
projects as they consolidate data centers. They are
beginning to evaluate a move to the cloud but will not
make decisions for the next six to 12 months. In two
sources‘ firms, management is pushing for a move to
the cloud but their IT departments are more cautious
and pushing for a more thorough evaluation.
2) GOVERNMENT IT PERSONNEL Three sources have given virtualization projects top
priority and expect to complete them in one to two
years; after this, sources will evaluate cloud services.
Government agencies are hesitant to proceed into the
cloud, especially the public cloud, because of security
risks, loss of control, staffing uncertainties, and a lack
of transparency in cost structure.
3) DATA CENTER OPERATORS Three sources said data centers hold distinct
advantages that keep companies from migrating to the
cloud—primarily the ability to ensure more control and
security. Enterprises will operate their own data centers
onsite or in colocation facilities wherein they retain
ownership of the servers, or opt for private cloud
services with enhanced encryption and security.
4) INDUSTRY SPECIALISTS Two of three sources said the cloud is about to see
significant adoption, but a third source said migration to
the cloud will be slower than expected. Security remains
a chief stumbling block to cloud migration, and
reliability has become equally, if not more, important.
Outages within Amazon and Dropbox prompted firms to
consider a more hybrid approach.
5) SOFTWARE/SERVICE PROVIDERS These four sources said a move to the cloud is a
tremendous advantage for small companies looking for
cost savings and increased reach. Cloud adoption
provides a better return than a data center or
virtualization. Data ownership and reliability are larger
concerns than security.
6) HARDWARE MANUFACTURERS One said the cloud is the fastest growing segment of his
business. The other said larger companies are better off
using in-house systems or data centers because the
cloud can become too expensive.
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
2
Background
Although the move to cloud services, particularly among small and midsize businesses (SMBs), has been steady, questions
remain regarding the adoption rate among large enterprise companies and the government, which have control and security
concerns about the cloud.
CURRENT RESEARCH This report aims to determine whether enterprises will run their own data centers or move to the cloud, and how quickly they
move toward adoption. Blueshift employed its pattern mining approach to establish and interview sources in seven
independent silos:
1) Enterprise IT personnel (3)
2) Government IT personnel (3)
3) Data center operators (3)
4) Industry specialists (3)
5) Software/service providers (4)
6) Hardware manufacturers (2)
7) Secondary sources (8)
Blueshift interviewed 18 primary sources and included eight of the most relevant secondary sources focused on a shift to
private or hybrid cloud, security as the top challenge to the government‘s cloud implementation, Amazon.com Inc. (AMZN)
adding encryption to its cloud offering, budget cuts threatening to slow the federal cloud transition, and expansion of data
centers worldwide.
Silos
1) ENTERPRISE IT PERSONNEL These three sources currently are engaged in virtualization projects as they consolidate data centers. They are beginning to
evaluate a move to the cloud but will not make decisions for the next six to 12 months. A move away from data centers is
helping to improve efficiency and use of resources. Concerns regarding the cloud include security, unpredictability of cost,
loss of control, and a lack of support. For this reason, one source expects to move to a private cloud, and another will only
move e-mail, disaster recovery and Web hosting to the cloud. In two sources‘ firms, management is pushing for a move to the
cloud but their IT departments are more cautious and pushing for a more thorough evaluation.
Infrastructure manager for a national nonprofit association
This source is evaluating cloud services for disaster recovery, Web site hosting
and e-mail archiving. He will test outsourced e-mail archiving with Google Inc.
(GOOG) next month, but will not outsource anything tied to the association‘s
member data. The unknown that comes with the acquisition or dissolution of a
cloud provider is a concern. This source sees his organization maintaining a
hybrid cloud system, hosting some data and applications in-house. Lack of
resources, staffing and cost are all motivators for moving a data center into the
cloud. Outsourcing also allows firms to roll out new features and services more
quickly. Many cloud service providers do not appear to offer insurance against
security failures, and will not be held liable for any data breach. Still, a cloud
provider could deliver security and control that is superior to an internal
department, but this goes against many people‘s perception of the cloud.
―For a long time we‘re going to have a hybrid cloud environment. We‘re
building a private cloud in the data center right now using virtualization
technology. Then we‘re starting to leverage the public cloud. We‘re
going to be in that mode for a long time, where there are some
For a long time we‘re going to
have a hybrid cloud
environment. We‘re building a
private cloud in the data center
right now using virtualization
technology. Then we‘re starting
to leverage the public cloud.
We‘re going to be in that mode
for a long time.
Infrastructure Manager
National Nonprofit Association
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
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services that we need or want to provide out of our private cloud, and there are some services that have been
commoditized and are perfect fits for the public cloud. And the trick is going to be to tie them together.‖
―Cloud services are making disaster recovery possible for the first time for a lot of organizations, possibly
because it‘s now cheap enough to do. In the past you had to build a second data center for yourself, which is
very expensive. Now you can simply leverage the resources that are in the cloud to do a lot of that disaster
recovery.‖
―We‘ve completed an RFP process, and we‘re in final negotiations with a company that is a cloud-provided
disaster recovery facility. By outsourcing disaster recovery to the cloud, we can spend substantially less and
have a running disaster recovery facility ready to take over almost instantly in the event of a disaster, for maybe
half or less of what we were paying before.‖
―We get more and more requests for IT to deliver things, and it‘s become almost impossible to keep up with
providing enough infrastructure fast enough to keep the customer happy. In a cloud environment, we‘re able to
deliver these servers and infrastructure much more quickly.‖
―One of the first things we‘ll likely move to the cloud is something like e-mail archiving. There are some security
concerns, but a lot of e-mail traverses the Internet anyway. We‘re
looking at Google for this.‖
―I have a single engineer who understands the storage environment,
and he‘s already at retirement age. When he goes, I have no idea what
I‘m going to do. That‘s why we start to look seriously at hosted storage,
for example. If I don‘t have to worry about a storage engineer and we‘re
simply using Google storage or Amazon storage, that‘s a safety net for
me and it may be the only way that I can continue to deploy more
storage.‖
―We‘re going to test some of Google‘s services within the next month,
and that could lead quickly to Google doing our e-mail archives. Longer
term, e-mail itself is ripe for moving into the cloud.‖
―We already have servers at Rackspace [Hosting Inc./RAX] for mainly
Web sites—Web sites that don‘t have integral ties to private data.‖
―Amazon has a terrible reputation for customer support. I decided to
spend extra money to use Rackspace.‖
―When I go to conferences and they poll the group on how many people
are moving core databases into the cloud, there are still a lot security concerns and loss of control concerns,
and people just aren‘t doing it. … They‘re moving certain things to the cloud, like e-mail archiving, but when you
talk about those core or private databases, they‘re not doing that yet.‖
―Some of the security concerns about the cloud may be overblown. In terms of relative risk, what I‘m hearing is
that we may actually be more insecure here in our building than some of the better hosting providers would be.
So it‘s kind of a question of relative risk.‖
―As we experiment with more cloud service providers, what we‘re finding is they have very limited liability
coverage in the event of a data breach, and that‘s definitely slowing us down in our move to the cloud. We don‘t
want to end up on the front page of The New York Times as losing a million records of member data.‖
―What happens if a cloud provider gets bought or goes out of business? How do you get your data back? Or let‘s
say you want to move cloud providers. Do they completely delete all your data when you tell them to? Is it easy
to remove it from the cloud and get it to another provider?‖
―[Cloud service providers] are not hand-holding you the way IT would, so when something goes wrong, they say,
‗There‘s not a lot we can do for you. You‘re responsible for the application. You‘re responsible for making sure
everything works on top of the infrastructure we provided you.‘‖
―If you do the math over three to five years, we‘re providing storage for our organization cheaper in-house than
we could buy externally, but we may be fooling ourselves a little bit too. It‘s very hard for us to add in the staffing
resources required to keep that storage upgraded and managed and flexible. That‘s why I think paying the
premium for something like e-mail archiving is going to be OK because that storage is going to be automatically
upgraded for the same cost per month that we‘re always paying. And then they‘ll add things like the application
acceleration for the same monthly price.‖
―I‘m very eager to get to a model where we can start to charge back as well. Right now a lot of demand on IT
resources is uncontrolled because they appear free to the developers and the users. They know how cheap
There are still a lot security
concerns and loss of control
concerns, and people just
aren‘t doing it. … They‘re
moving certain things to the
cloud, like e-mail archiving, but
when you talk about those core
or private databases, they‘re
not doing that yet.
Infrastructure Manager
National Nonprofit Association
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
4
Google storage is, and they know they can have their Google e-mail box and it looks practically unlimited to
them, and they wonder why IT can‘t deliver the same things as cheaply. The costs aren‘t visible to the users, but
if we can start charging back to the developers who want eight servers for a Web site, they might think a little bit
more about it and be a little more conservative in their requests. They‘re used to paying for other things. They‘re
OK with paying Rackspace a monthly fee. Why can‘t they pay us a monthly fee for their servers?‖
―We‘re always resource-starved. We‘re slow to introduce new things to customers. The danger is IT looking
unresponsive to our customers. If we can‘t update our systems as quickly as they see things get upgraded
online, we don‘t look like we‘re doing our jobs.‖
Director of infrastructure for a midsize publishing company
The organization completed a major virtualization project in December 2010, during which the company-owned and -
operated data center with a footprint of 10,000 square feet was moved to a single rack in a colocation facility owned by
another party. Outsourcing holds many potential benefits for this company, including cost savings, faster time-to-market
with new applications, and availability of on-demand resources. Management wants to move operations to the cloud
quickly. However, the IT department is more hesitant because the existing investment has not yet depreciated. Other
roadblocks include the risk of change, the unpredictability of cost and support, and the loss of control. In the near term,
the source believes the company will move to Salesforce.com Inc. (CRM) as a hosted customer relationship management
(CRM) platform to save on its current, expensive private cloud. The company also will consider outsourcing the
infrastructure for some of its smaller e-commerce sites during the next 18 months. Beyond that, it may consider moving
from its current enterprise licensing deal for Microsoft Corp.‘s (MSFT) Office software to the Office 365 service suite.
―Cost is motivating discussion about public cloud [services], but right now it‘s just been discussions. A lot of it
comes down to timing. We need to find a balance between support and flexibility and at the same time [find]
cost savings.‖
―CRM will be cheaper in the cloud. Currently, we run SAP
[AG/ETR:SAP/SAP] in a private cloud, and the cost is enormous.
Salesforce has a platform as a service [PaaS], and the time-to-
implement is very attractive. The multiple integration points and
flexibility are things we‘re also looking forward to. For example, we have
a cloud-based phone system that we implemented, and they integrate
with Salesforce out of the box. It tracks not only when we talked to a
customer but how long we talked to them. It adds value to that data. [It]
gives us the advantage without the cost and without the risk of trying to
implement that ourselves.‖
―The benefits [to outsourcing Web publishing] include time to market
and on-demand resources. It‘s been a problem to scale up quickly
without requiring a lot of engineering. It really depends how far up the
stack you go on a Web publishing system in how much that will be
reduced. Right now it‘s a big unknown.‖
―I worked at a public company before this and they had to be SOX-compliant, so we had all kinds of security
things. That sense is not here. It‘s hard to worry about your shoes if your hair‘s on fire. We haven‘t gotten to a
point where we can worry about security when we‘re worried about making our servers work. It‘s not really part
of the discussion, but I think the mentality is that [cloud] providers have customers who require a lot more
security than we do. They already far exceed our requirements.‖
―Reasons we would decide not to outsource include an existing investment that hasn‘t been depreciated yet and
the normal risk of change, with the possibility of there not being any realized benefits at the end. Also … we
believe we can do things as well if not better than anyone else.‖
―We are concerned about the level of support we would receive putting all our eggs in a basket. There‘s a risk of
the costs not being as predictable as we thought and the risk of actually spending more money.‖
―You have to pay more to get more support. Look at Google e-mail. The more expensive the offering, you have
more support. It‘s a concern for me because regardless of the agreement that we have with the company,
people are going to look to me when things are down. I can only say I‘m going to call them again so many times.
At some point it‘s important to me that I cover my own responsibilities because people are going to look to me to
have it fixed.‖
Cost is motivating discussion
about public cloud [services],
but right now it‘s just been
discussions. A lot of it comes
down to timing. We need to find
a balance between support and
flexibility and at the same time
[find] cost savings.
Director of Infrastructure
Midsize Publishing Company
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
5
―Availability‘s also a concern to me. Microsoft‘s had a number of
outages. They‘re not critical, but they‘re not the 99.9% that a lot of
people strive for.‖
―Upper management is pushing more because they believe in the
savings. And middle management and the worker bees are more
hesitant because they know they‘ll still have to be responsible and
there might not be the savings.‖
―We‘ll go to Salesforce probably in 90 to 120 days.‖
―Outsourcing e-commerce sites will probably be more like 18 months.‖
―The only other one we‘d consider outsourcing soon would be Office
365 because although we have a substantial investment in Microsoft
Office, we have an enterprise account and they‘d honor that
agreement.‖
Systems engineer for a global broadband satellite systems supplier
This source is deployed on a virtualization project to consolidate the company‘s four data centers. He cites greater
efficiency of space and resources and greater ease of use as the primary reasons for consolidation. Virtualization started
within the last year, and the project has no end date of yet. For every existing system that is virtualized, the company is
building up to four new ones in the virtualized environment. He has begun to hear discussions around potential cloud
opportunities, and expects discussions to progress further in the next six to eight months, with serious consideration
given to migrating to a private cloud at that point. The company is unlikely to use public cloud services because of
availability concerns and fear of a loss of control. As a service provider, the company does not want to be reliant on
someone else‘s infrastructure to maintain performance levels. Data security is less of an issue, but the source reported a
major emphasis on PCI and SOX compliance.
―We just started with our first round of PCI systems that have been virtualized. Before that, it was moving
internal stuff.‖
―Our data centers are a couple thousand square feet. We have a four-rack layout with eight or nine servers per
rack, give or take. We took all four of them down and compressed them into four servers.‖
―Right now, the virtualization project hasn‘t happened on a widespread
scale. We really just started this less than a year ago.‖
―People talk about the money saved. It‘s not actually that big a deal.
Servers aren‘t that expensive. It‘s resources [that are] really what‘s
pushing us as a company.‖
―You‘re not just talking about power. You‘re talking about the amount
of cooling that needs to be done in there, the cables that you save,
physical rack space, the man power that you save. It‘s really hard to
put a price on it.‖
―There really is no end date [for virtualization]. Every system that we
virtualize, we‘re building one, two, three, four new systems in the
virtual environment. It‘s a constant evolution.‖
―There‘ve been some rumors from higher up that they want us to start
looking into cloud. If we did, we would do it internally. It would be us
hosting it.‖
―It‘s going to come down to cost efficiency, resource efficiency. It‘s
going to be a numbers game in the end.‖
―We house our own systems, we [maintain] our own systems, and anything we can do in-house, we like to. If I
put something out there on somebody else‘s cloud, I don‘t have any control over the back end. If something
goes down, I‘m at somebody else‘s mercy.‖
―One of the questions that came up was could you house a PCI system on a non-PCI host? A security expert said
it‘s not good enough to have the operating system locked down. The host behind it also has to be PCI-
compliant.‖
Upper management is pushing
more because they believe in
the savings. And middle
management and the worker
bees are more hesitant
because they know they‘ll still
have to be responsible and
there might not be the savings.
Director of Infrastructure
Midsize Publishing Company
We house our own systems, we
[maintain] our own systems,
and anything we can do in-
house, we like to. If I put
something out there on
somebody else‘s cloud, I don‘t
have any control over the back
end. If something goes down,
I‘m at somebody else‘s mercy.
Systems Engineer
Broadband Satellite Systems Supplier
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
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2) GOVERNMENT IT PERSONNEL Three sources have given virtualization projects top priority and expect to complete them in one to two years; after this,
sources will evaluate cloud services. Efficiency, cost predictability, and agility are attractive elements of the cloud. However,
government agencies are hesitant to proceed into the cloud, especially the public cloud, because of security risks, loss of
control, staffing uncertainties, and a lack of transparency in cost structure. One source‘s agency would rather follow than lead
others into the cloud. Another said the initial emphasis on the cloud will be on nonessential applications and that the agency
will not outsource items heavily integrated with other parts of the IT infrastructure.
Chief enterprise architect and director of network operations for the legislative branch of a federal organization
The agency is very interested in investigating outsourcing opportunities in the future, but the immediate priority is an
initiative to consolidate infrastructure and virtualize application systems. That process is expected to take at least two
years. Improved operational efficiency, greater cost predictability and a desire to be more agile in introducing application
functionality are attractive features of moving to a cloud model. Challenges include a need for security, fear of the
unknown, and fear of losing control over how IT is staffed. This agency does not want to be a trailblazer because it lacks
the resources, and would rather look to its government peers to develop an approach to data center outsourcing and
cloud migration. In fact, the agency would consider leasing resources from another government organization that was
able to set up a robust private cloud and its own outsourcing model. This scenario fits with a paradigm of government IT
resource pooling that has developed over the last seven to 10 years. When the agency does start migrating systems to
the cloud, it likely will start with nonintegrated systems like application-specific infrastructure. E-mail would be a good
candidate except the agency‘s e-mail is heavily integrated with its documentation management system. The agency has
500 servers in its main data center, with 100 servers in a back-up center elsewhere.
―We currently are in the middle of upgrading our storage infrastructure in preparation for implementing
virtualization. Once we can get the consolidated storage platform and the basic infrastructure in place for
virtualization, we think we‘ll be ready to embrace a lot of the private and public cloud offerings that a lot of the
vendors are talking to us about.‖
―We‘re looking to be able to reduce the cost of the basic IT infrastructure that we use to support applications
and services. We‘re also looking to embrace things like virtualization so that we can be a lot more agile. And
make the time period from request to actual deployment of an application or service much faster.‖
―Our focus is to reduce costs, increase the infrastructure resource efficiencies, look at ways we can enhance our
business continuity capability, improve the storage efficiency. We also want to increase our data center
flexibility. Once we move into a virtualized environment and we have a repository for our storage, we may even
be able to have it outsourced in a public or private cloud somewhere and even save some money over having
our own data center.‖
―It‘s going to take us at least another year to finish the SAN [storage area network] migration and data
consolidation and to stand up the virtualized infrastructure, and then another year to actually complete the
migration of those applications on to the consolidated architecture.‖
―Some of the nonintegrated or stand-alone applications like e-mail are the low-hanging fruit that a lot of
organizations can take advantage of. Unfortunately for us, our mail system is heavily integrated with our
document management system and several of our back-end systems.‖
―Right now the opportunities are more application-specific than they
are data center systems.‖
―We‘re anticipating the budgets getting worse, so we have to figure out
how to operate not only in the budget we‘re going to have in the next
six months but possibly even less in the future.‖
―We‘ve never done chargebacks here, but cost attributions could be
the benefit of outsourcing.‖
―We‘ve been able to do the refresh on the infrastructure that we own,
or lease to own, every few years. With the budget reality that we‘re
facing, financially we‘re not going to be able to do this refresh.‖
―If you‘ve got mobility as your basic premise, then not having an
infrastructure that you control in-house becomes more realistic as a
model. We are becoming much less bound to the physical building in
that our workforce is becoming more mobile.‖
We‘re in a big gray area right
now because there are
mandates to move to the cloud,
but nobody has ever really
offered a fully integrated
offering that addresses all
these issues.
Chief Enterprise Architect
Legislative Branch of a Federal
Organization
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
7
―We want to be agile enough to support it from anywhere and be able to get to it any time using anything. We‘re
actually looking at, from a hardware resource perspective, not just the data center but the ubiquity of all these
smartphones and smart devices, and that‘s something we can‘t ignore. We have to make sure we have the
capability to support a global workforce with a connection from a multiple set of devices, under multiple
networking platforms.‖
―Our biggest challenge, other than funding, is actually getting the resources to maintain the current operations,
plus preparing ourselves for the new environment.‖
―We‘re in a big gray area right now because there are mandates to move to the cloud, but nobody has ever really
offered a fully integrated offering that addresses all these issues.‖
―We‘re never on the cutting edge here. We‘re not big enough. We want to take advantage of what‘s actually
worked elsewhere.‖
―We‘re looking at what some of the other agencies are doing. … We‘re looking to be more of a follower as other
agencies find that they‘re actually viable and secure options for us.‖
―There are some government organizations that actually provide outsourced cloud solutions. They have their
own infrastructure. We just dial in and pay them a yearly bill to use it. That‘s for software as a service. It‘s
something that we‘re already doing, and it‘s given us an awareness that it‘s taken a long time for those
organizations to be ready to be service providers.‖
―There are government agencies that are service providers, and they have their own private clouds that they
provide those services on. They already have this in their physical infrastructure, with all the security
requirements, certifications and accreditations on their systems.‖
―We follow the model of one app, one server. What we‘re looking to do with virtualization technology is to reduce
that at least initially to a 15:1 ratio. We consider that a considerable savings on just hardware maintenance. But
we know that we‘re going to be able to reduce our electricity bill for cooling and power as well.‖
―We‘re trying to collaborate with a lot of our federal peers. We‘ve been doing a lot of research on our own. We
recently got back an RFI from a considerable number of market leaders to help us come up with a more codified
approach to what we think we need to do and where we‘re going. We‘re hoping we‘ll have a better sense of
what‘s a realistic game plan for us in the next four or five months.‖
―The biggest challenge is battling this new infrastructure environment, learning how to monitor and report on the
performance, availability, reliability of those systems so that we can ensure we‘re not jumping into the fire.‖
―It‘s fear of the unknown. And it‘s also the fear that we don‘t lose control of the staffing to do that work. There
needs to be incredible assurance that data is protected. We‘ve got a very complex environment that‘s taken
many, many years to accumulate.‖
CIO for a large metro-area public school system with 250 supported locations
The IT department has been proactive about examining outsourcing opportunities but still maintains most systems in-
house, primarily because outsourcing offers no apparent cost advantage. In-house infrastructure includes one main data
center, with a second data center for backup and recovery needs and a local high-speed fiber network. Some
applications, like e-mail, are virtualized within the main data center, and the department is in the process of transitioning
local file systems at school locations to virtual machines. That initiative is about 50% complete. Two systems already
reside in the cloud: Blackboard Inc. (BBBB), a hosted learning management application, and Google Apps for Education.
The Blackboard app is delivered on an annual subscription-fee model. The Google Apps system is free and was part of a
Google pilot project. Neither outsourced system required any kind of migration. The IT department will continue to
monitor outsourcing options, and will consider moving systems into the cloud in the future if the economics change. The
source is less likely to consider outsourcing systems that are heavily integrated
with other parts of the existing IT infrastructure. The source also voiced
concerns about moving systems to a public cloud, primarily the loss of control
over maintenance and upgrade cycles.
―We handle internally our student information system, keeping track of
all our kids and demographics, our testing application, a library system
application, our transportation system, and all those are integrated
with each other.‖
―We did have our testing application on the public cloud, and we ended
up bringing it in-house because it was cheaper for us.‖
―It comes down to a cost benefit. If it‘s cheaper to put it in the public
We did have our testing
application on the public cloud,
and we ended up bringing it in-
house because it was cheaper
for us.
CIO, Metro-area Public School System
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
8
cloud, we‘re happy to do that. And if it‘s cheaper to do in-house, we‘ll do it in-house.‖
―It‘s easier to have some of our student information systems close by because you‘re doing your own version
upgrades, and things that you would have to pay for somebody else to do in an external data center.‖
―It‘s also having control over when you want to do these upgrades. … If Google Apps decides to do a major
upgrade, we‘re totally at their mercy as to when they‘re going to do that. When you have things in your own
environment, you have a little more control over the timing and whether or not you want to take an upgrade of a
particular application.‖
―We have a very high-quality staff. We‘ve been utilizing for many years
ITIL [Information Technology Infrastructure Library], and we have a very
robust staff infrastructure on how we manage upgrades. We‘re lean
and mean, but we invest a lot in our people to make sure they‘re up to
date and can handle upgrades of various systems. They really are
cross-trained so they can do a lot of these things in-house.‖
―We use Google Apps for Education, which is protected within a secure
environment so it meets federal security requirements like FERPA
[Family Educational Rights & Privacy Act].‖
―We wanted to make sure that people external to the school system
would not be able to access our student files. Because if it‘s in the
cloud, it‘s not within our own firewall, and we wanted to make sure we could protect that, and have assurances
from Google.‖
―We do security from a technical perspective, but we also handle security with contracts. Even though Google
Apps is free, we have a written, signed contract for the Google Apps applications, which includes all of our
security requirements that meet, for example, FERPA. That‘s something that took a while to work through, and is
one of the reasons we didn‘t go to Google Apps earlier.‖
―We utilize a product called Blackboard. We have our own private access to their system, so we do utilize them
as an ASP [application service provider] model, so our systems are on their data centers.‖
―If it‘s cheaper to do in-house, we‘ll do it in-house, and if it‘s cheaper to outsource, we‘ll do it outsourced. So we
do have a combination of the two, and we probably always will. By having that combination, we keep our
vendors pencil-sharp, and you do your best to keep your costs down.‖
―A lot of this market is somewhat in flux. For things like Office applications, we‘re able to put that in the internal
cloud, which makes it easier to move it to a public cloud later. For things that are operational that we have to
manage and run, like our student information system, we like having that in-house.‖
―We kind of like having a mix of virtualized and nonvirtualized applications, and internal and outsourced
applications, but we will continue to monitor the industry. Hardware and storage keep getting cheaper, but so
does the competitive analysis of the public cloud. It‘s a trade-off, and we have to keep our eyes out. It‘s a lot of
work to move from one to the other. Once you have everything consolidated, then it is easier to outsource.‖
Government technology consultant for a large IT services and systems
integration company
This source works with civilian government agencies, and has experience with a
wide variety of agencies. As a general trend, the source sees government
agencies consolidating their data centers and moving to virtualization, but not
all of them have virtualized yet. Plenty of physical hardware and inefficient use
of computing resources still exists. Government agencies are exploring cloud
services primarily for cost savings and to simplify operations. Concerns center
around security, performance and control. Another big challenge for government
agencies is understanding cloud pricing and the services that need to be
bundled with outsourced infrastructure to meet operational needs. The top
candidates for cloud-based services are applications that are heavily
commoditized like e-mail and document suites. The source expects more
agencies to have at least one or two hosted apps in the cloud in a year.
―A big part of moving to the cloud is the cost savings. Also, once you get
to a hosted solution, you don‘t have to worry about uptime and things
When you have things in your
own environment, you have a
little more control over the
timing and whether or not you
want to take an upgrade of a
particular application.
CIO, Metro-area Public School System
You go to Amazon, for example,
and get their EC2 pricing and
you need the server,
connection, bandwidth, then a
special VPN, then certification
and accreditation. It might still
be cheaper than hosting
internally but maybe not much
cheaper.
Government Technology Consultant,
IT Services & Systems Integration Co.
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
9
like that. You have the SLA [service level agreement] versus internally having to do that yourself.‖
―Security is No. 1. Performance and access are probably No. 2. If you have an SLA and you want fast page load
times, you‘re not directly connected anymore. These are all things you can overcome, but they may not be things
people think about.‖
―I don‘t think [government agencies] understood what moving to the cloud meant. Moving offsite means I don‘t
have a direct connection to my servers anymore. You have to pay for that. And then there‘s security
requirements which complicates where you put things and how you handle it. It‘s not going to be as cheap as
you think.‖
―You go to Amazon, for example, and get their EC2 pricing and you need the server, connection, bandwidth, then
a special VPN, then certification and accreditation. It might still be cheaper than hosting internally but maybe
not much cheaper.‖
―[Providers] have to make it simple to pay for. With Amazon, their
pricing model is crazy. It‘s very difficult to figure out what it‘s actually
going to cost.‖
―Now Amazon actually has a government cloud offering that meets
certain security requirements, which was not the case a year ago.
[Verizon‘s] Terremark is another one. They can do classified data.‖
―E-mail is the most commoditized. That stuff seems to be good for
outsourcing, like Office 365 and Google Apps.‖
―Custom apps I would see coming later, and obviously the secure stuff I
see coming later, if ever.‖
―I‘m working with one agency now where we‘re going to be moving
them into one of our data centers. Another one is struggling with
pricing and figuring out how to price it, and budget for it.‖
―Another one moved into another private government-based cloud. It was relatively new. They did not get the
performance they wanted, the capacity they needed. It‘s different from a public cloud model. With Amazon you
can just give a credit card and buy service. We need to get to that in the government private-cloud space.‖
―In a year, outsourced hosted applications will be much more common than now. There will be more assurance
for security. Agencies won‘t have to do as much work.‖
3) DATA CENTER OPERATORS These three sources said data centers hold distinct advantages that keep companies from migrating to the cloud—primarily
the ability to ensure more control and security. SMBs have been quicker than enterprises to move to the cloud. One source
said Amazon‘s Elastic Compute Cloud (EC2) and Rackspace Hosting Inc. (RAX) lack a failover mechanism that data centers
possess. Enterprises will operate their own data centers onsite or in colocation facilities wherein they retain ownership of the
servers, or opt for private cloud services with enhanced encryption and security. Another source said the cost advantage
associated with the cloud disappears when the necessary customization is taken into account.
Senior infrastructure engineer for a large SaaS organization with managed hosting services
Approximately 15% to 20% of this company‘s customer base have chosen to purchase managed hosting. That
percentage has gone up but only slightly during the last decade. The size of the customer base, however, has risen
steadily in that time. For customers who choose the managed hosting option, the biggest selling point is improved costs;
outsourcing the data center infrastructure is more cost-effective because of the engineering personnel required to
support it. The biggest barrier for customers in choosing to purchase managed hosting is fear of a loss of control.
Customers have expressed some security concerns regarding managed hosting. Although this source‘s company runs a
private cloud, his team has looked at using public cloud services but found that cost advantages disappear once
customization is required. Using the public cloud for computing power might be a better option because it is more
standardized, but this again brings up concern around loss of control. If the advantages were better explained by the
sales team, more customers would choose the managed hosting option.
―I don‘t know if we‘ll actually hit a logarithmic adoption rate in terms of percentage of customers choosing
managed hosting services in the future. There are additional challenges just in our sales team. There are
In a year, outsourced hosted
applications will be much more
common than now. There will
be more assurance for security.
Agencies won‘t have to do as
much work.
Government Technology Consultant,
IT Services & Systems Integration Co.
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
10
specific salespeople who sell managed hosting very well because they understand it and can pitch it. And there
are others who maybe don‘t understand it and don‘t sell it well.‖
―There‘s a lot of effort from our managed hosting business development team trying to make sure that the sales
force is aware of what we do so that they can sell it well. We think we have a very good story to tell, and when
it‘s told well, it sells well.‖
―We‘ll stay in-house for the foreseeable future. At first look everything in the public cloud looks cheap, but once
you start looking at it from a storage perspective, it‘s cheaper and we maintain more control doing it ourselves.‖
―[A public/private cloud] is interesting from a compute standpoint, but not as much from a storage standpoint.
It‘s become a little more commodity to say I need a certain number of CPUs—compute resources from a CPU and
memory perspective. We hear from our server vendors that it‘s a lot more standard across the industry.‖
―Our application is a tool that is meant to be available online 24/7. [Support staff] need the expertise to not only
answer user questions but also recover from database location or data center problems, Internet outages.
―As customers look into what that cost is and what that hassle is, they will hopefully look to somebody to host
the application for them. Per the licensing, [we‘re] the only entity allowed to host.‖
―People who eventually decide to go managed hosting, their decision is all going to come down to cost. Cost is
also availability. When they start to have a little bit of down time, they have issues. And all they hear from [users]
is ‗Why is this down?‘ and ‗It needs to be up.‘‖
―When you turn [an IT system] over to another entity to manage for you, you lack that control. For example, we
have maintenance windows. Any shared resources that we need to do work on, [the customers] don‘t generally
have a say in when we do the work. We try to keep things from being disruptive as much as possible, but it‘s
certainly a factor that you lose control of when you do maintenance, as well as control of your data.‖
―I certainly know companies who don‘t run e-mail servers anymore. They all run through Google or some other
hosted e-mail provider, which is certainly interesting but that big question of control is always out there. I don‘t
know if I would choose to move my corporate e-mail out into a cloud where I don‘t have control.‖
Mike Chase, CTO of dinCloud, a virtual data center/cloud service provider
Midsize companies are gaining momentum in moving to the cloud, using the cost savings to improve technology and
better compete with larger companies. Cloud providers like Amazon and Rackspace offer no advantage in terms of
security and continuity than do in-house data centers because they lack certain features like failover mechanisms. Cloud
providers must partner with secure data centers on the level of Equinix Inc. (EQIX) in order to provide that continuity. A
growing trend will be cloud provider/data center partnerships.
―The midmarket is the one moving to cloud the fastest. The No. 1 driver that pushes people to the cloud is cost,
but one reason they stay out of it is … the perception of security whether it is real or not.‖
―Larger customers tend to put non–mission-critical functions like Web
servers on the cloud.‖
―The midtier companies want to be innovative and get to market faster,
and cloud is a way to do that without spending tens of millions of
dollars in an infrastructure.‖
―Two presumptions are that the cloud is highly available. That‘s
something people presume but don‘t ask when they sign up with a
credit card. The second is that the cloud is secure. The news came out
that Dropbox [Inc.], which people assumed was encrypted and secure,
was neither. It was wide open.‖
―Third-party data centers are accelerating quite a bit because the
economy is variable. Businesses that move to the cloud wouldn‘t be
able to operate otherwise.‖
―A second kind of customer has an infrastructure, which has reached
the end of life, so moving to the cloud is a way to get newer technology
without the capex burden.‖
―A third type is the enterprise guys, who are always trying to save and
make money. They use the cloud as a technology bridge to get to revenue. It gives them a competitive edge and
allows them to do disaster recovery, which would have been cost-prohibitive. Considering the natural disasters
and terrorism threats they‘ve been facing for over five years, that‘s particularly high on their minds.‖
The midmarket is the one
moving to cloud the fastest.
The No. 1 driver that pushes
people to the cloud is cost, but
one reason they stay out of it is
… the perception of security
whether it is real or not. …
Larger customers tend to put
non–mission-critical functions
like Web servers on the cloud.
CTO, Virtual Data Center
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
11
―There was a time when colocation facilities took off, but the market crashed and people went back to doing
their own thing, or a mix. The cloud came in as a next-generation colocation facility because essentially all the
things physical in the data center are virtualized.‖
―Servers and VMware [Inc./VMW] got virtualized; now we‘re able to virtualize desktops and phone systems. So
you have an infrastructure, but you don‘t worry about it. You could be in a Tier 3 data center that is completely
destroyed and fails over instantly to another.‖
―Anyone can host servers with cloud storage. We‘re hosting phone systems, video systems, virtual desktops,
which are the gem of our empire. We‘ve got large companies down to 20-user doctor‘s offices, with their phones,
servers and apps in our cloud.‖
―From a disaster recovery standpoint, if our entire data center were destroyed, we could bring up the data again
anywhere in the world within minutes. We‘re partnered with worldwide data centers, like Equinix with 98 data
centers worldwide.‖
―Amazon and Rackspace say they‘re cloud, but really they‘re just
application hosters and have a lot of customers because they open up
to the Web. We‘ll be doing that shortly.‖
―In reality, the back-end data centers at those companies are archaic;
they‘re not what people think of as a cloud. If it‘s destroyed in site A,
can they go to site B? Amazon didn‘t ‗fail over‘ somewhere else with
last year‘s outage. They‘re just the traditional data center model
extended onto the Web space.‖
―We offer levels of service: cold, warm and hot. Cold is where we back
you up and can restore you to any of our facilities worldwide. Warm, you‘ll pay 1.5 times the fee to be replicated
in real time to another site, 500 or 1000 miles away. Third tier is instant failover in a business where five
minutes costs millions. They pay twice the fee, usually larger companies, because they‘re using twice the
compute and memory resources.‖
―Customers want everything encrypted but want to hold the keys. It will become standard that the cloud‘s
encrypted and we have mechanisms in place where customers hold the keys. Otherwise, some competitor can
sue them to turn over the data and compel us to do that. That‘s bad for customer relations.‖
CEO of a nationwide chain of colocation data centers
Business is picking up from professional customers like law firms and physicians that are reluctant to move into the
public cloud and from midsize businesses that have security concerns with the cloud. Those customers choose private
clouds with colocated servers in a data center. The price point for private clouds favors midsize to larger businesses.
―We‘re not going into the cloud. We‘re staying a dedicated colocation facility. We‘d rather do a private cloud.‖
―Colocation is not cloud computing. The way that I understand ‗cloud,‘ you have to colocate your servers and
infrastructure and data center. At the end of the day you have to have servers colocated in a secure facility for a
data center.‖
―Public cloud services are not as secure as a private cloud. The public
cloud is like Web hosting, where a Web site is shared on dedicated
servers with others, versus having your own dedicated or colocated
server.‖
―It‘s great marketing to say ‗cloud,‘ but my concern is the security.‖
―Security problems aren‘t overblown. As far as our customers are
concerned, they can‘t be secure enough. I‘d rather they be fully
secured rather than get a call at 4 a.m. that a customer has been
hacked. In colocation, nothing is shared; only your customer has
access to those servers.‖
―A private cloud is just as expandable. If you‘re pushing a lot of traffic,
you can build in for extra RAM.‖
―The reason customers come to our data center is that they don‘t want
to maintain their own infrastructure. It‘s cheaper to have your
infrastructure at a data center, and it‘s more secure and redundant.
You may have 10 servers in a room at your company with connectivity
from Verizon [Communications Inc./VZ], where the maximum
Customers want everything
encrypted but want to hold the
keys. It will become standard
that the cloud‘s encrypted.
CTO, Virtual Data Center
Security problems aren‘t
overblown. As far as our
customers are concerned, they
can‘t be secure enough. I‘d
rather they be fully secured
rather than get a call at 4 a.m.
that a customer has been
hacked. In colocation, nothing
is shared; only your customer
has access to those servers.
CEO, Chain of Colocation Data Centers
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
12
connectivity is T1 or T2. But that gives you only the bandwidth that a typical phone company can deliver.‖
―In colocation you‘re in a locked-key cabinet and can come and go as you wish.‖
―The bandwidth at your office may be 10 megabytes, but in a colocation data center you can push gigs of traffic.
At the same time, it‘s a redundant, blended bandwidth. If Verizon is slow, AT&T [Inc./T] and other providers pick
up where Verizon left off, with intelligent routing.‖
―Colocation is secure as well because you can have your servers located on both coasts, with failover between
them, say in the case of a hurricane.‖
―It‘s mostly the bigger companies that have their own IT departments. What Amazon has done is set up this
huge infrastructure of a cloud, comparable to shared Web hosting, so a mom-and-pop business will host with
Amazon along with thousands of other companies. But Amazon doesn‘t have the uptime that we can provide,
which is a reason to colocate.‖
―We‘ve sent customers to Amazon if they‘re very small. We do that case by case. We typically handle midsize
and bigger companies.‖
―We have about 45 government contracts, from the city down to the local level. They colocate for the same
reason a company does.‖
―When a company colocates, it‘s making a choice equivalent to home ownership. Why would you buy a house
with a $5,000 mortgage and maintain the garden, spa and pool if you could rent for $2,000, write it off and
have everything included?‖
―A perfect example is a law firm that came in today. Why would it need all these servers creating heat and noise
at its offices? Slowly, professionals like doctors and hospitals are going to secure and colocated servers.‖
―My own physician tells me he gets calls from people saying ‗We can back up your data securely,‘ but at the end
of the day does that service provider back up to Amazon? The doctor wants a company that specializes in only
HIPAA-compliant data in a private cloud strictly for doctors.‖
―For the typical customer, the cheapest dedicated server is $100. I don‘t know what Amazon does. But the right
service provider can put different doctors or dentists on one dedicated server for $100, charge each of 100
doctors $100, and at the end of the day you‘ve got capability comparable to Amazon but it is more secure and
less vulnerable. If you get hacked with Amazon, good luck getting through to an operator. But if you are a small
company and hired a firm to manage your infrastructure, it‘s your own concierge service.‖
4) INDUSTRY SPECIALISTS Two of three sources said the cloud is about to see significant adoption, but a third source said migration to the cloud will be
slower than expected. A survey shows companies are willing to spend 10% more on the cloud compared with last year, helped
in part by greater awareness of the cloud from non-IT staff. Virtually all large companies will have a presence in the cloud in
the next two to five years. Security remains a chief stumbling block to cloud migration, and reliability has become equally, if
not more, important. Outages within Amazon and Dropbox prompted firms to consider a more hybrid approach. Integration
and ROI also are important in companies‘ decisions to move to the cloud. One source said companies are unclear where their
data sits and fear losing it in the transition to the cloud, which is causing further
delays in the conversion.
Seth Robinson, director of technology analysis for CompTIA
Cloud adoption has increased significantly, and most companies surveyed by
this source‘s association reported being willing to spend at least 10% more year
to year. Adoption is in line with the amount of discussion taking place,
compared with last year when survey results revealed much lower adoption than
expected. Increased awareness by non-IT staff helped spur adoption.
Companies are satisfied with the transition. Still, the cloud is young, and some
companies changed their approach in light of outages from Amazon and
Dropbox earlier this year. Companies will rely on data centers and the cloud
alike until reliability issues are completely resolved. Security is less of a concern
than previously believed.
―We were surprised last year at some of the low rates of adoption,
especially among channel companies. This year‘s data showed a
We were surprised last year at
some of the low rates of
adoption, especially among
channel companies. This year‘s
data showed a significant
increase in adoption and that
brought things more in line with
what we might expect, given all
the discussion about cloud that
is taking place.
Director of Technology Analysis,
CompTIA
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
13
significant increase in adoption and that brought things more in line with what we might expect, given all the
discussion about cloud that is taking place.‖
―We think it‘s growing. This was our second cloud study. We were able to compare some of the data, not only
looking at end users but channel data with the firms assisting companies to the cloud. We‘ve seen the general
perception increase. Even though there are questions of security and reliability, companies are accepting the
cloud as a way to provide better infrastructure. They‘re realizing it‘s not a simple thing to do, but it also opens up
new doors for them. As they continue moving to the cloud, we think they‘ll not only view it as a way to replicate
what they‘ve done before but to expand their operations and have flexibility.‖
―One difference between this year‘s study and last year‘s is that the understanding of the cloud and the
perception of the cloud increased across the board. But if you looked at the IT staff, it was already fairly high last
year. This year, the business staff increased dramatically. You have people outside the IT realm who are seeing
advertising, talking to their peers and understanding what‘s available in the cloud and some of the risk there.
There are some challenges there, but I would feel pretty comfortable translating the data we saw as non-tech
industries are following the same lines of business. They‘re becoming more aware of the capabilities of the
cloud.‖
―Even among the IT staff, they‘ve experimented with it more, they‘re
understanding the issues, and they understand what areas need to be
addressed if we move to the cloud. So yes, I feel that enterprise will
continue to move toward the cloud.‖
―Really in a large part, they were satisfied with the transition. And
we‘ve seen that in a couple different studies. For those who
transitioned to the cloud, they‘ve seen the benefits. On the whole they
seem to be satisfied, which again leads to the rise in positive
perception. The comfort level factor is a big selling point.‖
―We see medium-size companies being the fastest adopters.‖
―Government is moving pretty rapidly too. The government is looking to the cloud as a big cost-saving measure.
The government was looking at shutting down several hundred data centers and utilize cloud computing. That
number has been tethered a bit, but there are still a large number of centers they‘re trying to consolidate.
Obviously, their concerns of security are even greater than enterprise.‖
―You see a lot of e-mail and a lot of storage and backup. I think those are point solutions. One thing that would
be the next level beyond that is to build disaster recovery and business continuity plans. As far as other types of
offerings, software as a service inside the cloud is the most widely used application. Infrastructure as a service
was less widely used. An additional 36% plan to use those in the next year. Those are used primarily for
application development.‖
―The cloud by itself is not any less secure by its nature, but it‘s a little young. And some of the security hasn‘t
been fully developed yet, unlike on-premise security. But I don‘t think security is going to be the big concern.
Reliability is the new one. It‘s different from on-premise. Now you‘re dealing with network connections. Now you
have to make sure your network is up to speed. We see people upgrading.‖
―Our survey showed one in five companies began moving some or all cloud systems back on premises as a
result of Amazon EC2 outage and Dropbox security breach. It‘s not too surprising. It was some or all. Most
people are moving some of their data back. It‘s not a wholesale retreat
from the cloud, but changing what data is in the cloud and what data is
not in the cloud. It‘s more of a movement to a hybrid approach. I don‘t
think it signals a retreat from the cloud but a change in methodology in
using both systems to their strength.‖
―One thing people are doing here, as they‘re doing a mix of cloud and
on-premise, is assessing all the apps and deciding which ones they put
in the cloud and what is the cost benefit. That is a new exercise. When
everything was on premise, it didn‘t matter, other than maybe making
sure your servers had more reliability.‖
―I wouldn‘t say mission critical is not ever going to be in the cloud.
Companies are going to have to decide individually. What they put in
the cloud is going to change over time. A company may not put mission
critical in the cloud today but three to five years from now, they might.
We see medium-size
companies being the fastest
adopters.
Director of Technology Analysis,
CompTIA
Most people are moving some
of their data back. It‘s not a
wholesale retreat from the
cloud, but changing what data
is in the cloud and what data is
not in the cloud. It‘s more of a
movement to a hybrid
approach.
Director of Technology Analysis,
CompTIA
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
14
Another company may never put them in the cloud. I think that will change over time.‖
―A large percentage of companies are going to have some mix. The difficulty is what will that mix look like? Ten
percent in the cloud? A large percentage of companies will have something in the cloud. The cost benefits just
really outweigh any of the issues. Companies will find that mix and the cloud will gain momentum.‖
―Winners and losers are a little difficult to determine right now. Clearly some of the larger companies like
Amazon and IBM [Corp./IBM] are doing well in the cloud space since cloud depends on economies of scale and
these companies have the right infrastructure to be cloud players. Another winner is going to be software
development; the difference between a virtualized data center and a private cloud is the software that is used
either to manage the virtual machines or handle user interface.‖
―The losers are a little harder to figure out. There will definitely be some change; there is the possibility for IT
departments to contract. But our data shows that some IT departments are able to redeploy technicians that no
longer have to perform server work. Management of on-premise data centers will contract, but management of
cloud arrangements will increase. Ultimately, there will be fewer people doing data center operations. The cloud
providers will consolidate, and managing those relationships will not be as significant a task as on-premise data
center management.‖
John Dodge, manager of The Enterprise CIO Forum for CIO magazine
Every large company is looking at the cloud, and many will have a presence within two to five years. Security is not the
biggest concern; rather, companies are closely looking at business integration and financial return. Those with the most
privacy and security issues will be slower to the cloud. This source expects someone to figure out an efficient, successful
way to transition those companies, and everyone will follow out of necessity. Working in the cloud will become automatic
and assumed, especially as early adopters already are moving on to the next big thing.
―They‘re definitely moving to the cloud. There isn‘t an enterprise or
large company that isn‘t looking at it. They‘re doing it initially with
lightweight apps like e-mail, conferencing but not business apps. If they
go down, it isn‘t the prize assets for the most part being put online.‖
―The industries moving to it are the ones with the least regulation, the
lowest number of rules. But there are a lot of concerns. There is a lot of
confusion with the cloud. There are not only technology considerations,
but the basic consideration is how this benefits the business. It has to
have some provable return on investment.‖
―Will the cloud get hacked? And there‘s reliability. Will it go down?
We‘ve seen public clouds go down for extended periods.
―There‘s just a real swirl of issues that make cloud adoption slower,
more hesitant than it otherwise would be. Will I, Mr. CIO, lose
resources? Does it mean I could lose my own job? Will my own job
change radically? But this is the same with the personal computer.‖
―Most enterprises will have a foot in the cloud in a couple of years. I‘d
wonder about a company that wasn‘t moving some of the lightweight
apps.‖
―There are things like the regulatory environment. A lot of these
companies are so afraid of not being in compliance and that will slow the cloud down. But if they had done it
earlier, the cloud would have vetted these earlier. Compliance could be good or bad. You don‘t want this to
happen too fast. But what will it look like in five years? I can‘t imagine that at least 30% to 40% won‘t be in the
cloud in five years, if not two or three.‖
―We did a Q&A with five large-company CIOs. We asked them if security was their biggest concern, and not one
said it was. They talked about how integrating the cloud into their existing environment was very important. They
talked about the value proposition of the cloud and figuring it out. It tells you their thinking has evolved.‖
―Companies have thousands of applications. There are lightweight ones, like CRM, e-mail, conferencing. The
lightweight apps are moving the cloud. There are companies that have standardized on Gmail. That‘s sort of the
first ultimate cloud app. But then your financial trading systems that are highly regulated and highly controlled
have to be behind 12-foot-thick firewalls. I covered a conference recently and nobody really saw the financial
companies going to the cloud. I haven‘t seen much progress. I think they‘ll move later rather than sooner, but I
They‘re definitely moving to the
cloud. There isn‘t an enterprise
or large company that isn‘t
looking at it. They‘re doing it
initially with lightweight apps
like e-mail, conferencing but
not business apps. If they go
down, it isn‘t the prize assets
for the most part being put
online.
Manager of The Enterprise CIO Forum,
CIO magazine
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
15
think they will someday. Somebody is going to do it successfully, and it will be cheaper and more efficient. And
they will have an edge and then everyone will follow.‖
―Government has its own cloud strategy. Federal IT is terrible. … Former U.S. CIO Vivek Kundra, before he left to
go teach at Harvard, mandated the Cloud First strategy and advised the shutdown of 800 data centers. … The
cloud is the next big thing in IT. It‘s about the removal of distraction in your core business. You wouldn‘t want it
to move hugely fast. You want the issues to sort themselves out.‖
―What is going to replace the cloud? ‗Big data‘ is the buzz word. What
are we going to do with the 1.8 zettabytes that will go into the cloud
every year? We have all this unstructured data that has all this
potential. The big IT vendors are saying this is our future. Beyond the
cloud, the cloud becomes automatic. There‘s no cost-effective way to
store all this data yourself.‖
―Big data is massive amounts of unstructured data. Think about all the
tweets, Facebook posts. How do you mine that? How do you find out
about customer sentiment? You can‘t dump it into rows/columns. How
can you glean from it where you can do much more accurate
forecasting and projecting? Typically in healthcare, where they project
expenditures for diseases on the payer side, but on the clinical side, they could glean trends from populations.
How do you exploit this massive amount of mostly unstructured data? Big data is in the cloud. The cloud is the
vessel.‖
―Another thing to watch is consumerization. How do IT departments work when you bring in your iPhone to work?
End users don‘t have to rely on IT anymore or rely so heavily on it. IT was the gate keepers. There‘s another
issue of renegade IT, where people are going outside and around in-house IT. Where do they go? Amazon Web
services. This is very reminiscent of the early days of the PC when people brought PCs in the back door. The
cloud has the same characteristics. I can go to Google, Amazon or any number of vendors. I don‘t need IT. It‘s
not the IT people who make all the decisions anymore. It‘s the people leading the sales team who are saying,
‗I‘ve waited for this forever; now I‘m just going to go ahead and do it.‘ There‘s a certain level of vision that the c-
level suite has. This raises huge issues, not just control, but who owns the data. Is the data secure?‖
Executive for a data center management software company
Outsourcing data centers to the cloud is happening slower than expected because companies risk losing valuable data in
the transition. Security remains an important stumbling block and will lead to only portions of a company‘s data being
outsourced to the cloud. Until companies have better information on how and where their data is stored internally, they
will not move it to the cloud and reap the cost savings, not matter how attractive it may be.
―Security is still a big issue with the cloud. There is a lot of proprietary data that will never be allowed on the
cloud.‖
―Expectations need to be tempered with data centers outsourcing to the cloud.‖
―A lot of these firms don‘t know what data they have, where it is stored and on what servers. They don‘t get the
benefit of outsourcing their data unless they can turn off their servers. But they don‘t know which servers and
data centers are using it.‖
―These companies are very risk-adverse, and they aren‘t going to risk losing information by outsourcing data
centers to the cloud. They first need to get a handle on where the data is, how to outsource it and how to
effectively close down their data centers without losing their information.‖
―It costs $1 million a year to power 100 racks in a data center. And when that server is idle, it still uses 60%
power. Our software helps companies save money on power for their data centers.‖
―Our software helps companies understand what to shut down and what to turn off. To us, the cloud is just
another data center.‖
5) SOFTWARE/SERVICE PROVIDERS These four sources said a move to the cloud is a tremendous advantage for small companies looking for cost savings and
increased reach. Cloud adoption provides a better return than a data center or virtualization. Data ownership and reliability
are larger concerns than security. Sources favor solution providers that manage and use data as the customer directs but
What is going to replace the
cloud? ‗Big data‘ is the buzz
word. What are we going to do
with the 1.8 zettabytes that will
go into the cloud every year?
Manager of The Enterprise CIO Forum,
CIO magazine
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
16
hold no ownership of that data. One source estimates the timing of getting firms on the public cloud to be three to five years.
Amazon emerged as sources‘ favored cloud provider.
CEO of an IT services and cloud integration consultancy
Small and new enterprises prefer to use cloud services rather than a data center, particularly for commodity applications.
Cloud adoption is expected to occur in three to five years. Security is less of a concern for users than is data ownership;
users need assurance of data ownership from cloud providers.
―The movement to the public cloud will continue, provided that the cost benefits continue. New companies, early
adopters and smaller firms with no IT teams will continue to use the public cloud. This will happen over three to
five years like virtualization or other game-changing technologies.‖
―As facility-based data centers age, clients have to choose between
refreshing an older facility or outsourcing the data center function,
many times with a private and public cloud hybrid solution. Further
complicating the situation, many clients have waited to refresh their
servers and other IT equipment and have had staff reductions.‖
―The pace of third-party data center adoption has been steady or
increasing when viewed on an annual basis. Shorter term, adoption
seems to happen in spurts. Typically, clients will explore options and
then wait for a triggering event to make a decision. This could be a
business issue, contract or lease agreement related and the like.‖
―Small businesses are … looking for low-risk and reliable ways of
migrating to the cloud. Cloud is no longer a foreign idea. Those that
have IT staff and are entrenched in the current model are slower to
adopt because it is difficult for them to quickly make a transition. Early
adopters, new companies and smaller firms without at existing IT team
are much more open to the transition.‖
―Commodity and well-understood solutions are typically the first to
move to the cloud. Tier 1 and business-critical systems are kept in-house. This is true with most new
technologies.‖
―The cost savings vary per solution, but it is typically 20% to 30%.‖
―One key issue in deciding whether the move to the cloud is the cost of my cloud or their cloud in the public
versus private cloud debate. The service level from the provider and data ownership are others. ‗Is my
private/hybrid cloud cheaper or is using their cloud more cost-effective? Will they provide and stand behind
service levels?‘ And the legal area of data ownership is still being ferreted out.‖
―Cloud security concerns are overblown. Hackers attack unpatched and misconfigured servers. But there are
concerns around data ownership.‖
―For commodity services, it is easier to justify the economies of scale.‖
CEO and CTO of a cloud-based SaaS solution
The company uses hosted e-mail and code management applications, and offers its own application from the Amazon
cloud. By using the cloud, the company pays 5% of the amount it would have paid had it chosen the colocation or data
center options. The company‘s only concern is outages; the 2010 Amazon outage cost this company significantly in
dollars and customer good will.
―We provide our service through the cloud. All our operations are within the cloud. For a small organization, you
can have a very large infrastructure.‖
―Our options were colocation, where you purchase a bunch of servers and drop them into a data center, or to
build our own data center, or use a cloud service like Amazon‘s, which provides the server and infrastructure
around the server. We never thought of building our own data center. We have no in-house data center at all.
The cost of an in-house data center is astronomical compared to the services Amazon provides like backup,
backup power and network. Everything is redundant and right there and would have cost us millions to build as
a small company.‖
―We looked into Amazon and Rackspace. We just liked the Amazon interface better, and it‘s come a long way
since then. It was also a little less expensive than Rackspace. And Amazon built a tremendous infrastructure to
support millions of transactions per year.‖
The movement to the public
cloud will continue, provided
that the cost benefits continue.
New companies, early adopters
and smaller firms with no IT
teams will continue to use the
public cloud. This will happen
over three to five years like
virtualization or other game-
changing technologies.
CEO, IT Services & Cloud Integration
Consultancy
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
17
―We use Amazon. It scales very quickly, and that‘s a tremendous
benefit to us.‖
―Amazon lets us call up an ‗instance,‘ a virtual server, in about five
minutes and at any time of day. We can even do that dynamically in
peak traffic, where we bring up a server automatically. That‘s not
possible at all with an in-house data center or colocation facility.‖
―We pay, I‘d guess, less than 5% what we would have paid building a
data center.‖
―From a business standpoint, we can run our infrastructure and provide
services to our customers at a lower cost because of the cloud. We‘re
supporting 8 to 10 million API calls a month, and supporting north of
20,000 e-mails a day; we have reports that are self-generating and e-mailed out every day, all out of the cloud
for a nominal cost.‖
―We use the virtual cloud for an e-mail service so we don‘t have to keep an e-mail server in-house, don‘t worry
about managing Microsoft Exchange or people‘s Outlook folders; all that‘s organized by the service provided.‖
―We also have a cloud-based bug repository and source-code control system. So when developers find or fix
issues, they go up to this cloud-based server to check in source code.‖
―We have a series of servers in the Amazon cloud that host all our services. It‘s from them we provide a news
feed for client companies. Those are servers in the traditional sense where we can log in and control those
environments completely. The e-mail and bug tracking are services we don‘t control.‖
―We‘re not worried about security, but we are about continuity. Certainly one issue we panic over is outages.
These things are still not infallible. Remember Amazon‘s network went down for four or five days? That cost us
money and hurt our business. Amazon went down, so we went down. But that‘s happened only once in the three
years we‘ve been on Amazon.‖
―There are ways to circumvent that, and there‘s a presumed redundancy when you build in the cloud. You expect
a fault-tolerant system. Even though Amazon and companies like it provide you with SLAs, it is worth asking how
they plan to avoid an outage.‖
―If you‘re in a world where you need network operations to manage the internal workings, then certainly I‘d say
you‘d have a network operations center and a data center. But if you‘re doing application development, you
could farm that out into a cloud.‖
CEO of a cloud-based experiential media application
This software company is a SaaS provider in the early stages of migrating its applications to the cloud. It currently
conducts much of its development in the Amazon cloud, and is just beginning to push its Web sites and applications to
Amazon. The advantage is nearly limitless server space and processing power for what is a resource-intensive
application; users will find that the applications will run smoothly from the
Amazon cloud. This company can scale up its number of users without the
limitations of in-house processing power.
―We‘ve maintained a data center and we haven‘t left it yet, but we are
starting to experiment with the cloud.‖
―The advantage to us is the speed and ease of growth and
maintenance—knowing we can turn to it without having to significantly
change our own infrastructures.‖
―When we have used it, we‘ve gone to the Amazon cloud. I haven‘t
seen any issues with security or continuity, but we‘re not relying on it
on a daily basis. Right now we use it to supplement our resources when
we run low.‖
―When we build our 3D venues, it is very resource-intensive. The cloud
enables us to send out our frames to be rendered, and to take
advantage of the sheer volume and speed and processing power.‖
―We have begun to experiment with hosting our virtual venue Web sites
on Amazon, but that‘s early.‖
―We‘re not worried about security at all. I can‘t imagine anyone out
there is looking to lift our data, and what we‘re putting out there is not
We looked into Amazon and
Rackspace. We just liked the
Amazon interface better, and
it‘s come a long way since then.
It was also a little less
expensive than Rackspace.
CEO & CTO, Cloud-based SaaS Solution
When we have used it, we‘ve
gone to the Amazon cloud. I
haven‘t seen any issues with
security or continuity, but we‘re
not relying on it on a daily
basis. Right now we use it to
supplement our resources
when we run low. … We have
begun to experiment with
hosting our virtual venue Web
sites on Amazon, but that‘s
early.
CEO, Cloud-based Experiential Media
Application
Data Centers vs. the Cloud
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18
liftable; we‘re just rendering frames of images, and anyone who gets hold of that data wouldn‘t know what to do
with it. They might see a very distorted football field.‖
―From a security standpoint, we‘re not anticipating that we‘ll have any. I‘m sure if the hosting sites can be relied
on for day-to-day business, they‘d investigate security deeply as well.‖
Product marketing manager at a cloud-based software/services solution provider
Advantages of cloud solutions are sheer low-cost computing power and enhanced capabilities. This source‘s company
can send 100,000 e-mails at a time and offers features like ―whitelisting‖ by Google and Yahoo Inc. (YHOO). Security
questions from customers have subsided somewhat.
―We offer cloud-based applications. We maintain a data center, but our services are both on-site and remote.
We‘re using colocation facilities to host some of our products, not all.‖
―The whole advantage of using our services, using our e-mail product as an example, is that you as an e-mail
customer can get sent through our IPs, which because we‘re a permission-based application—we maintain a
high deliverability. Our IPs are whitelisted with all the major e-mail clients like Google and Yahoo.‖
―With some of our cloud-based applications, we have no hardware for the entire product; the applications are
completely web-based.‖
―In the years past we fielded a lot of questions about security. … But I feel as if those questions have become
less frequent as the average person gets more familiar.‖
―If you‘re using Carbonite [Inc.] or an online backup, security is generally becoming less paramount. It‘s
presumed.‖
―All of our services are marketed to small and medium businesses, folks who don‘t have their own servers to
send e-mail out by the thousands. Or they can‘t write HTML code and want a professional looking product. Still,
we get larger businesses like companies and universities.‖
―Companies that have those capabilities themselves have someone to develop HTML e-mail and have e-mail
servers. Those who are resource-strapped just don‘t have the knowledge to do what we can.‖
―The average cost to maintain a server and hire IT people—I can‘t guess. But a customer spends under $50 a
month with us, without the IT time and server space.‖
―Salesforce.com is the Cadillac. Intuit [Inc./INTU] offers a lot of Salesforce‘s software-as-a-service products. It
frees up resources for a company, to have all its needs out in the cloud rather than put into infrastructure.‖
6) HARDWARE MANUFACTURERS These two sources said sales of equipment headed for the cloud are growing quickly. One said the cloud is the fastest
growing segment of his business, faster than data centers or in-house hardware. The other said small companies are a good
match for the cloud, but larger companies are better off using in-house systems or data centers because the cloud can
become too expensive.
Global communications director for a provider to the data center storage market
The fastest growing market of server space is cloud service and cloud computing providers, but data centers and private
enterprise both still are strong. Google, Amazon, Facebook Inc. and companies of that scale are the strongest consumers,
but also are reinventing the configuration and use of servers.
―It‘s really an ideal situation, moving from the legacy x86. So the old model is to run new applications, and the
new cloud runs more instances of fewer applications. So that makes an alternative to x86 architecture more
feasible.‖
―Sales are both faster and slower. There‘s a lot of inertia due to the existing x86 monopoly. If anything, we target
the top 10 Web 2.0 companies—Google, Facebook, Twitter [Inc.]. You run very few apps on our servers and get a
more dense compute, and that saves on expenses.‖
―What the cloud is doing on the desktop is making more thin-client computing possible. Someone can use an
iPhone to do things while all the heavy lifting is in the cloud.
―It‘s the large data centers that are doing the bulk of purchasing. … Anyone maintaining a large data base can
scale rapidly in the cloud.‖
―The one company taking the most unique approach is Facebook, with its open compute platform. They‘ve taken
the idea of what a server is and parsing it down to the bare essentials, squeezing a lot of efficiency out of every
Data Centers vs. the Cloud
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19
component. Google as well is commonly known to build its equipment. They work with Quanta [Computer Inc., a
server provider] to build theirs.‖
CEO at a low-power server technology provider
Cloud sourcing server space is a strong value for a small business or a new business unsure of its requirements. Once
companies know their requirements, they are likely to move to internal data centers and private clouds. Amazon and
Rackspace are winners in cloud sourcing, and also among the most significant buyers of server space.
―The beauty of the cloud is that you have access to capital equipment, mainly servers, without spending capital
dollars.‖
―Its adoption is enormously quick, and it‘s changing internal IT departments‘ behavior. Traditionally you‘d submit
a ticket and wait two weeks or more to get 50 servers up. Now you can get that from Amazon in 30 minutes,
which created a competitive dynamic for internal IT to step up its game.‖
―Cloud is a fancy lease. What a lease does traditionally is that, instead of paying $100,000 up front you pay it
over three years on a lease. You sign no contract, you rent by the day to step into an Amazon cloud and step out
when you need to.‖
―That‘s helpful when you don‘t know how much compute you‘re going
to need, like launching a product on the Web, when you don‘t know if
you‘ll have 1,000 or a million visitors. You use the cloud to dampen
uncertainty. You step into the cloud to dampen the variability of your
need. You can‘t buy servers to support a potential million users.‖
―The bigger or more sophisticated you are, the less the cloud has to
offer you. Customers like Zynga are leaving Amazon‘s cloud as fast as
they can because they‘ve reached a scale at which it‘s too expensive to
pay Amazon a premium for the management and use of server space.‖
―What‘s happening with equipment sales is a redistribution of
purchasing away from the small and medium businesses, to a small
number of large cloud providers. That‘s the first step; an acceleration
of purchasing for both cloud providers and larger enterprise
customers.‖
―The demand for compute is insatiable right now. Companies like
Facebook and Zynga [Inc.] can‘t buy compute fast enough.‖
―We‘re generating computes and the need to analyze data. If you took
away Google for one day, it would be hard for any of us to do our work. And what does Google do? Buy servers.‖
―For the largest guys, the Googles, Facebook, Amazons, they build data centers and deliver to themselves. And
they‘ve become extremely good at building facilities and managing not just thousands, but millions of servers.‖
―Their advantage in cost and acquisition is because of scale, and the capacity can be packaged and resold to
small and medium businesses who couldn‘t afford the expertise or discounts that Dell would give to Amazon,
Rackspace or Google.‖
―Amazon has the most sales for sure, and Google, with its cloud-based e-mail. So the biggest buyers are the
Microsofts, Amazon, Facebook.‖
―The recognized leader in cloud offerings is Amazon. But Rackspace and a collection of others have top-quality
offerings.‖
―At one point, Zynga was buying 1,000 servers a week, and they‘re not even in the top 20 consumers.‖
―Smaller companies like us … could buy servers and run our CRM on them. Instead, we go to Salesforce.com
and rent their software by the day.‖
―I don‘t see sales slowing down on the enterprise side. I hear a huge sucking sound; cloud has a greater
acceleration.‖
―The value in the ‗90s was a strong client-side offerings, like Microsoft spreadsheets on your desktop. Who has
the value today? It‘s all the cloud, like Web search, streaming media, real-time communications.‖
―All of the cool 21st century apps live in the cloud.‖
The bigger or more
sophisticated you are, the less
the cloud has to offer you.
Customers like Zynga are
leaving Amazon‘s cloud as fast
as they can because they‘ve
reached a scale at which it‘s
too expensive to pay Amazon a
premium for the management
and use of server space.
CEO, Low-power Server Technology
Provider
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
20
Secondary Sources
Our review of secondary sources included industry surveys that highlighted a shift to private or hybrid cloud. Also, security is
the government‘s chief concern in cloud implementation. Amazon has added encryption to its cloud offering. Budget cuts are
threatening to slow the federal cloud transition. Meanwhile, data centers are being expanded through the world.
Oct. 5 ReadWriteWeb.com article
Amazon is adding encryption, bundling new security assurances with its public cloud offering.
http://www.readwriteweb.com/cloud/2011/10/amazon-s3-hundreds-of-billions.php
―If you ever wondered whether Amazon S3 would be successful, I think we have the answer. Yesterday, Amazon
provided an update on S3 growth, and stated that S3 now stores 566 billion objects. To make S3 even more
appealing, the company announced today that they‘re adding server-side encryption to S3.‖
―Amazon isn‘t just hanging on to a lot of data, they‘re also serving it at a breakneck pace. According to the post
by Jeff Barr, Amazon handles up to 370,000 S3 requests per second.‖
―That‘s a lot of data, but Amazon wants to store more. To that end, they‘re introducing server side encryption—
which Barr says is an often-requested feature that will be ‗welcomed by our enterprise customers, perhaps as an
overall strategy to encrypt sensitive data for regulatory or compliance reasons.‘‖
―If developers want to use the server-side encryption, Amazon does it transparently when you copy or store an
object in S3. Here‘s how Amazon describes the process:
o When you PUT an object and request encryption (in an HTTP header supplied as part of the PUT), we
generate a unique key, encrypt your data with the key, and then encrypt the key with a master key. For
added protection, keys are stored in hosts that are separate and distinct from those used to store your
data.‖
―Amazon is using AES-256 encryption, and says that the process for encryption, key management and
decryption is audited regularly.‖
―Customers have always been free to encrypt data before storing in S3, of course. Amazon‘s server-side
encryption seems like a good solution for some use cases, but the standard disclaimers should apply. If Amazon
can decrypt the data on your request, it can decrypt the data at the government‘s request too. Only use server-
side encryption for data that you‘re comfortable with Amazon being able to decrypt.‖
August 2011 ―Trends in Cloud Computing‖ report from CompTIA, based on surveys of 500 IT professionals
http://www.comptia.org/research/cloud.aspx
―One in five companies began moving some or all cloud systems back on premises as a result of [Amazon EC2
outage and Dropbox security breach]. This signals a strategy shift from public cloud to private or hybrid.‖
―Although many upcoming users have not yet selected a model or still need more information, those users who
have already selected a model are clearly moving away from public cloud, though it still factors into some
plans.‖
―Nearly half of channel firms plan to bump up their investment in cloud business by between 10% to 15% in the
next 12 months. That compares to less than a third that said they were upping their investment to that degree
the year prior. Investments span capital outlays for new infrastructure
or systems, along with softer investments in hiring new staff and
training both new and existing employees.‖
―The largest channel companies ($500M and above in revenue)
eclipsed other providers in the depth of investment they plan to make
in cloud over the next year. Just north of 4 in 10 of those companies
said they would invest 15% or greater in their cloud-based business,
compared, for example, to a quarter of companies in the $100M to
$499M bracket that plan to do so.‖
―Among current users, large companies are more likely to use private
or hybrid models. 45% of large companies (more than 500 employees)
use private cloud, compared to only 34% of small companies (less than
100 employees). Likewise, only 19% of companies use private cloud,
indicating that small companies are likely to have a single cloud
One in five companies began
moving some or all cloud
systems back on premises as a
result of [Amazon EC2 outage
and Dropbox security breach].
This signals a strategy shift
from public cloud to private or
hybrid.
CompTIA Report, August 2011
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21
application rather than multiple applications running on both public and private installations. Small companies
also show the greatest opportunity for education—65% of small companies are unsure of the model they will use
for future cloud solutions.‖
April 2011 ―U.S. Govt. IT purchase plans‖ report from CompTIA, based on surveys of 375 federal, state, and local IT
decision makers
―Sixty-one percent (of government organizations) plan to invest in hardware for end-users while 45% plan to
invest in enterprise hardware in the next 12 months. Similarly, 52% plan to invest in software for end users,
compared to 28% in software for enterprise.‖
―IT spending expected to reach $78.5 billion at the federal level in
2011, and $54.4 billion at local/state level.‖
―Forty-four percent of cloud implementers rated network security as the
top challenge, with security mandate compliance (36%), data loss
prevention (35%) and hardware security (35%) also rated as top
challenges.‖
―Potential cloud adopters may have concerns around integration,
downtime, resistance to change and vendor-lock in. Alternatively, the
top two drivers for cloud implementation include the desire to cut costs
and reduce capital expenditures on hardware, software and other IT
systems.‖
―Price is the most important attribute influencing the selection of an IT
solution provider.‖
June 26 eChannelLine.com article
Findings from the Future of Cloud Computing Survey were discussed, chief among them that cloud computing is in its
infancy. IT professionals are experimenting with a move to the cloud and waiting for it to mature before developing a
formal cloud strategy. Slight more than one-half of the respondents believe the cloud lowers the cost of ownership.
http://www.echannelline.com/usa/story.cfm?item=26936
―Today, scalability and cost are seen as the primary drivers for cloud usage, while agility and innovation are
quickly emerging as a key factor for adoption, as IT organizations view cloud computing as an effective means to
implementing new applications quickly to keep pace with application backlogs and business demands.‖
‗Those are some of the findings of the inaugural Future of Cloud Computing Survey, conducted by North Bridge
Venture Partners in partnership with GigaOM Pro and The 451 Group and supported by more than 30 industry
collaborators. The 2011 survey captures current perceptions, sentiments and future expectations of cloud
computing from industry experts, users and vendors of cloud software, support and services. 413 respondents
participated in the survey, including representatives from both vendor and end user communities. Respondents
were asked about a wide range of key issues impacting cloud
computing, such as: drivers for cloud computing, inhibitors, sourcing,
hiring, TCO, cloud‘s effect on business sectors, and user interest for
future cloud services.‖
―The results confirm that cloud computing is clearly still in its infancy,
as 40 percent of respondents indicating that they are only now
experimenting with a move to the cloud, while another 26 percent of
respondents are awaiting market maturity before adopting a formal
cloud strategy. On average, respondents have been using cloud based
solutions for 20 months.‖
―‗Our initial survey has revealed that although there is broad-based
support and enthusiasm for cloud computing, we‘re still in the very
early stages of this significant industry movement,‘ said Michael Skok,
general partner, North Bridge Venture Partners.‖
―‗While it wasn‘t surprising to learn that scalability and cost are driving
current cloud usage, it was extremely informative to learn that agility
and innovation have become key motivators for organizations in
accelerating their adoption of the cloud,‘ Skok said.‖
Forty-four percent of cloud
implementers rated network
security as the top challenge,
with security mandate
compliance (36%), data loss
prevention (35%) and hardware
security (35%) also rated as top
challenges.
CompTIA Report, April 2011
Respondents were equally split
on the impact of cloud
computing on IT manageability,
with an equal number (39
percent) indicating that the
cloud would make for less or
more complex environments.
The majority of respondents
(55 percent) do believe that
cloud computing has a lower
total cost of ownership (TCO).
Future of Cloud Computing Survey
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―Respondents were equally split on the impact of cloud computing on IT manageability, with an equal number
(39 percent) indicating that the cloud would make for less or more complex environments. The majority of
respondents (55 percent) do believe that cloud computing has a lower total cost of ownership (TCO).‖
―While security and compliance remain the top inhibitors, with 31 percent citing these as key obstacles to cloud
adoption, interoperability and vendor lock-in remain real threats as 25 percent of respondents identified these
as roadblocks to cloud usage.‖
―74 percent of respondents indicated that cloud computing would either lead to an increase in hiring or have no
impact, while only 26 percent of respondents expected any decrease in hiring based on cloud adoption.‖
―‗The Future of Cloud Computing Survey confirmed some things we‘ve been seeing in the market: the early stage
of cloud computing in enterprise IT; greater progress, production use and profit in public clouds; significant
interest and potential in hybrid and private clouds; and an expectation of cost savings,‘ said Jay Lyman, Senior
Analyst, The 451 Group Supporting Links.‖
―‗Though the survey told us cloud computing, particularly private clouds and platform-as-a-service (PaaS), are
still fairly nascent among most users, it also indicated a higher level of awareness and pragmatism in
confronting challenges and drawbacks, such as security, complexity and compliance, perhaps because of the
lessons learned already in deploying virtualization at all layers of the stack,‘ Lyman said. ‗That should help to
accelerate cloud computing‘s uptake in the enterprise, despite this seemingly slow start.‘‖
Sept. 21 NextGov.com article
Budget cuts to electronic government initiatives could slow the federal cloud transition.
http://www.nextgov.com/nextgov/ng_20110921_3452.php?oref=topstory
―Current funding levels for electronic government initiatives in the House and Senate Appropriations committees
could cripple the government‘s ability to modernize federal information technology and thereby save money in
the long run, a General Services Administration official told lawmakers Wednesday.‖
―That includes new security and certification projects aimed at helping agencies transition their data storage to
more nimble cloud computing, a governmentwide initiative that officials expect to save $5 billion annually, GSA
Associate Administrator Dave McClure said.‖
―The White House requested $34 million in fiscal 2012 appropriations
for the E-Government fund, which pays for a hodgepodge of initiatives
ranging from the GSA‘s FedRAMP, a governmentwide security
certification for cloud vendors, to numerous open government
initiatives developed at the Office of Management and Budget.‖
―House appropriators have committed about $15.8 million to the fund
and the Senate has committed about $7.4 million, McClure said.
Precise funding figures are somewhat hazy because both houses rolled
E-Gov funding into a larger pot titled the Information and Engagement
for Citizens fund.‖
―The 2011 E-Gov appropriation was cut from $34 million to $8 million
in last-minute bargaining to avoid a government shutdown in April.‖
―‗When anyone gets less money than they requested, something‘s got
to give,‘ McClure told members of a House panel on Technology and
Innovation. ‗Our challenge is trying to use this fund to fuel innovation
and to do crossagency, governmentwide work. … If we reduce funding down to those levels, what you‘ll have,
essentially, is [operations and maintenance] work going on for existing projects rather than fueling new, creative
ways to save money for the government.‘‖
―OMB officials have said E-Gov funding cuts might prevent it from meeting congressional mandates for some
government transparency initiatives, including the agency performance-tracking website Performance.gov.‖
―McClure was speaking at a hearing on the future of cloud computing in government and the private sector
sparked by the industry group TechAmerica‘s Cloud Squared report. Among other things, that report
recommends establishing an international standard for security in cloud computing, raising criminal penalties
for data breaches, and increasing government and private sector investments in cyber research.‖
―Computer clouds essentially are large banks of servers that can operate much closer to full capacity than
standard servers by rapidly repacking data as one customer surges in usage and another one dips. Data storage
Current funding levels for
electronic government
initiatives in the House and
Senate Appropriations
committees could cripple the
government‘s ability to
modernize federal information
technology and thereby save
money in the long run.
NextGov.com Article
Data Centers vs. the Cloud
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23
in the cloud is operated like electricity grids or other utilities, with customers paying only for the resources they
use.‖
―Critics have said cloud storage limits federal agencies‘ ability to safeguard their own data, but boosters have
said the cloud‘s capacity to shoot data to another location when its original location is endangered will make
agencies better able to withstand a cyberattack.‖
―Budget cuts and the rapid pace of technological advancement mean the federal government is unlikely to be a
leader in future cloud computing innovations, Nick Combs, chief technology officer of EMC Corp. and a former
longtime federal information technology executive, testified.‖
―The government‘s role as a major cloud customer, though, likely will lead companies to compete more
vigorously to make shared, public clouds secure enough for sensitive government data. Once government
agencies are comfortable storing sensitive information in public clouds, companies will be more willing to share
storage space with competitors, which will lead to new efficiencies, he said.‖
―Cloud development is likely to be both good and bad for competition in the IT world, testified Michael Capellas,
chief executive of Virtual Computing Environment Co. and a co-chairman of the Cloud Squared Commission.‖
―On one hand, cloud storage infrastructure is costly enough that it is likely to become concentrated in the hands
of a few major players. On the other hand, cloud storage significantly reduces the amount of money that small
companies and entrepreneurs must spend on hardware --typically about 70 percent of an IT shop‘s costs, he
said -- which means smaller players can be more competitive in the software and applications markets.‖
Sept. 29 Federal Computer Week article
The Department of Homeland Security is moving its public Web sites to the cloud.
http://fcw.com/articles/2011/09/29/dhs-moving-public-websites-to-the-cloud.aspx
―The Homeland Security Department is the latest and one of the largest federal agencies to move its public
websites into the cloud.‖
―The department has adopted a cloud services solution provided by contractor CGI Federal Inc. for hosting,
managing and securing public-facing websites including DHS.gov, FEMA.gov and USCIS.gov, the company
announced Sept. 29.‖
―CGI also will provide enterprise development services along with
integration, testing, training, staging, troubleshooting and production
services under the three-year contract valued at $1.8 million, the
company said.‖
―Websites in the cloud typically are hosted on shared servers and
managed under a service contract. The Obama administration has
been promoting a ―cloud-first‖ policy to encourage agencies to use
Web-based cloud computing services rather than purchasing and
operating servers and other computer hardware themselves.‖
―Several other agencies, including the White House and Federal
Communications Commission, have moved their websites to the cloud.‖
―‗DHS‘ move to the cloud is being watched closely as it‘s one of the largest agencies to put the ‗cloud-first‘ policy
into practice,‘ Eric Wolking, senior vice president of CGI, said in a news release.‖
―He said CGI‘s cloud contains all of the required enterprisewide security, service delivery and hosting
capabilities that are needed to reduce costs while delivering improved services.‖
―CGI is a wholly owned operating subsidiary of CGI Group Inc. The contract with DHS was under the Public Cloud
Web Content Management Services contract, which was awarded under the General Services Administration‘s
infrastructure-as-a-service blanket purchase agreement.‖
Sept. 27 New York Times article
An industry survey shows that major expansion of data centers is expected worldwide, especially in the eastern United
States.
http://www.nytimes.com/2011/09/28/technology/worlds-data-centers-expected-to-grow-survey-
says.html?_r=1&emc=eta1
―The next great expansion of the world‘s digital infrastructure is under way in developing markets like those of
China, Brazil and Argentina, according to a global census of the industry released on Monday.‖
The Homeland Security
Department is the latest and
one of the largest federal
agencies to move its public
websites into the cloud.
Federal Computer Week Article
Data Centers vs. the Cloud
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24
―Despite growing concerns of a global economic slowdown, the companies that construct and operate data
centers that run the Internet and store vast amounts of corporate and government data expect growth next year
to match levels last seen in the world economy‘s boom years: about 19%.‖
―The census focused on data centers, the buildings and complexes filled with the computers that operate the
Internet, store and process e-mail, preserve medical records, carry out Web searches and perform countless
other tasks for corporations, governments and other organizations. The London-based company that released
the results, DatacenterDynamics, said it conducted some 5,400 interviews this year with industry officials
around the world. Those officials are responsible for about 100,000 data centers, the company said.‖
―The officials interviewed cited the cost and availability of energy for their power-hungry computers as their top
concern in planning future operations. Such energy concerns were driving them to design more efficient data
centers.‖
―But the predicted shift away from the Western United States, and out
of the United States entirely, may also be related to those concerns.
The census, which expressed its results in energy use, showed a
projected increase of 46% in China over the next year.‖
―‗Imagine what might happen when India and China get the pedal to
the metal in terms of data center growth and the effect that will have
upon global energy consumption in the sector,‘ said George Rockett, a
co-founder of DatacenterDynamics.‖
―The company said that projections of brisk growth in the Nordic
countries could be partly a result of the availability of renewable energy
there.‖
―The findings received mixed reviews from other experts in the field.
Jonathan G. Koomey, a consulting professor in the civil and
environmental engineering department at Stanford University, pointed
out that the projected growth rates were ‗self-reported‘— estimated by
the companies themselves rather than by outside analysts, who would
presumably be more objective.‖
―A study that Mr. Koomey released in July indicated that while power consumption by data centers doubled from
2000 to 2005, it grew at a much slower pace in the next five years. He cited cutbacks caused by the recession
and more efficient computing facilities as contributing factors.‖
―Still, if the new figures are correct, they suggest that the industry is recovering its footing, he said.‖
―‗We just had the greatest economic shock since the Great Depression,‘ Mr. Koomey said. ‗It wouldn‘t surprise
me if people started investing in facilities again.‘‖
―Although the census found minuscule growth in power consumption by data centers in the Western United
States in 2012, it did predict growth in the Eastern United States of some 22%. James Coakley, president and
chief executive of Power Loft Services in Manassas, Va., said that the large projections were ‗hard to believe‘
given current vacancy rates in data centers. ‗I do not see the surge of demand that would produce that amount
of growth—at least not here in the U.S.,‘ Mr. Coakley said.‖
―Mark Bramfitt, a data center consultant and former California utility official, said he doubted that the pattern of
data center growth would increase so quickly in the East, while sinking in the West, where it all began. ‗Doesn‘t
feel right at both ends,‘ Mr. Bramfitt said.‖
―DatacenterDynamics said, however, that it took great pains to avoid statistical anomalies like double-counting
that could inflate the results.‖
Sept. 15 DataCenterKnowledge.com article
EMC opened a newly built data center in North Carolina to replace an existing facility that it outgrew.
http://www.datacenterknowledge.com/archives/2011/09/15/emc-opens-new-cloud-data-center-in-nc/
―EMC today announced a new data center and Center of Excellence lab in Durham, North Carolina that will
power the company‘s cloud computing operation. The 450,000 square foot facility will house a 30,000 square
foot data center running IT applications to support EMC‘s 50,000 employees around the globe, as well as more
than 130,000 square feet of research and development space.‖
―The new data center will replace an existing facility in Westborough, Mass. which is out of space. Over the next
year, EMC will shift more than 6 petabytes of data from Westborough to the new highly-virtualized facility in
Despite growing concerns of a
global economic slowdown, the
companies that construct and
operate data centers that run
the Internet and store vast
amounts of corporate and
government data expect growth
next year to match levels last
seen in the world economy‘s
boom years: about 19%.
New York Times Article
Data Centers vs. the Cloud
321 Pacific Ave., San Francisco, CA 94111 | www.blueshiftideas.com
25
Durham. Once the migration is complete, the Westborough facility will be retired. EMC will continue to maintain
a disaster recovery data center in Hopkinton, Mass.‖
―EMC becomes the latest in a series of leading technology companies to choose North Carolina as the location
for new data centers, a list that includes Apple, Google, Facebook, Cisco, American Express, IBM and NetApp,
among others.‖
―EMC said the data center will include energy efficiency features, including the use of outside air (free cooling)
for approximately 57% of the year, a col-aisle containment system to manage airflow within the data center, and
flywheel UPS systems to save space and reduce reliance on batteries. The company expects that the facility will
earn Silver certification under the LEED standard for sustainable buildings, and operate with a Power Usage
Effectiveness (PUE) of about 1.3.‖
―EMC runs more than 500 applications in its five corporate data centers. The company also maintains Centers
of Excellence in India, China, Egypt, Israel, Ireland, and Russia. The Centers of Excellence perform engineering
and research and development, translation services and technical support.‖
―‗We are pleased to extend EMC‘s network of COEs around the globe by increasing our IT and R&D presence in
North Carolina,‘ said Sanjay Mirchandani, EMC Chief Information Officer and COO, Global Centers of Excellence.
‗Our virtual-first mantra and the latest EMC, VMware and VCE technologies, not only provided the foundation to
deliver agility to our more than 50,000 employees, but the COE, data center and our R&D labs enable us to
extend and showcase our world-class cloud computing capabilities, solutions and the best practices with our
customers.‘‖
―‗As a leading global technology innovator, EMC has put its money where its mouth is with its new COE and cloud
data center,‘ said Charles King, Principal Analyst, Pund-IT. ‗By doing so, the company has opened the doors to
harness the agility of cloud computing for its employees. Its efforts should also help EMC customers develop
their own virtualization and cloud computing initiatives.‘‖
―In 2004, EMC‘s IT organization began moving from a physical to a highly-virtualized IT infrastructure. The new
EMC data center provides the foundation required for cloud computing with an architecture that will leverage
EMC‘s latest information infrastructure technologies, VMware virtualization and cloud infrastructure
technologies, and Vblock Infrastructure Platforms from VCE (the Virtual Computing Environment Company
formed by Cisco and EMC with investments from VMware and Intel).‖
Next Steps
Blueshift‘s next report on cloud computing will included a silo for small and start-up businesses to assess their pace of cloud
adoption. We also will revisit larger enterprise and government IT sources for an update on their evaluation of cloud services.
We will watch the prevalence of hybrid implementation and growth in the private cloud. Finally, we will consider the growing
area of analysis of big data and ways in which to research this field.
Additional research by Tamara Chuang, Dann Maurno and Mari Silbey
The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities
and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not
own securities in any of the aforementioned companies.
OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both
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OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and
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