February 19, 2009: How Cloud Computing Can Pay Heavenly Rewards

Article Highlights:

Cloud computing reaches a growing field of connected devices
Maturity and adoption will help move the cloud from infancy to adulthood
The risks are clouded with concerns over reliability, security, and pricing

Cloud computing is fast becoming a significant technology trend that is expected to reshape how marketers do business over the next five years.

With cloud computing, users on various types of devices -- PCs, laptops, smart phones, PDAs -- access programs, storage, processing, and even application-development platforms via the internet. Resources are kept on the service providers' servers, rather than on the users' systems.

Growth potential is enormous. Market research firm IDC expects cloud services spending to grow almost threefold, topping $42 billion, by 2012. Proponents tout the technology's advances.

"The shift to cloud computing will dramatically reduce the cost of information technology," says Russ Daniels, vice president and CTO at HP's Cloud Services Strategy. "But it goes beyond cost savings; it marks a quantum leap in the user experience. It frees customers from the expense and hassle of having to install and maintain applications locally and creates value for them."

Cloud computing, if properly implemented, can also slash computing costs. Forrester Research principal analyst James Staten says customers have found that most cloud computing solutions have such low costs that even persistent high use of their services trumps the costs of traditional hosting because of this variance.

Inherent, unresolved risks
Nonetheless, cloud computing is still nascent and has not yet been widely adopted by companies, which is critical to its success. In fact, Carl Howe, director of Yankee Group's Anywhere Consumer Research, lists five key risks that businesses need to be aware of:

Foreclosure: Just because you get a good deal on cloud services today doesn't mean the vendor will necessarily be in business next year.
Reliability: These services all claim 24/7 service, but reality falls far short of those promises. Amazon's S3 (Simple Storage Service) and EC2 (Elastic Compute Cloud) services suffered a three-hour outage on Feb. 15, 2008, while Salesforce.com left customers without service for six hours only days earlier. And while most vendors will provide service credits for outages, Howe notes that "those credits are cold comfort for sales opportunities missed and executives cut off from business information."
Security: All vendors promise that they will store corporate data securely, but the reality is that that corporate data have to be unencrypted to be used, and those unencrypted data can be disclosed. But more worrisome, notes Howe, is the fact that data stored in an 'anywhere' cloud may pass across state or national boundaries where data storage laws may differ, exposing companies to a Pandora's Box of privacy and legal lawsuits from government regulators.
Pricing: Unmentioned in any of these services, said Howe, is the fact that network-bandwidth costs are not included in the service costs. While this may be a minor cost for providing customer relationship management (CRM) access to a sales force, Howe said the bandwidth costs to move a multi-terabyte database to Amazon EC2 could easily exceed the cost of the Amazon service. Further, service prices are only likely to go up over time. "And while Moore's Law may be driving down server costs 50 percent a year, those cost savings will be going to the service provider, not to you," he says.
Lock-in: There are no standards that define how cloud computing services import and export information.

Add to this that venture capitalists have not yet invested a lot of money into cloud computing startups, and marketing and IT departments are still somewhat wary because they may have doubts about their ability to control the platform.

Staten added that the hype is also ahead of the reality and will be for the next 12 months or so.

"This is basic psychology -- the business model is compelling and has a vocal minority following and is maturing rapidly, but the expectations are ahead of reality," he said.

As the cloud stands now
Currently, major vendors of cloud-based services include Amazon.com, Salesforce.com, Google, and Microsoft. Other players include GoGrid, Mosso, and Xcalibre Communications.

HP and IBM have also jumped in. HP Labs, the central research arm of HP, has launched the Cloud Research Test Bed, a collaboration among HP, Intel, and Yahoo, to work with industry leaders, academia, and governments worldwide to advance cloud-computing innovations. HP Labs will use the test bed to conduct advanced research in the areas of intelligent infrastructure and dynamic cloud services, says Daniels of HP.

IBM also announced last year that it would lead a joint research initiative of 13 European partners to develop technologies that help automate the fluctuating demand for IT resources in a cloud computing environment. The $17 million, European Union-funded initiative, known as RESERVOIR -- Resources and Services Virtualization Without Barriers -- will explore the deployment and management of IT services across different administrative domains, IT platforms, and geographies.

Challenges
While more and more companies are starting to realize the benefits of cloud computing, as with any new or emerging technology, there is plenty of fear and uncertainty among marketers.

Maturity, notes Staten, is the biggest challenge to the market -- cloud computing is new and therefore adoption, especially by the enterprise, will be slow as they wait for their peers to adopt it and for best practices to evolve.

Control
Marketing and IT departments are wary of the technology because an outside provider, not the marketing and/or IT staff, provides and controls the platform. This is often a psychological issue -- companies want trusted platforms and knobs they can turn. Cloud computing takes these away from them.

"There are some legitimate workloads that don't fit as well on a cloud platform -- high performance databases, for example -- but the majority of the skepticism is because of unfamiliarity and immaturity," says Staten.

Security
A recent IDC survey of chief information officers rated cloud services challenges/issues. Security topped the list -- with 74.6 percent of respondents indicating this was their chief concern.

"With their businesses' information and critical IT resources outside the firewall, customers worry about their vulnerability to attack," says Frank Gens, senior vice president and chief analyst at IDC.

Security issues surrounding the cloud are much the same as with any data center. The physical environment must have a robust security infrastructure.

"In a shared pool outside the enterprise, you don't have any knowledge or control of where the resources run," says David Cearley, a vice president and fellow at Gartner. "If you have a concern over data location, for example, that may be a reason for not using it."

John Pescatore, Gartner's chief security analyst, adds that because cloud-based services are being updated and changed so rapidly, business users doesn't have a say on whether they want to stay on an old version.

"In the cloud you have to accept the next version, possibly nullifying any security that was built into the old application or assumed through integration at the customer site," he says.

Immaturity
A lack of standards and interoperability are also hampering adoption, albeit most vendors and analysts say this is just temporary. As more providers emerge, there will have to be some sort of interoperability standard that comes with this.

Meanwhile, vendors are offering various tools for managing cloud-based resources. Salesforce.com, for example, lets developers write and edit code as if they were working locally, while automatically working in the background. Other vendors also offer tools for managing cloud-based resources on Salesforce.com systems. SnapShot, from DreamFactory Software Inc., provides accurate tracking of changes to a company's Salesforce.com configuration.

The clouds on the horizon
The current economic climate will be an immediate impetus to "jump into the cloud" since many companies don't have the resources for upfront infrastructure investment, says Mike Nolet, chief technology officer of cloud computing vendor AppNexus.

Like any new technology, he says, the next five years will see tremendous changes and innovations in cloud computing. There will be more providers, richer services, established standards, and best practices.

"Over the next five years, cloud computing services will become a solution for small and mid-size companies to completely outsource their data center infrastructure and for larger companies to have a way to get peak load capacity without building larger data centers internally," adds Jim Jones, a managing director with Scale Venture Partners, a venture capital firm.

Nolet says another trend over the next few years will be the development of ecosystems, which will enable companies to better communicate and share data with other companies in the same cloud.

"Cloud computing will be the preferred solution over time, but that's contingent upon the industry developing a viable set of standards," says Craig Mathias, who heads up market research firm Farpoint Group.

Rob Enderle, who heads up market research firm The Enderle Group, says that cloud computing is the probable future for hosting, and "hosting is the likely standard way most companies will try to contain costs long-term unless security concerns overwhelm the economic advantages."

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