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Cloud doesn't always save money, says healthcare CIO

While evaluating cloud computing services, hosted services and in-house IT products, the Compassionate Care Hospice found that sometimes cloud is not always the cheapest option.

With an eye towards staying under budget and cutting IT costs, Westampton, N.J.-based Compassionate Care Hospice is evaluating and comparing the price of in-house, hosted and cloud computing offerings.

"Cloud doesn't change the way I do IT," said Jeffrey Bolden, CIO of the hospice, which runs dozens of facilities throughout the country and has around 1,800 employees. He is concerned about the bottom line. "Services that provide unified hosting are very valuable to me, and that's about it."

Many organizations like Bolden's are used to driving IT costs out of their budget -- outsourcing things they might have done themselves to save money. For most enterprises, cloud is just another one of these options. In many cases, it's not even much help. Bolden said that Compassionate Care is not a technology-heavy business, and he doesn't have huge infrastructure commitments.

That said, Compassionate Care is making some major purchases this year. These include a phone system, an MPLS system to improve network connectivity, an electronic medical records (EMR) system, a desktop backup system for users and an "eligibility system" for billing Medicare and document management. In each case, Bolden heard the cloud pitch but chose in-house or a hosted service instead.

Bolden explained that he was pitched by a hosted private branch exchange (PBX) vendor for moving phone lines "out in the cloud," but the company wanted as much as $20 per month per line. He calculated that buying his own PBX and running it himself would cost $9 or less, and there were less features, not more, to be had by using a hosted PBX.

"I did look at the cloud solution very carefully and it was just too expensive," Bolden said.

For EMR, however, he did choose a hosted service with a traditional contract, as it takes compliance and management headaches out of his hair. But he said that was not enough to guarantee the sale.

"Even then, I was able to negotiate them down 50%. Had I not, I'd be going in-house [for EMRs] in 2011 and 2012," he said. "This is the problem with cloud computing: At the end of the day, it turns out to be more expensive."

Bolden's not anti-cloud by any means; he's just cautious about what it's really good for. He's amazed at the explosion of online services but pointed to the iPhone and said the cloud computing market was consumer driven right now. "It doesn't do anything on the CIO side," he said.

Analysts weigh in on cloud adoption trends
Bolden exemplifies the enterprise user, according to the experts. Surveys and buying predictions from Forrester, IDC, and other major research groups all point to the same conclusion: Cloud will remain a minor part of enterprise IT for some time yet. Analysts say that the impact of cloud is going to remain small for at least this year, for precisely the reasons Bolden lays out.

I did look at the cloud solution very carefully and it was just too expensive.

Jeffrey Bolden, CIO of Compassionate Care Hospice

Forrester analyst Randy Heffner said cloud computing is just another sourcing option for enterprises. For some sectors, cloud capabilities might represent new opportunities, but they were niche. Businesses with large spikes in computing needs, like finance or scientific computing, were finding uses for cloud services and "specialized resources that are quasi-cloud, like SGI's Cyclone," he said.

SGI's on-demand, high-performance computing (HPC) platform isn't self-service and is anything but easy to use, but it does offer users HPC on-demand with costs that could start in the hundreds of dollars. That's earth-shattering in light of normal grid and HPC pricing, which usually involve contracts that start at five figures. Many banks and pharmaceutical companies are already making use of Amazon EC2 for that purpose.

Heffner said enterprise architects and CIOs get it, but they aren't interested in the philosophy of cloud, only where and what it means to their balance sheet.

Cloud following virtualization
"It certainly appears that cloud is likely to go the way of the virtualization market," said Bill Trussell, managing director of security research for TheInfoPro; that is, relatively slowly. Virtualized server enviroments are becoming standard in IT shops, but it's been slow going as traditional applications often won't work or need to be retooled, he said. And there's a host of fresh headaches that come with it, despite the technology being mainstream since the early 2000s.

Trussell said that cloud will creep along in the IT marketplace, largely for the same reasons. He noted that security and control over sensitive data were still the biggest barriers for enterprises, and most did not see cloud computing as a silver bullet to reduce operating costs or complexity in IT operations.

IDC still predicts cloud computing spending will grow by more than 25% year after year -- 2010 may see $20 billion spent on cloud computing -- but that's out of a worldwide IT market that's close to $400 billion dollars in traditional IT areas. It'll stay exciting, but still a small part of IT overall. The larger changes that will come from cloud computing are real but far away.

Carl Brooks is the Technology Writer for SearchCloudComputing.com. Contact him at cbrooks@techtarget.com.

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