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Introduction to Cloud Computing

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This chapter describes the Cloud Services Market, explains what that means and how it can benefit your business, and provides examples of possible pitfalls to watch for.
This chapter is from the book

Cloud services are arguably the most rapidly growing and evolving approach to delivering applications and services from anywhere to any customer, on any device. A shift is happening with cloud computing that spans the realms of technology and business; a shift that will dramatically change business and how it uses technology to deliver on its requirements. Are you ready?

The Cloud Services Market

Cloud is a logical but fundamental shift in how individuals, enterprises, governments, and more conduct business, interact, and use technology. The ability to have specialized tasks undertaken by third parties is the way in which business has evolved for decades. Think of FedEx for logistics, supply chain, and transport services; ADP for payroll, HR, and benefits administration; the Big Four accounting firms for tax and audit capabilities; or one of the many production facilities located around the world. This ability to hand off critical tasks that can be done more efficiently by a third party, whether they are core or noncore to your business, is a common business model and is how cloud services can benefit you, too. There are several dimensions to cloud computing. Commonly, you will experience sales pitches in terms of public and private cloud solutions—public clouds being solutions offered by third parties, and private clouds being cloudlike solutions you implement within your own data centers. Regardless of where the cloud service is housed however, the benefits are found in being able to pick and choose the most appropriate service when needed, and your business becomes focused on optimizing your own unique IP, business methodologies, and capabilities, while linking in the nonessential services from the best source. It is about delivering quickly and supporting your operational agility.

And it is critical that you understand how you can take advantage of the best opportunities for your organization, too, because your partners and competitors are likely already doing so. A study in August 2009, by F5 Computing of more than 200 mid- to large organizations found that 80% were in trial stages for public and private cloud services deployments for their businesses. Organizations are adopting cloud services aggressively, as detailed in Figure 1.1, with 50% reporting that they have already deployed a public cloud services implementation. Consequently, cloud services are also meriting budgetary consideration, with 66% of respondents indicating that they have a dedicated budget for cloud services initiatives.

Figure 1.1

Figure 1.1 Stages of use for a public cloud and a private cloud

Most types of organizations can benefit from cloud services. Large enterprises can often find private clouds compelling because they deal with the maintenance or replacement of legacy systems, cost management, the requirements to launch new services faster, and similar broader competitive issues. Small companies and start-ups can find it easier to make use of the newer business solutions and offer new services to compete with established or much larger competitors. Almost all organizations experience business pressures that can be alleviated through the right application of cloud services.

Legacy solutions must provide a baseline of capabilities, from supporting existing data to providing appropriate new or improved functionality. In addition, until cloud services are seen as being a dominant model for IT delivery, the use of cloud services may be politically sensitive in some organizations, for either valid regulatory, governance, or security reasons, or alternatively, from a job-security perspective. (In Chapter 12, "Creating a Successful Cloud Roadmap," endterm," we discuss the chasms that need to be crossed for different types of organizations, and this is one area in which organizations require best practices before moving forward.) These organizations are definitely more likely to use or be aligned with private clouds, because IT departments try to leverage internally cloud architecture benefits to optimize their data centers. This is often portrayed as, and sometimes parlayed into, an entrée to more-public cloud options.

New solutions have an advantage of generally being able to be architected to use new technologies. This is certainly true for most start-ups benefiting from public cloud offerings. In particular, infrastructure offerings of storage, compute, and networking enable a start-up to create its solution without significant investment in such hardware and its related installation and management requirements. The same potential is there for larger organizations that need immediate capacity without a hit on capital expenditure.

Governments are seeing similar reasons to chase cloud solutions. On September 15, 2009, Vivek Kundra, chief information officer (CIO) within the U.S. Office of Management and Budget, gave a talk at NASA Ames Research Center on the administration's long-term cloud computing policy. In that talk, Kundra noted that of a $77-billion federal IT budget, the U.S. government spent $19 billion on infrastructure alone. The key goals were noted as cutting costs and reducing the environmental impact of the government's computer systems. Citing examples, such as in doubling of federal energy consumption between 2000 and 2006 and duplication of efforts and associated costs across agencies, Kundra saw cloud computing as an incredibly strategic force to mitigate these challenges.

October 2009, IDC released its "IT Cloud Services Forecast: 2009-2013,"1 and estimated that of the $400 billion customers would spend on IT, $17.4 billion (5% of spend) will be consumed as cloud services. By 2013, customer spending on IT cloud services will grow almost threefold, to $44 billion (10% of spend). While acknowledging there are risks, the expectation is that few mission-critical systems will be moved to the cloud, but significant benefits can be gained elsewhere through nonessential and controlled approaches.

January 27, 2010, the U.K. government announced its strategy to create a private governmental "cloud computing" solution. As reported in the Guardian, 2 this is "part of a radical plan that it claims could save up to £3.2bn a year from an annual bill of at least £16bn." In one example of expected benefits, they note that "cloud-based infrastructure could cut costs of government computing significantly and also satisfy its drive for a 'green' agenda by reducing power usage. The Inland Revenue, for example, is presently seeing a huge demand for its online tax return system—but that peaks every tax season and then drops substantially."

Obviously, the goal is to support the peaks and valley's as needed, and share the resources among other departments throughout the rest of the year.

Fundamentally, the market for cloud services is nascent but growing explosively due to a combination of unbridled exuberance, and even more important (as we examine in this book), a compelling set of business drivers. Guy Rosen's State of the Cloud for May 20103 shows that of the top 500K sites worldwide, more than 3,000 sites were hosted by cloud infrastructure service providers as of April 2009 and more than 5,000 sites by April 2010. That's around 40% growth year over year. But, as noted in the same report for March 2010, cloud solutions constitute just 1.01% of the sample. Looking at the higher-level cloud services is more challenging as a whole, but almost every version of the metrics shows significant growth, too. A poster child for cloud services is Salesforce.com. Their 2010 annual financial report showed year-over-year worldwide growth of 17,000 corporate customers to a total of 72,000, just shy of 31%. Fiscal year revenues for 2010 were $1.3 billion, a 21% year-over-year increase.

The growth in cloud services based on vendor metrics so far is remarkable, and the room to grow is immense. The business drivers for cloud services include intense economic pressures and harsh realities being experienced globally, time-to-market concerns, competitive pressures, criminal threats, and more.

Cloud services have achieved a level of awareness faster and greater than many previous technology solutions. Cloud services are having a global impact in so many aspects of the business world right now, from individuals to global corporations, from small businesses to the largest of governments, from the richest nations to the poorest. Even senior executives are asking their CIOs what the "cloud strategy" is.

However, confusion surrounds what cloud services are, and how to best capitalize on all the options available. With these factors in mind, it is also the case that those interested and ultimately influencing a cloud strategy range well beyond technology professionals. The use of cloud services will increase significantly as a result. So, there are lots of silver clouds offering huge cost savings, speed of delivery, and more. However, there are some dark linings in those clouds, and risks are being ignored as the allure of cheaper solutions becomes a focus. The goal of this book is to help you develop the best approach for your organization to get the most from cloud services solutions.

  • Cloud is not a panacea!

It is neither possible nor sensible to wholesale move your entire enterprise to using cloud services and thus prosper. Established business will have existing, often purpose-built infrastructure that they depend on. Larger organizations will be especially aware of their existing systems on which they depend and cannot change in an instant. Concerns about performance, reliability, availability, and security are often mentioned as barriers to adopting cloud services, and the subsequent requirements must be understood to successfully manage any migration and the associated risks. This generally requires long-term planning and project management. Smaller organizations, start-ups especially, are looking for and are able to gain immediate benefits from cloud services. They can adapt and manage the risks because the cost benefits have significantly greater weighting in such evaluations.

It is sensible to look for a combination of tactical and strategic moves to take advantage of the opportunity cloud services offer. It makes sense to focus on key initiatives and requirements that can be met by cloud services. It makes sense to piece together the right parts of cloud services to improve your business processes, speed up system and product delivery, or even create a completely new product or business. Consider how small concepts and capabilities joined together can create something incredible!

Robert Kearns invented the intermittent windshield wiper in 1963, and filed his first patent around the technology in 1964. After showing his invention to several car companies, Kearns saw the concept stolen and patents infringed when major car companies started to roll out their own. The road to common use of the intermittent wiper and the subsequent decades of lawsuits against Ford, Chrysler, General Motors, and Mercedes for patent infringement forms the basis of the 2008 film Flash of Genius. The courtroom scene was compellingly watchable, as Kearns argued against the Ford lawyer's charge that the patent was invalid because it was an obvious use of existing parts. Not so obvious is a core requirement for a valid patent. This argument was countered by Kearns, who showed that although it may have been made of common components, the resultant solution was far from common, but rather gestalt.

Whereas Ford asked a scientist to testify that the invention was a simple set of existing circuits, Kearns pointed out that when Charles Dickens wrote the classic Tale of Two Cities, it was not the use of common words that made it great or original, it was the arrangement of them into something new.

In many respects, cloud computing can be seen as a set of simple components, technologies, and processes, itself built upon a legacy of more common ones. Yet with a flash of genius, the cloud can deliver new, unique, and incredibly valuable solutions. The cloud offers an immense wealth of choice components and services for enterprises of all sizes to build new things in new ways.

Kearns, however, did not completely change a historical business model. For that, we can look at a much more strategic and game-changing example.

In 2001, Apple Computer introduced the iPod. Some considered the iPod a simple MP3 player that would need to compete with a multitude of existing products, ultimately appealing primarily to the Apple zealots. Its unique selling point was a new method to control the device called the scroll wheel. Less compelling to many at the time was the binding of the iPod to a simple media management tool called iTunes. However, Apple's combination of hardware, software, and services created a new market model that monumentally changed the music industry.

Regardless of anyone's specific proclivities or polarized position about Apple and its walled-garden approach to the business, it is clear that Apple has won a majority of the online music market for now.

Up until 1999, record companies worldwide largely owned their domains, managing the majority of music production and distribution from the artist through to the consumer. By 2005, the market had massively shifted, and those same dominant companies were beginning to reel from continuous hits to that dominant position. Customers could download music from the Internet. Furthermore, in another part of the industry, artists if they so choose could begin to create, promote, and distribute their own product on the Internet, organizing their own licensing for products such as T-shirts and tchotchkes. The heavy lifting of organizing tours and bookings was now possible through direct online access to venues, unless those venues were locked into contracts, of course.

The market changed and control was being eroded. Music sales were declining, and piracy was an easy target to blame. The reality was much more complex, however. The once-dominant companies had failed to observe and respond effectively to a multitude of societal, technological, economic, and business models

Quite simply, Apple created an environment that people wanted to be part of...an experience. The choices remain for anyone to avoid or vacate the Apple environs, its unique approaches, and rights management mélange. Microsoft offers an arguably worthy competitive vertical solution in Zune, comprising hardware, software, and services that match Apple's. There are many individual component solutions that when combined offer the same sorts of capabilities, yet the Apple solution is still compelling enough for most to remain loyal. Moreover, it is not just a technical or business model that makes it so. It is a mystique and market presence that allows Apple to maintain such a following, never mind the accessory and secondary markets that have been created in their wake.

Meanwhile, back in the broader music industry, the industry group, primarily in the United States, responded to the market threats with measures that have been decried as everything from draconian and misdirected (suing individuals, lobbying political support to create or update laws, and more). As a result of not responding to a shift in the market, they lost value and their position of power.

  • Hey, shift happens! Be ready for it.

The movie industry has faced a similar problem. Because of the move to digital distribution of their content that can be easily moved over the Internet, users can more easily access it through this new means. Unless a business model is found that embraces and extends this reality, the movie industry risks suffering a similar experience, arguably in a much shorter time frame. They are experiencing unprecedented shift.

Worldwide, many are excited by the prospect of owning Amazon's Kindle. Although there is much to admire in the hardware in the Kindle device, Amazon is attempting to create a vertical market juggernaut like Apple's. However, competitors are coming in thick and fast to try to own this new vertical market, using a similar model, and therein lies another key point to be made. The benefits of cloud services can be capitalized on often without requiring significantly new intellectual property. However, business models will be broken as a result.

For now, let's be clear: This is not the story of patent litigation or legal issues. It would be a mistake to say that cloud will devastate the landscape of business. However, it is not a stretch to say that the landscape will shift radically in the next ten years because of how cloud services will be used to revolutionize markets. Here, we exhort you to critically consider how your business will be impacted by the cloud approach to using resources, and prepare for some of the most significant changes to business processes and opportunities for change in decades.

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