Who can help with your transition?

When vetting vendors, make sure to heed the lessons of the dot-com boom and bust. During the 1990s, IT vendors sprouted up out of nowhere. Often these so-called vendors were inexperienced at best and charlatans at worst. I’m afraid the cloud might herald another era of fly-by-night opportunists hoping to cash in fast on a hot opportunity. Don’t be their victim! Always take time to identify a group with a proven track record. At the end of the day, you want a trusted partner with expertise.  (I would be remiss, of course, if I didn’t take this opportunity to mention that Intertech was hired by Microsoft to write Microsoft’s Azure courseware!)

MIT’s McAfee also has this advice:

“Talk with your core enterprise software vendors to understand their plans for the cloud. Many, if not most, of their offerings are currently available only on-premise. When are they going to release cloud versions of their applications? How are they going to help current customers migrate to them?  As you take steps into the cloud, you’ll very likely be working with your company’s IT department and CIO. Their attitude toward to cloud computing will be critical and highly revealing. In my view, a CIO’s lack of enthusiasm about the cloud these days is about as red a flag as a factory manager’s disinterest in electrification would have been a century ago.”

McAfee also suggests that companies start running experiments with software-as-a-service and that they do their next development project in the cloud. He notes that the cloud “contains powerful software resources that developers can plug into. Google Maps and Chart Tools, for example, can be easily integrated with a company’s data to produce a wide range of visualizations.”

The bottom line, as stated by Andrew McAfee:  “Over time, more and more of the business world’s software is going to live in the cloud. You probably want to be part of this trend sooner rather than later.”

I couldn’t have said it better myself!

What are the drawbacks of the cloud?

Here are some honest, straight forward limitations to cloud-based apps:

Space:  While cloud computing is not totally new; it’s new enough that there are limitations.  For example,  Windows SQL Azure (the cloud-based storage option for Azure-based apps) has a limited database size. There are recommended techniques to get around the limitation, but it involves more work by programmers (i.e., time and money) to get a larger application up and running. That’s why we advise customer sticking with your existing server or data center if your goal is simply to add new features to an existing application.

Legacy Spaghetti: I’m not going to mislead you: moving an enterprise’s legacy IT to the cloud can be difficult. As Andrew McAfee at MIT has written, “it forces tough decisions about consolidation and standardization. Most organizations that have been around for awhile have a hodge podge of hardware, operating systems, and applications, often described as ‘legacy spaghetti.’ It can’t simply be transferred to the cloud but first must be untangled and simplified.”

Conversely, it’s the perfect time to move to the cloud if you need to completely rewrite an application or develop a totally new one. Ditto when hardware is getting old.  While it’s true that connecting cloud-based applications back to legacy databases or other information inside a company’s walls is doable, but it requires extra steps/work. In many cases, it’s often more cost-effective to move to the cloud instead of investing in expensive new hardware for your data center, which leads me to:

Cost: Another concern about moving to the cloud can be the cost. There have been conflicting calculations from such respected organizations as McKinsey and Microsoft on the costs of putting an organization’s entire data center in the cloud. However, MIT’s McAfee believes the focus on cost is misguided for two reasons:

(1) Most companies don’t spend massive amounts on technology, so even substantial changes in the IT budget won’t make a large difference on the income statement (Gartner estimates that for S&P 500 companies, all IT-related costs amounted to just 3.2 percent of revenue, on average, in 2009.) and,

(2) Over time, the economics of building and running a technology infrastructure will favor the cloud.

On point number two, McAfee reasons that economies of scale can be realized by cloud providers in the areas of hardware, bandwidth and power. He also writes that, “because they buy gear all the time, they can take continual advantage of the computing cost declines predicted by Moore’s Law,” citing Amazon Web Services and its dozens of price reductions in the past three years, “even though it does not face intense competitive pressure.”

Security: I’ll share McAfee’s response to security questions, which I find to be completely compelling:

“The security of the cloud is frequently questioned. It’s true that transmissions can be intercepted; firewalls can be breached; viruses, worms and other forms of malware can invade. Perhaps most unsettling, the people responsible for digital infrastructure can steal secrets or get sloppy and let thieves in. However, this is true for every computer network, including the ones that companies run themselves. . . .The only way to have 100 percent computer security is have zero computers. The next best approach is to constantly monitor the threat landscape: buy or build the best technologies to protect devices, networks and transmissions; and hire and retain top digital security specialists. Cloud computing vendors are better able to do this than all but the very largest and most security-conscious organizations.”

Bottom line: there are definite pros and cons related to cloud computing. My next (and final post on this topic) will look at who can help with cloud computing questions and transitions.

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?