The economics behind ‘cloud computing’

August 24, 2009 / Ed Felten on the economic incentives towards “cloud computing.”

Ed Felten says the main economic driver behind “cloud computing” is that it reduces technology management costs and that this trumps resource efficiency—that is, “the cloud’s” client-server model may be technically inefficient but it also outsources competencies that are costly to provide for in-house:

The key issue is the cost of management. Thus far we focused only on computing resources such as storage, computation, and data transfer; but the cost of managing all of this—making sure the right software version is installed, that data is backed up, that spam filters are updated, and so on—is a significant part of the picture. Indeed, as the cost of computing resources, on both client and server sides, continues to fall rapidly, management becomes a bigger and bigger fraction of the total cost. And so we move toward an approach that minimizes management cost, even if that approach is relatively wasteful of computing resources. The key is not that we’re moving computation from client to server, but that we’re moving management to the server, where a team of experts can manage matters for many users.

This trend may be turning traditional technology services (from the perspective of IT departments) into what economists call “externalities.” The biggest risk for organisations here is probably going to be increased vulnerability to information security issues. The convenience of having everything available in a browser comes at the cost of requiring a network to accomplish basic tasks, and exposing ever more of those tasks to the Internet.

You change your password every few months, right? ;-)

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