Private Cloud Computing Takes Off in Companies Not Keen on Sharing

The most familiar examples of cloud computing are big, publicly available, Web-based applications such as Gmail and Google Docs. But given concerns about security and reliability, few big companies are ready to entrust their IT operations to publicly shared infrastructure, even if it's cheaper. Those companies increasingly have another alternative -- the private cloud.

Large companies are creating private clouds by shifting their internal computer power and applications off the PC desktop and onto shared infrastructure, where employees use it only as needed. That eliminates the need to buy 10,000 copies of a software program, only to see 95% of them go unused on any given day. Instead, the company buys 500 copies of the program, which get used every day, all the time.

Greater Economies of Scale

Unlike the public clouds, the resources of the private cloud are shared only within the corporate community. They're controlled by the corporation, not a third-party vendor that has the ability to lease them to anyone it chooses.

"These large, enterprise organizations have the economies of scale to deliver the same thing as [public clouds]. And actually, they have greater economy of scale because they don't have to worry about delivering any of the marketing, sales or profit aspects [with an] internal cloud," says Brian Stevens, chief technology officer at Linux pioneer Red Hat (RHT), in Raleigh, N.C.

Now, the mere mention of cloud computing is enough to provoke plenty of eye-rolling. Oracle (ORCL) founder Larry Ellison prefers to call it "fashion driven" computing or "complete gibberish."

But Bryan Byun, general manager of cloud applications at Palo Alto, Calif.-based software company VMWare (VMW), says there's something to the concept, at least for enterprises. "For a large company, we do see this as being different," he said on May 25, where he, Stevens and other software executives convened for the Morgan Stanley Cloud Computing Symposium.

Public and Private Clouds Merging?

Software companies, which have focused most of their cloud computing efforts on public applications such as messaging and media, see increasing opportunity in the corporate world. "You may be more familiar with [Akamai] in the media and entertainment spaces, but you should become increasingly familiar with us in the commerce, the retail, the enterprise business-to-business portal," said Chris Schoettle, executive vice president for products at Akamai Technologies (AKAM), the Cambridge, Mass.-based Internet infrastructure company that serves customers such as Apple's (AAPL) iTunes.

What sort of companies are developing private clouds? Well, Morgan Stanley (MS), for one, although that private cloud is likely to be a transitional stage. Public and private clouds will merge over the next few years as public clouds earn more trust, and the need to incorporate mobile and stay-at-home workers into the mix forces the extension of the private cloud into public networks.

"So if we build our own internal cloud, which we are...it can't stay like that forever," says Anthony Golia, executive director of emerging technologies for enterprise computing at Morgan Stanley.

For now, though, big companies are going to spend a lot of money building their own private clouds because the comfort level with public clouds isn't high enough. "Can we actually have a public cloud that can guarantee certain service-level agreements, certain tiers of service?" wonders Greg McCall, an analyst with Sage Asset Management in New York. The answer is: Maybe soon, but not quite yet.