Amazon exec lashes out at McKinsey cloud computing report

Andy Jassy, senior vice president of Amazon Web Services, slammed a recent report by McKinsey & Co that was sceptical of cloud computing, saying in an exclusive CBR interview that it contains, “numerous factual errors” and research that is “skin deep”.

The report by McKinsey, published in mid-April, said that cloud services will not return cost savings to large enterprises. After comparing the use of a platform-as-a-service option such as Amazon’s EC2 against the cost of providing similar services out of a typical enterprise data centre, the consultants said: “Large enterprises can achieve server utilisation rates similar to those cloud providers are achieving from their platforms.”

McKinsey calculated that the total cost of assets for a typical enterprise data centre runs to around $45/month for a CPU equivalent, which it says is significantly cheaper than a comparable cloud service. “Most EC2 options are more costly than TCO for a typical data centre,” McKinsey said.

But speaking to CBR in London yesterday, Amazon’s Jassy, who is also in charge of Amazon Payments, said: “We were very surprised and disappointed by the McKinsey report – we don’t believe it is an accurate reflection of the truth. A lot of the analysis seemed only to be skin deep at best, and quite frankly there were a lot of facts that are just plain wrong.”

“We’ve been doing this for a while and believe that what we’ve learned could have helped inform this report,” Jassy said. He said Amazon was disappointed not to have been asked for input into the research.

“The McKinsey research was at best skin deep and at worst factually wrong in numerous places,” Jassy added.

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Jassy: not best pleased by McKinsey report.

Amazon’s cloud services include the Amazon Simple Storage Service (Amazon S3), the Amazon Elastic Compute Cloud (Amazon EC2), the Amazon Simple Queue Service (Amazon SQS), Amazon SimpleDB and the Amazon Flexible Payments Service (Amazon FPS).

Jassy noted that Amazon S3 currently stores 52 billion objects such as graphics files and other unstructured data, and at its peak is receiving 80,000 access requests per second from both Amazon’s own online retail activities and its external S3 customers. In the middle of 2007, Amazon’s own retail operations’ traffic on the Amazon infrastructure was eclipsed by traffic from external customers accessing Amazon Web Services.

But in its ‘Clearing the Air on Cloud Computing’ report, McKinsey & Co argued that cloud computing can divert IT departments’ attention from technologies that can deliver sizeable benefits — most notably virtualisation. “Most of the gains are achievable through standard virtualisation,” the analysts said.

McKinsey said that a true cloud service has to comply with three key requirements. It has to abstract the underlying hardware from the buyer, be elastic in scaling to demand and bill buyers on a pay-per-use basis. The view was that cloud offerings are today most attractive to small and medium-sized enterprises “Clouds are very cost effective for SMEs,” McKinsey said.

But for large enterprises there are significant hurdles to the adoption of cloud services, that cover the full range from financial and technical, to operational and organisational. McKinsey recommended that enterprise CIOs and CTOs should form a council to advise the industry which should, “Continue to drive down prices through scale/innovation to increase potential market.”

But Jassy said that Amazon built its Web Services platform on a core set of principles: “That services should be super reliable; able to scale up and also scale back down again; offer very low latency; and be simple and cost effective.”

“You only pay for what you use – it’s a ‘pay by the drink model’,” Jassy said. “We have three main businesses: a consumer business [doing the well-known Amazon.com retail]; a seller business which enables other retailers to sell on Amazon.com and a developer business, which is where Amazon Web Services comes in. We believe Amazon Web Services will continue to be a very large, very cash-flow generative business.”

Jassy maintained that for companies of all sizes, Amazon Web Services provide a platform that enables any developer or business to reach the scale of major Internet players like Amazon.com without the up-front investment that would be required to build such a large IT infrastructure.

+ In related news today, Amazon Web Services announced AWS in Education, a set of programs that enable the academic community to leverage the benefits of Amazon Web Services for teaching and research. With AWS in Education, educators, academic researchers, and students worldwide can obtain free usage credits to tap into the on-demand infrastructure of Amazon Web Services to teach advanced courses, tackle research endeavours and explore new projects – tasks that previously would have required expensive investments in infrastructure, according to the firm. More here.

CBR’s initial story on the McKinsey report is here.

Annrai O’Toole at Workday has a nice rebuttal of the McKinsey report here.

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