What are the possible benefits of cloud computing?

Organizations should approach the cloud prudently, like the adoption of any new technology: investigate the pros and cons and then proceed only if/when it makes financial sense. That said, there is a lot of confusion about cloud computing. A good rule of thumb is that the best cloud-based applications are those with dramatic usage spikes.

Why? The cloud is perfect when you don’t want to waste a lot of space on your own server with data your organization only occasionally uses. Think of tax-related operations, from private tax preparation companies to government-related services such as business registrations. Most of the year, the applications needed to power these operations lie dormant – until the annual activity blizzard begins!

In these situations, servers go from no or very little use for about nine months of the year to very heavy use for three months of the year. Using the cloud to run seasonal applications and data storage takes the annual burden off a company’s or governmental agency’s in-house data centers. It also allows IT staff to continue focusing on bigger, strategic goals instead of trouble-shooting during the annual data stampede.   The obvious exception to this rule is for small organizations, such as Intertech, which use off-the-shelf software like email (Exchange), CRM (Microsoft CRM), or online collaboration (e.g. Microsoft SharePoint) on an everyday basis. For these organizations, a year-round hosted solution makes a lot of sense versus buying and maintaining a server.

Big, international organizations can benefit from using cloud-based solutions that are hosted in or near the countries where they have operations. For example, if a global firm wants people in Russia to use its application (either employees or customers), the cloud-based solution could be hosted in or near Russia because proximity to the cloud-based server makes the application faster to access and use.  In a similar way, if you have data intensive applications like video, they can be served using a Content Delivery Network (CDN) to improve performance.

One expert believes the cloud represents an ideal solution for organizations whose IT departments are “stretched thin with maintenance activities, leaving precious little bandwidth for development and new initiatives.” MIT’s Andrew McAfee argues that “the cloud offers a way for companies to pursue opportunities nimbly, and, in many cases, cost effectively.” He goes on to suggest that, “many unanticipated cloud benefits arise after a project is launched and employees discover novel ways to use the technology.”

Among these unanticipated benefits catalogued by McAfee: making individuals more productive, facilitating collaboration, mining insights from data, and developing and hosting new applications. His article, “What Every CEO Needs to Know about the Cloud,” in the November issue of Harvard Business Review gives an excellent overview of these benefits, replete with real-world examples of how companies are realizing them today including Netflix, Zynga, eBay and Minnesota’s own 3M.

Next post: what are the potential cloud computing pitfalls?

What is Cloud Computing?

Before I get into my own cloud-related thoughts in subsequent posts, let’s make sure we’re all on the same page re: what cloud computing actually refers to! Here’s a quick primer from Andrew McAfee, who is a principal research scientist at MIT’s Center for Digital Business and the coauthor, with Erik Brynjolfsson, of the e-book, Race Against the Machine (Harvard Business Review Press, 2011).

The cloud computing industry is growing and evolving rapidly–and also generating lots of jargon. As a result, it can be difficult to understand exactly what the cloud is and how its offerings differ. To oversimplify just a bit, those offerings can be divided into three categories: raw computing capacity, computers that are ready for software, and software itself.

The first of these, called INFRASTRUCTURE-AS-A-SERVICE (IaaS), is the most basic; it’s a server or servers out there in the cloud, or a bunch of storage capacity or bandwidth. IaaS customers, which often are tech companies, typically have a lot of IT expertise; they want access to computing power but don’t want to be responsible for installing or maintaining it.

The second tier is called PLATFORM-AS-A-SERVICE (PaaS). This is a cloud-based platform that companies can use to develop their custom applications or write software that integrates with existing applications. PaaS environments come equipped with software development technologies like Java, .NET, Python, and Ruby on Rails and allows customers to start writing code quickly. Once the code is ready, the vendor hosts it and makes it widely available. PaaS currently is the smallest segment of the cloud computing market and is often used by established companies looking to outsource a piece of their infrastructure.

SOFTWARE-AS-A-SERVICE (SaaS), the third category, is the largest and most mature part of the cloud. It’s an application, or suite of applications, that resides in the cloud instead of on a user’s hard drive or in a data center. One of the earliest SaaS successes was Salesforce.com’s customer relationship management software, which provided an alternative to on-premise CRM systems when it was launched in 2000. More recently, productivity and collaboration software—spread sheets, word processing programs, and so on—has moved into the cloud with Google Apps, Microsoft Office 365, and other similar offerings.

Customer offerings share a few similarities across these three categories. First, customers rent them instead of buying them, shifting IT from a capital expense to an operating expense. Second, vendors are responsible for everything “beneath the hood”—all the maintenance, administration, capacity planning, trouble-shooting and backups. And finally, it’s usually fast and easy to get more from the cloud—more storage from an IaaS vendor, the ability to handle more PaaS projects, or more seats for users of a SaaS application. (Source for all of the above: Harvard Business Review, pgs 128-129, Nov. 2011).

Next post: What are the benefits of cloud computing?

Finding Silver Linings in the Cloud (First in a series)

Post #1: Scanning the horizon

Intertech had a series of goals for 2011… Some we blew out of the water (like our sales goal, thanks sales crew)…

Only one came short… our target for cloud-based applications for customers. Why? While we believe cloud computing represents the future of IT and we’re eager to be among the best providers of cloud-based development services. I’m sorry to report that our goal was not met, not even by half, because clients were convinced that it made sense to pursue custom cloud-based applications. Many have not even thought about it.

Turns out, our clients are not alone.

A 2011 survey by InformationWeek found that only 29 percent of respondents had analyzed the impact of the cloud on their internet-facing architecture. And the technology research firm Gartner predicts that while cloud computing will grow at an annual rate of 19 percent through 2015, it still will account for less than five percent of total worldwide IT spending by that year.

With such paltry predictions, why should companies care about the cloud? Many, including MIT digital business research scientist Andrew McAfee, believe the economics of building and running a technology infrastructure will favor the cloud over on-premise computing. That might be the reason why the chief information officer for the United States this year called for moving $20 billion – or one quarter – of all federal IT spending into the cloud.

As a CEO, have you given much thought to the implications of cloud computing for your company? If you lead IT, are you concerned that the cloud will displace you or even your entire IT department? Are you unsure what “cloud computing” even means? If you answered yes to even one of these questions, my next series of posts may be helpful. I will sort out the pros and cons of cloud computing, giving you my personal perspective and sharing information and insights gleaned from the excellent article, “What Every CEO Needs to Know about the Cloud” by Andrew McAfee, which appeared in the November 2011 issue of Harvard Business Review (HBR).

Next post: What is cloud computing?