How is outsourcing different from cloud computing?

The word 'outsourcing' in bold on piece of paper

Cloud computing is a paradigm shift – or it’s outsourcing with a different label. Broadly speaking, there are two schools of thought as to whether, and how, outsourcing and cloud computing differ.

One argues that cloud computing is about to change everything, including IT departments (and here the rhetoric can become overblown) and that it will eventually supplant IT altogether. The other contends that cloud computing is just outsourcing by another name and that we’ve seen it all before.

There's no right or wrong answer: Both camps are to a certain extent correct. If this sounds like “having your cake and eating it, too”, apologies.

Outsourcing is the familiar method whereby a third party performs a function on behalf of the company, often one that the IT department doesn't have the resources (time, expertise or both) to undertake. It’s common, for example, to outsource one-off projects which might demand an increase in resources or perform a function which won't be needed after the project is done. Outsourcing can also cover functions that cloud computing, or indeed any form of computing, doesn't perform.

And companies might want to keep some functions in-house that can be performed in the cloud but which it's not always appropriate to buy in, depending on the type of business they're running. Finance houses are likely to keep money management in-house, vehicle companies may want to retain product design -- although many are now outsourcing manufacturing.

Cloud is underpinned by technology and is essentially about the services a virtualised data centre, whether public or private, can deliver. The argument is that adopting cloud makes a business more agile and flexible because services can be turned up and down at will. And economies of scale plus the plummeting cost of delivering IT – thanks in large part to Moore's Law and virtualisation – have seen the prices of cloud services also fall, making it highly cost-effective.

Naysayers argue that security remains the biggest issue, and that it's difficult to get your data back if and when you want to switch providers. Both of these objections are true but it seems hard to imagine them being long-term problems.

In the meantime, unlike traditional outsourcing, cloud is a young industry: There will be shake-outs and many providers have a lot to learn. Not least of these lessons will be the need to earn customer loyalty which cannot be assumed, especially once it becomes easier to move data between providers. The structure of cloud provision's fees – there’s nothing upfront, just pay monthly – means that there's no reason to stay with one cloud provider if it fails to meet the SLA or if there's a poor response to customer complaints. So cloud provision differs from traditional outsourcing, where contracts tended to be defined by a particular project or period of time: Once locked in, it can be difficult to get out.

This means cloud providers, just like every other provider of enterprise services, will need to develop impeccable service delivery and customer focus. This will be achieved by some, but not all. It is arguably an area where providers of cloud computing may, over time, prefer to both look and develop fee structures like those of traditional outsourcing providers.

A comparison of private cloud and traditional outsourcing highlights the differences between the two models. A private cloud involves the delivery of services as if they were outsourced to a public cloud, but which are created internally. It means accepting the pain of managing people and systems in return for control and security.

We can see the possibility of this model becoming mainstream as vendors, such as HP, Abiquo,, Nimbula and many others, start to produce software and services that allow data centre managers to build responsive architectures underpinned by virtualisation technology.

Will cloud overtake outsourcing?

As the industry matures, it also seems likely that the range of cloud services will expand to include business processes. Right now, enterprise cloud providers say that most enterprises are content to outsource (if that's the right word) what some define as the boring bits, such as HR and accounts, to service providers.

The business processes which uniquely define an enterprise can be harder to send into the cloud for a number of reasons. These will include sound, business-related issues, but may also include the fact that many top executives in the organisation will be both intimately involved with those processes and be disinclined to fire themselves. Such service delivery platforms may well be transformed into a private cloud – in other words, outsourced to the IT department which, in the minds of many, hardly qualifies as outsourcing.

In smaller organisations, this is already happening. There will be few IT staff in such companies, making it easier to buy in services from the cloud as the business grows. The flexibility to grow and shrink as required is also attractive to smaller businesses, which are more volatile.

There are many who argue that, in the long run, cloud computing will change outsourcing profoundly. Long-term contracts are likely to wither away in favour of more flexible, short-term agreements, while providers will need to move closer to their customers because they will be running their IT (and therefore their business) for them. It is, however, a new industry and it will be some time before it matures.

Manek Dubash is a journalist with over 25 years experience. Focused on business and technology, he currently blogs on enterprise infrastructure for a range of websites. His work has appeared in national newspapers as well as specialist technology journals and websites. In the past, he has held senior posts on major news-stand magazines, including PC Magazine UK, Practical Computing and Personal Computer World.