What are the benefits of cloud cover?
According to answers.com and at the time of this blog post, nothing as of yet: http://wiki.answers.com/Q/What_are_the_benefits_of_clouds
What are the benefits of cloud computing?
Several benefits associated with cloud computing are emerging and (thankfully) many involve quantifiable cost savings. There are also benefits on the revenue side of the equation (e.g., faster time to market). Below is a list of the revenue and cost-oriented benefits associated with cloud computing and its 3 related sub-categories (i.e., SaaS, PaaS, IaaS).
Speed to Market [Time to Value]: Not sure if your sales force needs a CRM system? Instead of wasting time slogging through the traditional software development lifecycle (SDLC) – i.e., scoping out business needs, managing vendor bake-offs, installing the software on salespersons’ laptops, etc…with a SaaS-based service you simply have the sales personnel login to a salesforce.com-esque CRM service and voila – a fully functioning CRM system! No more excuse for missed sales quotas. (Note that related benefits include associated speed to market include: business flexibility; getting new products and services to market faster; testing market ideas quickly; simplification; reducing complexity)
Or, let’s say you’re one of the last hedge funds on earth and want to spin up a 200-node Linux cluster in order to model collateralized debt obligations (CDOs) risk using computationally intense, quantitative financial analysis. Tap into Amazon’s EC2 service with your iPhone app and a Linux environment is up in less than 10 minutes. Compare that with the 6 weeks it would have taken to internally purchase, configure, deploy and test the environment in your own data center. Plus, when your colleagues are finished with their financial analysis, you simply hit the “finitio” button and your environment, along with your client’s investment money and data vanishes into the thin-rarified air of Amazon’s computing atmosphere.
Dynamic Business Scalability [Variable Capacity]: Extending the CRM example from above, let’s assume that sales are increasing at such a pace that new sales personnel are warranted. Simply add the new users to the CRM SaaS subscription model and the new team members are up and running on their first day. You no longer shoulder the traditional risk of having to install new hardware and/or software to accommodate the additional data and processing cycles associated with an increase in users. Or, if you are in the unfortunate position of seeing your sales team diminish, then in that case, simply dial-back your service to align with your decreased software usage. As you can see, cloud computing is tailor-made for aligning the dynamics of your business with information technology asset utilization.
Legacy Asset Risk Mitigation: What CIO doesn’t feel shackled by legacy systems? Well, with X-as-a-Service, freedom is right around the corner. CSPs manage software updates and upgrades which happen automatically and are available instantaneously the next time a user logins. CSPs also assume the risk of operating contemporary hardware as it’s in their best interest to keep current with technology advances laws (Moore’s Law, Kryder’s Law, etc…) to best leverage economies of scale in delivering many architectural qualities (e.g., performance, reliability, etc…).
Universal Access to Computing Assets: In cloud computing solutions, data and its related formats (e.g., content, documents, etc…) remain in the cloud when you can access them at anytime and from anywhere with an Internet connection. Also, inherent in this benefit is that cloud computing provides a readymade platform for disaster recovery. In addition, related benefits include: easier group collaboration and single source of versioning (since documents are located in the cloud instead of on user machines).
Universal ‘Tetherlessness:’ With cloud computing, users are no longer tethered to an individual device. If you were to change computers or purchase a new mobile device, all of your existing applications and associated data remain unaffected and available in the cloud.
Greener IT: For the tree-huggers out there, cloud computing is the most environmentally-friendly approach to IT technology delivery since sharing resources across tenants reduces the need for electric power. (It’s been well-documented that many corporate data centers operate at an average of 40% computing asset capacity, yet the power, cooling and real estate associated with each data center aggregates to a potentially large negative impact on the environment.)
Increased End-User Value (Bloatware to Thinware): Much of traditional enterprise software is disproportionate to the value that it creates, as most users only use a fraction of available functionality. The software purveyors market their (soft)ware as “feature-rich.” However, perhaps (bloat)ware is a better characterization? Since many SaaS models are new, these vendors offer feature-thin offerings (i.e., cloudware) with only the most relevant functions available to the user. So, as the Rolling Stones used to sing “you get (only) what you need”
Cost Reduction (end-user hardware): In the mid-1990s, the INTC/MSFT juggernaut was growing beyond mythical proportions. In competitive response, other vendors began to market a “thin-client” architecture in which the server did most of the processing and data storage while the client would simply be a networked and diskless computing device. A variety of machines were designed and promoted specifically aimed at destroying the desktop: ORCL trademarked the “Oracle Network Computer” (NC); SUNW advertised the JavaStation and rallied around “The Network is the Computer” tagline; IBM advertised the NetworkStation. Not to be outflanked, MSFT launched “Zero Administration Windows (ZAW)” for this thin-client paradigm while its BFF (INTC) designed associated chips and HPQ (and Compaq, which is now HPQ) leveraged both in offering “NetPCs.” Unfortunately, the mid-1990s was a bit too early for thin-client architecture due to a variety of factors, chief among them network bandwidth.
However, much has improved since the early go-go years of the eCommerce boom and a new craze is sweeping our nation: the “netbook.” For a brief definition, see my “thin-client device” definition above. For a more comprehensive characterization, see: http://news.cnet.com/what-is-a-netbook-computer/. The “thin-client” architecture is intimately associated with the cloud computing architecture as the latter offers CPU cycles, storage, applications, etc… for rent via a network connection. In autumn 2009, netbooks are retailing at $300 per unit while a mid-range Intel Core 2 desktop is pushing 10 Benjamin’s. The $700 differential adds up to $7M for an organization of 10,000 corporate soldiers.
Cost Reduction (server-based hardware): Similar to end-user hardware savings, the investment in server-based hardware is also drastically reduced. Although there are instances where corporate IT would still purchase and own servers (i.e., “co-location” services where the physical machines are at a vendor’s data center), many who leverage cloud computing resources would simply rent cloud service providers’ hardware. This is done directly through hardware-as-a-service (HaaS) where you simply purchase the hardware; or indirectly when you subscribe to software-as-a-service (SaaS) which has the infrastructure costs baked into the application’s pricing. HaaS also obviates the need for investing in additional hardware capacity simply to handle the potential of peak load events (e.g., Black Friday for retailers). CSPs can offer drastically reduced server HaaS prices via their massive economics of scale (e.g., large server farms, multi-unit tenancy models, etc…).
Cost Reduction (lower IT support and maintenance): Associated with the two previous savings categories, are the reduction in IT support and maintenance costs. IT support personnel no longer need to spend as much time (and money): maintaining end-user machines; maintaining server-based machines; maintaining software on both end-user and server-based machines.
Cost Transfer (CAPEX to OPEX): At first glance, cloud computing appears ridiculously cheap (understatement). According to a 2009 Accenture report, “a global logistics company could spend $4 million to buy 150 servers plus $1 million in annual software licenses fees. (Or), contrast that with a $131,000 cloud services fee a year for everything.” Uh, where do I (digitally) sign up?
Well, like most life-altering decisions, it’s important to not only read the fine print but also investigate all of the relevant variables in the decision analysis. For example, one of my most memorable “ah-ha” moments at Wharton, occurred at a luncheon featuring a world-renown real estate professor and investor (a professorial investor?). Conventional wisdom, the National Association of Realtors (NAR) and your mother in-law, would all decree in unison that home ownership is the “American Dream” and “the best investment you’ll ever make.” However, like any good academic worth the $2,000 text book she makes you purchase, the professor put aside the wisdom of crowds, and framed the “buy vs. rent” decision in excruciating, quantitative detail. After slogging through an elongated list of variables and Excel fields, her analysis, to everyone’s surprise, indicated that residential housing is not an investment per se but a consumption good – i.e., its benefit is the direct satisfaction of households needs (e.g. not having to ask the landlord if you can paint the dining room your favorite purplish hue). One of the key valuation dials is the asset appreciation rate and it turns out that residential housing appreciates at an annual rate only slightly higher than inflation over the long run. And, even after accounting for the tax shield associated with home ownership, the lost opportunity cost of the down payment and annual home ownership maintenance costs (e.g., patching that leaky roof in a hailstorm, mulching on a Sunday while the Eagles are losing to yet another sub-par foe, etc…), the analysis leads to a “rent” decision from a purely economic standpoint for long-run based variable averages. (Obviously, if you invested in Vega$ condominiums in 2006, you definitely didn’t buy an investment property based on today’s prices. What you experienced was once-in-a-quarter-century accelerated depreciation.)
So, why recount this parable here? Well, like the Accenture reported data above, many cloud “weatherpeople” indicate that the cloudscape offers significant “cost” advantages over traditional technology delivery models (or technology consumption models depending on your perspective). Instead of installing, configuring, operating, supporting and upgrading on-premise systems, cloud buyers can simply tap into and dial-up or dial-down existing cloud-oriented services as needed. This certainly shifts the “cost” and associated risk of a new system from a depreciable asset (i.e., balance sheet item) to an expense item. This can be a good thing or a bad thing depending on the existing capital structure of the business and its future needs. And, many cloud computing gurus neglect the potential weighty costs of transitioning and/or integrating existing IT assets to the cloud.
Risk-shift: Leveraging a cloud resource in lieu or an internal one theoretically shifts operational risk to the CSP. However, if your retail web site hosted via Amazon Web Services goes the way of the dodo bird on Black Friday, the CEO isn’t going to call Jeff Bezos – she’s going to call her CIO.
