James Urquhart of the wisdom of clouds, a popular blog, presents an interesting argument for private clouds. His argument for private clouds cites three reasons which are mentioned below:

• “Disruptive online technologies have almost always had an enterprise analog. The Internet itself had the Intranet: the use of HTTP and TCP/IP protocols to deliver linked content to an audience through a browser. The result was a disruptive technology similar to its public counterpart, but limited in scope to each individual enterprise.

• Cloud computing itself may primarily represent the value derived from purchasing shared resources over the Internet, but again there is an enterprise analog: the acquisition of shared resources within the confines of an enterprise network. This is a vast improvement over the highly siloed approach IT has taken with commodity server architectures to date.

• The result is that much of the same disruptive economics and opportunity that exists in the “public cloud” can be derived at a much smaller scale from within an enterprise’s firewall. It is the same technology, the same economic model and the same targeted benefits, but focused only on what can be squeezed out of on-premises equipment.”

These are interesting points. However, what are missing with this argument are two things:

1. Historically in enterprise computing, we have seen every enterprise analog was driven by a business need. For example, an Intranet service such as accessing a repository of “Customer Contacts” is driven by the need for confidentially in the data and thus is not exposed over Internet. So what would be the business case for a private cloud in an enterprise?
2. The point on shared resources for the enterprise and disruptive economics is best summed up by the question: what would be the cost associated with the value (if any) provided by a private cloud? Moreover, can this cost be justified for services (i.e. products) that would be hosted in a private cloud?

Before the above questions are answered let’s recap for a moment, the important value additions of cloud computing (public cloud). The benefits for using cloud computing (public cloud) is in automatic scaling, cost reductions and increased flexibility for business to leverage IT.  The rest of this article analyzes whether these benefits can be realized by adopting a private cloud?

Automatic Scaling: While public clouds have demonstrated the value add of automatic scaling especially to startups (the poster child example for this being the case study on Animoto.com). However, when it comes to enterprises, the question would be what services were disrupted due to limitations or lack of adapting to unanticipated traffic spikes. Or what are the services/projects in the pipeline that could grow virally leading to a possibility of service disruption thereby leading to decreases in service adoption by the customers. Given the enterprise processes around business planning and execution, it is seldom that an enterprise would run into such situations. However, unless service metrics numbers can back you up when answering such questions, creating a business case for private cloud adoption can be difficult.

Cost Reductions:  The CAPEX and OPEX costs associated with a private cloud in an enterprise would be roughly the same or greater than without a private cloud. Why? In order to have a private cloud, an enterprise would use the existing or possibly new infrastructure (hardware). This would mean there is limited scope for decreases in the CAPEX costs. Additionally, administrators are required to deploy the private cloud enabling software over the infrastructure resulting in increased administration overhead to cloud enable the existing enterprise applications. Thus there are no decreases in the OPEX costs either. Moreover, not all enterprise application stacks/platforms are supported on cloud enabling software. However, the point is, all this brings a new set of unknown and governance related issues that contribute to increased costs.

Flexibility:  The release to market for services and ease of recovering business in the event of a disaster is or can be optimized significantly by virtualization. Thus this argument of using private clouds for increased flexibility or agility, over virtualized environments, for business to leverage IT isn’t really convincing.

James and some others have bought into the noise around private clouds; however, enterprises would have minimal scope in adopting private clouds.