Opinion: Winds of IT change blow in The Cloud

Clouds are not clouds just for technical reasons. Clouds are also "clouds" for business reasons

Is cloud computing just another dot-com boom? Scepticism is healthy whenever a new technology wave is announced, but this one looks like it is for real.

The Economist, declared this year that: “In computing, buzzwords are in most cases just that. But the latest, “cloud computing”, stands for a real trend: computing is increasingly being supplied as a service over the internet.”

How do you define cloud computing? Everyone seems to have a different definition. The “cloud” has long been used as a metaphor for the internet, but when combined with the word “computing”, the meaning is less clear.

Cloud computing currently has something of an identity crisis. A recent survey of 20 “experts” in the blogosphere determined that: “there is a clear consensus that there is no real consensus on what cloud computing is”.

BusinessWeek provides a simple definition as: “While different people use it to mean different things, the broadest definition refers to any situation in which computing is done in a remote location (out in the clouds), rather than on your desktop or portable device.”

Is cloud computing a buzzword? Yes, of course it is. So too were “client-server”, “multi-core”, “XML”, “virtualisation”, and many others before gaining general acceptance.

Fortunately, most computer professionals have a pretty good idea of what the term means: the delivery of IT and business functionality from an external hosted environment somewhere in the internet, with a pay-only-for-what-you-use pricing model and scalable IT resources on-demand. Cloud services may also be delivered with many different usage metric pricing models, such as storage usage, transaction volume and CPU cycles.

We are now seeing the beginning of what is likely to be a massive migration to cloud computing simply because, for many applications, it is a better way to manage IT resources.

Cloud computing is more than a sum of its parts. The parts include, without limitation, software as a service, infrastructure as a service, on-demand computing, web services in the cloud, platform as a service, and managed services in the cloud.

Clouds are not clouds just for technical reasons. Clouds are also “clouds” for business reasons. At present, there is little new technology in clouds, though this is changing as IBM, Amazon, Google, Microsoft and others introduce new development platforms.

In the meantime, the business relationship between you and the cloud vendor, the financial and business model under which you use the services, and the ownership of operational risk are where the innovation currently lies.

Merrill Lynch, the global investment banking giant, recently predicted that the cloud computing market would reach a “ballpark figure of US$100 billion” in 2011. That number is about equal to IBM’s total global revenue this year. By any measure, in any industry, that is a huge number. But for an industry described as nascent, it is remarkable.

Realistically, it is impossible to be sure about how big the cloud computing market may be. It could be much larger, or much smaller, than $100 billion, particularly when there is no clear definition of who the industry participants may be, let alone the industry segment itself.

Recently, a Gartner analyst claimed that: “cloud computing represents a business evolution, no less influential than e-business”. The analyst commented that the difficulty in defining cloud computing also reflects the potential of the concept.

Gartner predicts that by 2012, 80% of Fortune 1000 enterprises will be paying for some cloud computing services, and 30% will be paying for cloud computing infrastructure.

Nick Carr, who first came to prominence within the IT industry — and earned the chagrin of CIOs worldwide — with his seminal Harvard Business Review article, entitled: “IT Doesn’t Matter”, reinforced the message that owning and managing IT infrastructure in-house cannot deliver competitive advantage and should be outsourced to what is now termed a cloud computing provider.

Carr published a new book earlier this year titled The Big Switch: Rewiring the World, from Edison to Google. This book draws a careful comparison between the evolution of in-house electricity generation at the end of the 19th century into today’s reticulated utility power, with in-house computing investment moving towards what we would now term cloud computing.

Carr has become an influential force among business executives, as well as end-users that agree with his basic premise - that IT is a needless hassle and should be as easy to use as electricity.

Until recently, IT departments were the biggest barrier to the adoption of externally sourced IT services. Typically, many IT professionals were afraid on-demand solutions would eliminate their jobs. Today, many IT professionals now see cloud services as a way to out-task mundane work or address complex application or technology deployment and maintenance responsibilities.

IT industry surveys frequently describe over 70% of an IT department’s resources as being dedicated to just keeping going the systems they already have. As they learn to take advantage of cloud solutions, IT departments will finally be able to put their daily fire-fights behind them and concentrate on addressing the strategic needs of their users and adding value to their organisations.

There is a natural cultural bias among IT staff against the adoption of cloud computing. There is a sense of loss of control and having to come to terms with the idea of data leaving their four walls. The traditional IT staffer is going to be resistant.

It is likely that the younger generation will adopt the concept more readily, as they are already familiar with cloud applications such as Facebook and YouTube.

CIOs will also find benefits from cloud services in increased scalability, faster deployment and a freedom from non-essential IT tasks that produce zero competitive advantage.

With in-house IT, firms pay up-front capital costs and get whatever computing power they pay for. If they over-specify, they have excess computing power or storage, and waste money. If they under-specify, they may have to delay deployment until another budget cycle or be forced to defer other projects.

The essential benefit of cloud computing is that the firm only pays for the computing actually used, and only when it is needed. The powerful advantage of turning inflexible fixed or semi-fixed IT costs into variable costs is not lost on the firm’s CFO or managing director either.

In a recession economy, this flexibility allows a firm to lower its IT costs exactly in line with the number of users employed. In a growing economy, the firm knows exactly how much IT will cost for each additional employee or user.

The primary value proposition of cloud computing relates to pure economics. It is cheaper to rent hardware, software and IT services on a pay-only-for-what-you-use basis than it is to buy, build, and maintain them in-house.

To deliver these advantages, cloud vendors leverage economies of scale. A large cloud computing firm can more efficiently build and operate its IT infrastructure than many small firms can on their own.

Cloud computing vendors specialise in what they do. It is not an ancillary activity. A typical firm’s internal IT resources are, by definition, a small part of the total firm. In contrast, the IT resources of a cloud computing vendor are 100% of that business.

With scale, the dedicated cloud computing company is able to attract and retain IT talent which is put to the services of each user within each client firm, irrespective of the firm’s size.

Because the staff and management of the cloud provider are focused on continual innovation, optimisation and operational improvements for its own competitive market reasons, users benefit enormously.

A firm’s internal IT resources rarely have the sickle of competitive market survival hanging over their heads to drive quality up and cost down.

Snowden is managing director of OneNet, an Auckland-based provider of on-demand computing services and applications.

• Next week: Michael Snowden explores how cloud computing can address some of IT’s most pressing challenges

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