There are two categories of cloud-based enterprise offerings:

1. Hardware platforms, such as Amazon EC2 or EMC
2. Software services, such as SAP or Jahia.

Hardware cloud offerings get richer by the day, with highly granular on-demand computing resources and virtually unlimited scaling capabilities. The latter is mainly due to the recent advances in virtualization, and standardized interoperability protocols within middleware components.

Cloud-based software services have been slow to adapt their offerings and licenses to this new hardware flexibility. Many why Enterprise software providers claim their products are "cloud-ready", yet shy away from fully embracing new cloud computing business possibilities.

SAP's Leo Apotheker lamented:

"There are certain things that you cannot run in the cloud because the cloud would collapse. It's simple. Don't believe that any utility company is going to run its billing for 50 million consumers in the cloud. I believe, and John [Wookey] is there to help us, what we can do is to combine the two worlds."

In a nutshell, software companies can't avoid adapting to the cloud, but it still represents a poorly analyzed niche market for them.

A better approach is to analyze cloud-computing possibilities on a case-by-case basis, looking at the project's scale and other requirements.

For large corporate systems, cloud computing can complement existing infrastructure with flexible and cost-effective scalability, rather than a full-blown alternative to the existing data centers. The benefits and drawbacks of cloud computing in these cases normally have little to do with processing costs: "The industry has assumed the financial benefits of cloud computing and, in our view, that's a faulty assumption," said Will Forrest, a principal at McKinsey ("Clearing the Air on Cloud Computing", a McKinsey study from April 15, 2009).

Owning the hardware, according to McKinsey, is actually cost-effective for most corporations when depreciation write-offs are taken into account. Mr. Forrest also observes that, "the labor savings from moving to the cloud model has been greatly exaggerated". Maintaining a company's enterprise software portfolio and providing user support remain labor-intensive endeavors, whether hosed or not.

But McKinsey finds that clouds can make a lot of sense for small and medium-sized companies, typically those with revenue of $500 million or less.

Still, for cloud computing to provide major benefits, a several criteria must be met by hosted applications:

-Demand for dedicated resources is variable and cannot be shaped (otherwise dedicated in-house resources would be more cost-effective than a cloud offering)

-Unpredictable growth of demand for the cloud's pay-per-use model be cost effective

-Users are widely dispersed

-Applications are interactive

Only if these criteria are met will cloud computing make financial sense as supplements to corporate data centers or as comprehensive replacements for

for smaller companies.

From this it follows that there are three cloud-based scenarios for CIOs' to consider:

cloud-based initiatives:

- For new applications that meet the criteria described above

- When cloud computing can extend services to new regions, obviating the to set up additional data centers.

- When demand for existing online applications becomes unpredictable

Again, such possibilities must be reviewed on a case-by-case basis. Advanced cloud computing applications with remote access can often dramatically cut a small company's IT costs.

Larger companies should weigh the advantages of cloud computing, such as for virtual environments with unpredictable resource demands, against the tax advantages of hardware ownership.