Do the costs of the cloud outweigh the benefits?

FOr Over the last decade, some aspects of modern life have made nerds more drooling than the cloud. The data center cumulus is dominated by three American tech giants: Amazon, Microsoft, Google, and Alibaba in China. In the United States, some liken the impregnable position to the position of Ford, General Motors, and Chrysler, the three major Detroit car makers a century ago. During the covid-19 pandemic, they helped change people’s lives and supported online medical appointments, zoom meetings, and Netflix Bing. They attract the most talented engineering talent. Amazon Web Services (AWS), The largest are now part of the folklore of business. So it’s heretical to argue that the cloud can be a weight around the neck of big companies, as executives at venture capital firm Andreessen Horowitz recently did.

This could explain Martin Casado’s defenses with Andreessen Horowitz, co-author of a blog post titled “The Cost of the Cloud: The $ 1 Trillion Paradox.” On June 24, he explained at a rally at Clubhouse, a social media app, “one of the most misread and miscited things I’ve ever done.” At the risk of further misunderstanding, Schumpeter summarizes it as follows: It uses a little evidence and mysterious numbers (for example, where the “trillion dollars” come from) to pose an overly all-or-nothing business challenge. If you stay on it, you’re crazy. Still, because of all its flaws, it’s timely. This raises issues that companies will have to think about over the years to come. How can you manage costs if you rely on the oligopoly of cloud providers for all the data that is the lifeline of the digital economy?

This is a problem that many companies are already working on. June 29th information, An online tech publication reported that iPhone maker Apple is ready to spend $ 300 million on Google Cloud this year. This is a 50% increase from 2020. AWS It also has its own data center to handle the flood of demand for services such as iCloud, a data storage app. On the same day, the chief operating officer of a major software company told columnists that the current cloud cost trajectory is “unsustainable,” but leaving the cloud alone doesn’t make sense. “It’s very difficult. It can’t be as simple as saying that everything is in the cloud, or not in the cloud forever.” Jonathan Chaplin of New Street Research said that getting flexible data storage in the cloud, flexible such as WeWork. It is likened to an office space. Both are equally expensive, he says. He knows — his analyst boutique company is thinking of renting both.

One of the reasons Andreessen Horowitz caused the storm was that it went one step further. The blog post raises the possibility of “repatriation” and claims that companies can save a considerable amount of money by returning data from the cloud to their servers. It uses the example of file-sharing company Dropbox and states that in 2017 it saved $ 75 million in the two years prior to its initial public offering by regaining workloads primarily from the cloud. .. Cassado and his colleague Sarah Wang estimate that a group of 50 such listed software companies could do the same to halve cloud bills and save $ 4 billion annually. .. It has the potential to improve market value by about $ 100 billion using generous price-earnings ratios. You don’t have to be a super detective to doubt the motive behind it. Inspired by Silicon Valley unicorns, the higher the rating, the more money you can make when venture capitalists like Andreessen Horowitz are released.

However, this is oversimplified in some respects. First, the cloud is more than just a cost. It also provides young companies with the flexibility to scale up quickly, accelerate new product launches, and expand internationally, without having to build their own mish mash of racks, servers, wires, and plugs. You can increase your profits. In addition, cloud providers offer more than storage and spare capacity. Increasingly, their most valuable services are data analysis, forecasting, and machine learning, made possible by the sheer volume of data they can process. It can also be more difficult to hack. The question is whether companies can better benefit from their investments by paying for cloud services or by bringing data centers, engineers and cybersecurity in-house.

Second, the supply of engineers is finite. In the past, coders were trained to work on on-premises servers, but the latest generation knows more about working with cloud providers. It makes repatriation more difficult. In a recent podcast about the decision to move completely from its servers to Google Cloud in 2015, the music streaming app Spotify will be tied to managing its data center rather than engineers working on new products. Emphasized opportunity cost. (As a funny relic, keep some of the last big server in the urn.)

Third, the profit is in the eyes of the viewer. Companies may want to improve their profitability by reducing the cost of renting cloud servers. However, it requires investment to build your own data center. The labor costs that engineers pay to manage them also increase.

Silver lining?

There is little suggestion that stamping to the cloud is slowing down. Data collector Gartner predicts that global spending on cloud services will increase by almost a quarter this year to over $ 330 billion. Gartner’s research vice president, Sidnag, states that repatriation is an “urban legend.” “We haven’t seen it.”

Continuing to write a blank check to a cloud provider is also unsustainable. The more companies that adopt cloud computing, the more carefully they need to manage their costs. The biggest users, such as Apple, are negotiating big discounts. The smaller ones lack influence. To keep costs down, you may need to run basic storage in-house, distribute computing across multiple clouds, diversify into a “multi-cloud”, and have engineers take charge of cloud spending. If you’re lucky, low-cost alternatives to the biggest clouds will emerge, just as Japanese car companies challenged Detroit’s Big Three. But it took half a century. ■■

This article was published in the printed Business section under the heading “Raining on the parade”.

Do the costs of the cloud outweigh the benefits? Source link Do the costs of the cloud outweigh the benefits?

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