April 2010

"As we now navigate one of the most of severe recessions of the last century, it is worth asking what comes next, post recession. During this trying time, a revolution is underway in computing. It is a revolution that promises to shake the foundations of how technology is delivered to all organizations. This revolution is cloud computing and it promises to reshape the structure of the knowledge economy."

CFO insights: Heading for the clouds

We believe that, in the not too distant future, most people will be making use of cloud computing. How they use the cloud will vary, but everyone will be using the cloud. It is expected that cloud computing will follow a similar path as the Internet into the corporate environment:

  • there will be concern about security associated with data

  • there will be concern about being dependent on services that are controlled by third parties

  • many organizations will be challenged by existing corporate processes

  • some organizations will be leaders in the charge while other will lag

For entrepreneurial businesses, this means that cloud computing can represent business opportunities to: i) reduce costs by leveraging cloud environments to provide infrastructure and services; ii) bring an expanded portfolio of products to a global marketplace through reduced costs to access large complex infrastructure; and iii) start small and expand services quickly and economically.

This article presents extracts from the literature on cloud computing and provides a brief outline of a common cloud computing taxonomy. After reading this article you should have a better understanding of the basics behind cloud computing, the reasons for the large potential savings, the key challenges organizations face when implementing cloud computing, as well as the paradigm shift that cloud computing represents to organizations.

Cloud Computing Basics

A recent report by the University of California at Berkeley stated, "Cloud Computing has been talked about, blogged about, written about and been featured in the title of workshops, conferences, and even magazines. Nevertheless, confusion remains about exactly what it is and when it's useful, causing Oracle's CEO to vent his frustration: 'The interesting thing about Cloud Computing is that we've redefined Cloud Computing to include everything that we already do. I don't understand what we would do differently in the light of Cloud Computing other than change the wording of some of our ads.' These remarks are echoed more mildly by Hewlett-Packard's Vice President of European Software Sales: A lot of people are jumping on the [cloud] bandwagon, but I have not heard two people say the same thing about it."

While there is talk that cloud computing is a rebranding of what already exists, we also see many comments about cloud computing representing a major paradigm shift. We see articles talking about vertical, horizontal public, private, and hybrid clouds, with each representing an approach that matches cloud computing concepts to specific market requirements. What appears to be emerging is a taxonomy of cloud computing that includes: Infrastructure as a Service (IaaS); Platform as a Service (PaaS); and Software as a Service (SaaS).

There is a consistent theme regarding cloud computing data centres: they are large, efficient, and highly automated. The University of California at Berkeley report outlines that commercial cloud computing centers will be capital intensive, costly, and will require high business volumes to operate. This allows these organizations to gain greater economies of scale, while also growing their business revenue. The report goes on to indicate that cloud computing providers with extremely large footprints will have the economy of scale that will allow them to purchase hardware, network bandwidth and power for 1/5 to 1/7 the price offered to medium-sized data centers. These organizations can leverage existing investments made to host internal data center requirements and expand them for revenue growth by being a leader in this emerging solution.

In addition to purchasing power, cloud computing providers will support the pooling of resources, alleviating the need for innovators to find their own resources. Instead of each organization needing resources to support its organizational needs, there will be a pool of resources supporting the cloud environment that will provide services to a global community. The implications will be significant changes to resource needs by organizations that move to cloud computing. There have been numerous testimonials of organizations scaling back their information technology (IT) organizations as they take advantage of SaaS offerings.

Cloud Computing Taxonomy

While there are many proposed taxonomies for cloud computing, the most prevalent taxonomy and the one we will use is the three tier taxonomy:

  • Infrastructure as a Service (Iaas)

  • Software as a Service (SaaS)

  • Platform as a Service (PaaS)

Wikipedia defines IaaS as "the delivery of computer infrastructure (typically a platform virtualization environment as a service). The service is typically billed on a utility computing basis and amount of resources consumed (and therefore the cost) will typically reflect the level of activity. It is an evolution of web hosting and virtual private server offerings." For many organizations, this simply represents a low cost server rental arrangement.

Wikipedia defines SaaS as a "model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS software vendors may host the application on their own web servers or download the application to the consumer device, disabling it after use or after the on-demand contract expires." A large volume of cloud computing offerings being marketed on the Internet are directed towards SaaS. The marketing material highlights the significant opportunity to use SaaS to reduce costs. However, many organizations will be challenged to realize the cost benefit when compared against their internal cost metrics because future release upgrades are not built into the cost of operating the system.

Wikipedia defines PaaS as "the delivery of a computing platform and solution stack as a service. It often goes further with the provision of a software development platform, that is designed for cloud computing at the top of the cloud stack." PaaS really becomes critical when you start to think about the complexities associated with licensing.

Cloud Computing - Paradigm Shift

Fifteen years ago when the Internet was gaining popularity, many organizations had rules governing Internet use because of the concern around security. This ranged from only allowing Internet access from computers that were not connected to the company network to having limited access by only a few critical individuals. Similarly, security is the top concern raised regarding cloud computing.

The Big Shift: Measuring the forces of deep change, 2009 SHIFT Index notes that: "Until now, companies were designed to get more efficient by growing ever larger, and that is how they created considerable economic value. The rapidly changing digital infrastructure has altered the equation, however: as stability gives way to change and uncertainty, institutions must increase not just efficiency but also the rate at which they learn and innovate, which in turn will boost their rate of performance improvement." Scalable efficiency, in other words, must be replaced by scalable learning. Innovation will be a priority for companies either to grow their business or cut costs.

Buyya et al outline that software organizations will be facing numerous challenges in creating software that is capable of supporting large volumes of individuals versus being designed for individual computers. Organizations will face challenges shifting from their existing conservative IT strategy governed by internal processes and controls to an external services model. Conservative regulatory guidelines may cause barriers moving to a public shared model.

In addition to the business and organizational challenges, there will be a number of IT challenges. While many of the organizational challenges may be IT centric, we are separating the organizational challenges from the IT design challenges. Hagel III et al indicate that companies must design and track metrics showing their participation in knowledge flows to reinforce the criticality of this operational activity and the need to collaborate to improve performance and accelerate the adoption of new products and services. The Berkeley report provides a top 10 list of obstacles:

1. service availability

2. data lock-in

3. data confidentiality and auditability

4. data transfer bottlenecks

5. performance unpredictability

6. scalable storage

7. bugs in large-scale distributed systems

8. scaling quickly

9. reputation sharing

10. software licensing

Concerning the issue of cloud computing security, most concerns involve the associated risk of moving private data to a public cloud. Organizations that are leading the move to cloud computing are strategically selecting applications and functionality where the perceived security concerns pose little risk. Organizations need to select cloud service providers not only based on what they provide today, but also where the organizations will be in the future.

A History of Cloud Computing discusses different aspects of security in cloud computing: "once the security issues are resolved, cloud computing services can enable an enterprise to expand its infrastructure, add capacity on demand, or outsource the whole infrastructure, resulting in greater flexibility, a wider choice of computing resources and significant cost savings. Considerations such as security, data privacy, network performance and economics are likely to lead to a mix of cloud computing centers both within the company firewall and outside of it."

The Berkeley report talked about the ability to scale up or down the hardware systems in cloud computing. This ability is dependent on having sufficient hardware available when required, but it is also dependent on having automated provisioning tools, tools with automated workflows to detect and make the allocation adjustments automatically, and having service level agreements with customers that allow proper prioritization of services. Cloud computing service providers need to use these tools and processes as well as make sure that they are robust with proper procedures. It also states that developers should start designing new systems to leverage cloud computing features, thus paving the way for more change. The general consensus is that cloud computing will represent a large amount of change, even if only implementing at the IaaS layer. Going to full SaaS, which appears to be the hot topic presently, represents a greater amount of change, largely through the introduction of new products and services.

The Berkeley report outlines the significant cost advantage potential of cloud computing which, combined with elimination of capital requirements and pay-as-you-go concepts, creates an environment conducive to innovative startups and thus the potential for disruptive innovation. It emphasizes the elasticity feature of cloud computing which enables organizations to manage the risks of over- and under-provisioning.

Summary and Conclusions

Cloud computing has recently been gaining in popularity and acceptance. There are many different perspectives on what cloud computing is. Regardless of whether it is rebranding or new services, the cost benefits of cloud computing services appears to be gaining acceptance in today's economy where organizations are focused on addressing financial challenges. IaaS, PaaS, SaaS represent a cloud computing taxonomy that can be used by organizations looking to move to on-demand hardware and software services.

Cloud computing is much more than just making use of on-demand servers if organizations want to capture the full benefits. It means leveraging economies of scale through automation. It means moving to global applications, not just enterprise applications. It means a major shift towards knowledge sharing versus in-house expertise. For entrepreneurial organizations, cloud computing represents a major shift which can either represent an opportunity or a risk.

Recommended Resources

A Tale of Clouds: Paradigm Comparisons and Some Thoughts on Research Issues

Cloud Computing: New Wine or Just a New Bottle?


Share this article:

Cite this article:

Rate This Content: 
No votes have been cast yet. Have your say!