Flexibility from the Cloud

Cloud Computing – The Future Form of ICT

An example from the recent past demonstrates just how much can come from the cloud today. Billions of people ­wanted to ­participate when the new American president Barack ­Obama was inaugurated into office in January. The ceremony was streamed live onto the Internet and watched by hundreds of thousands. A great number of hobby journalists used mobile devices to write their experiences in their Facebook and Twitter blogs, a kind of “voter-generated content”, so to speak. Countless cell phone users reported on the event to their families and friends.

Events of such a large scale represent an enormous challenge for those responsible for ICT operations. For example, in preparation for this historic occasion, AT&T had to invest millions of dollars to increase the capacity of its mobile network in the Washington area by 80%. Would it not be wonderful if the peak loads caused by such large events or, taking another example, widespread advertising campaigns could be absorbed by hiring the ICT resources when and where needed – and naturally with payment according to actual use? This is where cloud computing comes in. Cloud computing makes it possible to hire ICT infrastructures and applications temporarily and to pay for them according to how much they are actually used. Whenever there is a surge of users – as during Obama’s inauguration – more resources are provided automatically, and then closed down again when the storm has passed.   

Lifting the cloud cover – an attempt at a definition

But just what is the term “cloud computing” supposed to mean? A number of vague buzzwords related to the idea are making the rounds, but their precise meaning and their relationships to one another are not always clear. So let us attempt to lift the heavy cloud cover and come up with a definition of the term.

Cloud computing is frequently equated with grid computing. The latter refers to the breaking down of tasks requiring enormous computing power into smaller units which are then carried out by a network (grid) of computers in parallel. But cloud computing is more than this; it stands for a paradigm shift. An extremely diverse range of services previously handled by a local computer – enterprise software, data, memory, etc. – moves into the Internet “cloud”. The Internet connection serves as the interface between the client and the cloud servers on which the data are stored.   

The idea is not all that new. Similar models appeared a number of years ago, at that time known as “application service providing” (ASP) or “software on demand”. But because technological development and the users were not ready for such a step at that time, the concept was never accepted. Today, thanks to new web technologies such as AJAX and faster Internet service, the same ideas are experiencing a renaissance, albeit under a new name.   

Cloud computing services can step in at various stages along the value chain of ICT service providers. Currently, three models are predominant (see Figure 1, Page 30): “infrastructure as a service” (IAAS), “software as a service” (SAAS), and “platform as a service” (PAAS).  

Services, which provide the flexible use of computing power or storage capacity via the Internet are called “infrastructure as a service”. Examples of this are the web services Simple Storage Service (S3) and Elastic Compute Cloud (EC2) from Amazon.   

“Software as a service” is frequently equated with cloud computing, but it is in reality only one part of it. The concept of software as a service stands for the operation and maintenance of computer applications as a service via the Internet. The ­applications are hosted and updated on the operator’s servers. For example, Google’s Web service “Google Docs” offers a cloud-based alternative to Microsoft Office, and GMail is a web-based e-mail service which can also be used offline.   

The model “platform as a service” is aimed at the developers of Web applications rather than users. In the PAAS model, a provider makes application programming interfaces (APIs) and ­developer tools (software development kits, SDKs) available. Any developer can use them to program, test, and operate their own web applications based on the platform provider’s infrastructure. The SAAS pioneer Salesforce has been offering a platform of this type for some time now with its Web site Force.com.   

Using cloud computing in the company   

As is the case with so many ICT-related decisions, users must consider the topic of cloud computing from two perspectives: the business side and the technical-operational side. The first covers all of the market-oriented opportunities which result from the new way of utilizing ICT. The latter focuses on internal improvements, especially cost savings, which come from the changed provisioning of ICT services.   

The dominant drivers for new business opportunities are the relative speed and above all the openness with which business requirements can be implemented through the use of cloud computing – both seen in comparison with internal ICT solutions. Applications and platforms which are provided on the network can be used very easily and very quickly and can also be made available to partners. This makes them ideal for collaboration across corporate boundaries. CRM solutions from ­Salesforce.com, for example, are frequently utilized by companies with franchise networks or partner distribution. All any of the partners need to utilize the common CRM application is an Internet connection.   

Thanks to its open networking possibilities, cloud computing is ideally suited to exploiting the potential of modern work and organizational forms ranging from the creation of added value networks to the virtualization of companies and cooperation in partnerships across company boundaries and locations, the scheduling of temporary and mobile employees, and the flexibilization of the working world through the convergence of private and business life. In these application areas, cloud computing often has a content overlap with unified communications* and Web 2.0 applications. Communication and teamwork in diversified networks are increasing in both business and private contexts. More and more people want to use the things that support their private productivity in a professional context as well. Google is one of those placing its bets on this trend. Google Docs expresses the combination of cloud computing (“work online”) and Web 2.0 (“share and collaborate”) directly in its service claim: “create and share your documents and tables online with others – anywhere, anytime”.   

The use of cloud computing has advantages in terms of speed mainly because ready-to-use infrastructures and applications are available at the click of a mouse, more or less. This makes it possible to carry out one-off or short-notice projects quickly and outside of the normal and undoubtably necessary IT processes within the company. Companies are then in a position to introduce innovations on the market as test balloons, without the need for high CAPEX investments where the returns are uncertain. When, for example, the New York Times decided to make its archives available to the public, the newspaper was able to use the Amazon services EC2 and S3 to convert 11 million articles from the period between 1851 and 1980 into PDF documents within 24 hours. The process required the movement of 5.5 terabytes of data on 100 virtual computers. The project would have become inordinately more expensive and time-consuming if the newspaper had set up its own infrastructure. Experimental web sites for campaigns or new internet sites can be realized in a similar way with little expense. Start-ups and small companies can also develop their product lines at low cost and very quickly. The online photo and video archive “Phanfare” has stored more than 100 terabytes of user data on Amazon S3. According to information from the firm, this saves more than 50% of the costs that would have been incurred for the setup and operation of its own storage solution.

Cost savings are frequently at the forefront when companies think about cloud computing from a strictly internal, technical-operational viewpoint. Looking at it from a business perspective, cloud computing has many parallels with outsourcing or the utilization of managed services. The company does not have to make investments in its own IT resources, but pays solely for the volume it actually uses. The cost parameters in these cases are generally oriented to the application level. Services of an infrastructure nature like Amazon’s EC2 and S3 are priced according to technical parameters such as CPU time or data ­volume, while cloud applications like Google’s Apps or ­Salesforce.com are billed per application and user. Practical experience to date shows that cloud computing is above all and most ­clearly ­worthwhile for application cases oriented to the short term. ­Experience values concerning utilization periods of three to five years are not yet available. A long-term comparison is also difficult because a broad range of expense items, ranging from the end users’ hardware to the costs for computer ­centers, servers, power consumption, IT personnel, and license and utilization fees for the software, must be included in the TCO (total cost of ownership) analysis. IBM offers a “virtual desktop” as a ­substitute for the classic PC workplace with claims that companies can save as much as USD 800 a year in overall costs in comparison with the use of a normal PC with Windows Vista and a Microsoft Office suite.

From the technical-operational standpoint, there are today two accepted primary uses of cloud computing. The first is the use of additional cloud resources to cover peak periods. In this case, the cloud supplements and expands the services offered by the company’s own IT. This is adequate to cover one-off demands resulting from special projects as well as repetitive needs such as the preparation of the annual financial statements or stocktaking activities. The second has to do with the use of cloud resources to optimize financing structures with a shift away from CAPEX towards OPEX. Independent of the total costs of the cloud solution, scarce financial resources – common in the case of start-ups or in the present critical times – can be concentrated on operating the business and need not be invested in IT. As a rule, the costs of a cloud solution also vary much more in line with the business volume – yet another advantage for fast-growing start-ups or for companies facing difficult times.   

At the very latest, serious thought should be given to taking this path when the business-oriented advantages of cloud computing coincide with technical-operational benefits. When a special project with an uncertain outcome must be conducted in cooperation with partners, the commercial and IT departments should at least weigh up the pros and cons of the new opportunities provided by cloud computing.   

A gold mine for ICT companies?   

The many different ways in which users can benefit from cloud computing applications have prompted the appearance of a ­large number of providers. Both traditional software and hardware manufacturers as well as specialized cloud computing companies have already entered the market. ICT service providers are also pushing their way onto this still young market of web-based, on-demand services (see Figure 2). But what opportunities does cloud computing really offer to these different provider types?   

The most obvious beneficiaries of the increased attention being paid to cloud computing are the specialized providers of cloud applications. The company Salesforce.com, founded in 1999, is a pioneer in this sector and has been successfully positioning its web-based corporate software such as CRM tools in ­competition with the providers of local software solutions for a number of years now.    

Traditional software manufacturers avoided the development of a web-based variant of their applications for a long time. This was a consequence of their fear of cannibalization effects on the sale of local software. Only recently have software companies begun to recognize the new opportunities which the provision of web-based applications would open up to them. Companies such as Microsoft or Adobe are now working hard and fast to develop cloud variants of their applications. Although the software suite “Microsoft Office” is still only available in a local version, the company has already announced that it wants to offer a Web version in the near future. The developer program “Windows Azure”, which was presented at the end of 2008, emphasizes the strategy change at Microsoft.    

Hardware manufacturers have very recently begun to take advantage of the cloud computing trend. Asus, to take just one example, now offers an online memory with an additional two gigabytes for its netbook eeePC. This has a small hard drive of only a few gigabytes, and the online memory can be seamlessly integrated into the operating system.   

Telecommunications service providers can benefit from the cloud computing trend in two ways. One is that the importance of the Internet for companies will increase, thus offering network operators new levers for the sale of broadband Internet connections. The second is that the provision of their own cloud computing services will enable network operators to develop completely new business models.   

The first factor is easily understood: if more and more corporate processes and applications are obtained from the World Wide Web, the Internet connection will become increasingly critical. Even short downtimes can quickly have a negative ­effect on business if they cause paralysis in important parts of the company. The objective must be to provide good connection quality as well as sufficient speed to absorb utilization peaks. This could make it possible to convince companies in industries previously less interested in IT of the necessity of broadband Internet connections. Network operators and ICT service providers should actively support the spread of cloud computing so that this effect is intensified. British Telecom (BT), for example, offers small and medium sized businesses cloud applications such as those from Salesforce.com right along with the plain Internet access.   

A second opportunity for network operators to profit from the trend towards web-based services would arise from the ­provision of their own cloud computing solutions. This involves making traditional telecommunications products such as telephone calls, fax services, and voice mails available in virtualized, i.e., web-based, form. The advantage for the user is that they then only need Internet access to have access to all means of communications.    

These services can be sold by the network operators themselves. However, another variant is far more interesting: making programming interfaces (APIs) available to third-party providers (independent software vendors = ISVs) so that they can develop their own cloud applications on the basis of the virtual telecommunications product. An online market place serves as a sales platform to offer these services to any customer. Part of the utilization fees would be retained by the provider as compensation. Any operator who can gather a large community of developers on their platform would then have a competitive advantage over other network operators. BT is blazing the trail here as well: in mid 2008, the company purchased the Silicon Valley startup Ribbit, acquiring a technology which enables the seamless integration of voice communications into any Web site. The “Ribbit Developer Platform” gives developers the tools they need to establish their own services on the foundations of the BT infrastructure.   

Recommendations for potential users   

Users today still tend to be skeptical when it comes to the topic of cloud computing. Large companies in particular fear a lack of dependability of the services. Before cloud computing can be seen as a fully fledged substitute for established applications relevant to business, the trust in the long-term positioning of the providers must mature, legal problems regarding the storage of data across national borders must be clarified, and the unrestricted availability of the Internet to all market participants must be secured.   

But interesting utilization potential already exists for applications outside of the core programs and for young and smaller companies. Whether the use of cloud computing in the company will pay for itself depends on certain organizational and process prerequisites. The greater the number of locations and business partners a company has, the more the open network opportunities offered by cloud computing can be exploited. The introduction of flexible working hours and workplace regulations in the company may also make a change to cloud-based infrastructures and applications worthwhile.   

Fast-growing and very young companies can profit from the scalability of web-based cloud services. The utilization of cloud computing is highly recommended in these cases because the solutions can also grow in the event that staff numbers increase by leaps and bounds. In the case of larger companies, which are growing more slowly, the project mentality of the company can be decisive. If large projects are frequently conducted in the company, e.g., during product launches or corporate mergers, cloud services can offer the flexibility required to provide infrastructures and applications in line with needs.    

One of the most important questions, also from a technical-operational perspective, is that of data security. Adequate ­encryption of the stored data, redundant data storage, and regular backups should be ensured. The question of who is responsible when important data are lost, and how legal problems related to the storage of data across national borders can be avoided should be clarified in advance with the provider.   

If cost savings are the main argument for the implementation of cloud computing in a company, compatibility aspects play a major and twofold role. For one, the interaction of the cloud service with the company’s existing ICT infrastructure must be checked. Secondly, the compatibility of the services with one another when a number of cloud services from different providers are used should be examined. Only a clear understanding of the big picture of the application architecture ensures the interaction of the individual parts and consequently the cost-efficient implementation.   

As more and more services in the company come from the cloud, its dependency on cloud providers will grow, another reason why a close look should be taken at the situation in advance. Many cloud computing providers offer test phases over a number of weeks during which the services can be tried free of charge. Users should take advantage of this phase to compare the operation of the systems as well as their technical compatibility: the more similar the local and cloud variants are, the more easily the affected employees will be able to make the transition between them. Additional evaluation criteria include the reputation and reliability of the cloud provider. In particular, cloud services bearing the label “beta version” in their title are frequently not yet suitable for professional use in companies. If, on the other hand, mature cloud services are used, it is most probable that companies will already be able to profit from the numerous benefits which cloud computing offers.   

Recommendations for cloud providers   

The changes in user requirements such as greater dynamism, rising cost pressure and, above all, the new technological possibilities in the form of increasing virtualization which can ­result from cloud computing make it possible for cloud providers to address new target groups and to serve their existing target groups better.   

New target groups such as very small companies and start-ups, for whom the one-off acquisition costs of a software program or a server infrastructure were previously prohibitive, can now be won over as new customers with the flexible, demand-oriented billing methods of cloud computing. From the viewpoint of specialized cloud providers, there is an opportunity to realize scaling effects when providing their services. The business model becomes especially lucrative, as shown in the example of the Amazon services EC2 and S2, when it involves resources which have to be maintained for the company’s own business purposes anyway. Cloud computing can in this case result in better utilization of capacities in one’s own infrastructure.   

Users of cloud products will, initially, go to the cloud ­primarily for applications (software as a service) which do not require deep integration into their own corporate processes, databases, and IT environment. Nevertheless, they will expect guaranteed service levels and compliance declarations concerning the handling of corporate data for these applications as well.    

During a second phase, the main objective of the cloud providers will be to increase their own “share of the wallet”. This will be possible for those providers who are able to expand their service portfolio and to realize even complex integration projects in their customers’ corporate architectures. An increasing number of specialized providers will form at the various stages of the value chain, and they, just as their customers, will be confronted with the decision to “build, buy, or partner” when creating their services. This means that it will become critical to the success of the providers of “higher quality” services that they design an attractive product portfolio and achieve an optimal cost structure. Successful partner management is certainly one of the key qualifications.   

The patterns which were described previously primarily for IT services also have direct relevance for the operators of communication networks. From the viewpoint of the network operators, the challenge is to enhance their product line by adding cloud-based services. Moreover, a trend in the direction of increasing convergence and virtualization of telecommunications services can also be discerned.    

By the time of the next American presidential election (2012 at the latest) cloud computing solutions will presumably have become established on the market as alternatives on a par with ICT services within the company. So the answer to the question as to whether everything will come out of the digital cloud in the future is: “No, not everything, but perhaps a lot more than we can imagine today.”