Clouds already make sense for many small and medium-size businesses, but technical, operational and financial hurdles will need to be overcome before clouds will be used extensively by large public and private enterprises. This is one of the principal conclusions of a report just published by McKinsey & Company, called "Clearing the Air on Cloud Computing."

The report, authored by McKinsey's William Forrest, aims "to focus the nascent cloud industry and its consumers on setting realistic expectations by taking a 'hype free' approach."

Forrest starts with the most basic question of what a "cloud" actually is and notes that benefits include much lower cost, faster time to market, and opportunities for creating new sources of value. His concern is that, while it has great potential, he feels many of the claims being made about cloud computing have lead some to the point of "irrational exuberance" and unrealistic expectations.

Termed a "Discussion Document," the report, which can be viewed here,

sets out to propose an industry-standard definition of cloud computing "including what makes it unique and exciting," then to identify the types of customers that should be early adopters—those that can benefit from existing and planned commercial offerings, and finally to understand any barriers that prevent large-scale adoption by corporations and government entities that represent the bulk of IT spending.

Rather than create unrealizable expectations for “internal clouds,” CIOs should focus now on the immediate benefits of virtualizing server storage, network operations, and other critical building blocks, the report recommends.

Clouds are very cost effective for SMEs, it notes, adding that most customers of clouds are small businesses.

But "current cloud computing services are generally not cost effective for larger enterprises," the report claims. "The cost of cloud must come down significantly for outsourcing a complete data center to make economic sense," it contends. There is also the question of High Availability, on which topic the report has this to say:

"Many enterprise (necessarily or unnecessarily) set their SLAs uptimes at 99.99% or higher, which cloud providers have not yet been prepared to match."

In conclusion the report notes that "Users, hardware vendors and service suppliers can take specific steps to ensure the successful adoption of cloud technology - and prevent it from getting stuck in the 'trough of disillusionment'."

Avoiding the trough of disillusionment will require appropriate action from all players in the cloud computing arena, says the report, specifically the following three groups (recommendation for each group in brackets): 1. Cloud users e.g. CIOs, CTOs

(Develop an overall strategy for XaaS based on solid business cases not “cloud for the sake of cloud; Use modular design in all new and re-architected software to minimize costs when it comes time to migrate to cloud; Set up Cloud CIO Council to advise industry.) 2. Stakeholder groups

(Develop improved security standards to allay fears of client base; Implement technologies that will allow for fine grain billing and management across a cluster of compute devices.) 3. Cloud tools and infrastructure e.g. HP, IBM

(In the near term, focus on small and medium sized businesses; Work on improving uptime rates into the 99.99% range; Continue to drive down prices through scale/innovation to increase potential market.)

The report is certain to stimulate constructive discussion about cloud computing and its role in Enterprise IT.