Cloud computing promises cost savings, more efficient use of IT resources and uncommon flexibility, and those claims have driven it to the top of the buzz list. But at what costs and with what risks? Are Canadian businesses ready to move portions of their business to the cloud—a shared, virtualized, on-demand IT environment accessed primarily over the Internet?
Chief among the problems facing cloud adoption is simple confusion, according to many experts. A recent survey conducted on behalf of software management company CA Technologies found that 62 per cent of business executives and 23 per cent of IT executives admit to being confused by the concept of cloud computing. This broad confusion serves as the biggest barrier to adoption of cloud by businesses, said Phil Shih, Web hosting and Internet infrastructure services researcher at Tier1 Research. Despite some significant benefits, he said, “If you don’t know what it is, you surely can’t adopt it.”
Cloud computing is generally defined as accessing computer resources, usually over the Internet, that are dynamically scalable (sometimes called “elastic”) and offered like a utility, on a pay-per-use basis. Need terabytes of storage? More processing punch for a particular project? Cloud computing allows businesses to buy and use what they need, when they need it.
But cloud definitions are rarely simple, and different experts suggest various attributes or elements. Shih said cloud must incorporate a number of key attributes: elasticity, a pay-per-use consumption model, and remote management and hosting by a third party. He said technically cloud computing represents only computing and storage resources, and not the business application running over it.
John Sloan, lead analyst at Info-Tech Research Group, further points out that cloud is the architecture on which services run, but not the services themselves. To make it cloud, Sloan said it must incorporate four elements: virtualized computer resources (the memory, processing or storage); ownership by a third-party service provider; resources provisioned in a flexible or dynamic way; and resources that are shared between multiple businesses.
Sloan said this “classic” definition of cloud is changing though, as more businesses look to the advantages of running similar virtualized environments, either internally or in a private hosted environment (often dubbed “private cloud”), or combining shared multi-tenant hosting with their own private virtualized infrastructure (“hybrid cloud”).
Sloan said the confusion around cloud stems in part from the buzz of the term itself. “It’s like going to the supermarket and, if oat bran is all the rage, all the cereal boxes will…say “Now with Oat Bran.’ It’s like the boxes now say ‘Now with Cloud.’”
Experts also rush to point out that while the cloud is simply the transport mechanism—like the power grid over which home or business electricity travels—processes such as Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) are often lumped into the broader definition of cloud.
Some, like Robert Miggins, senior vice-president of business development with cloud facilities provider PEER 1 Hosting, prefer a broader definition of cloud: it is simply IT outsourcing with flexible terms. He notes that cloud is driving customers to seek from his company more flexible cloud-like options for traditional private hosting.
“It’s kind of like what the term ‘green’ has become, it really means a lot of things now,” Miggins said.
Ripe for smaller businesses
Buzz heavy or not, experts say cloud can help level the playing field for small- or mid-sized businesses looking to leverage technology to optimize their business.
According to Paul Edwards, director of SMB and channels research at IDC Canada, the SMB market is ripe to benefit from cloud services, especially businesses with fewer than 100 employees. He said moving to cloud services can give small businesses an opportunity to automate business processes they haven’t been able to in the past due to lack of IT staff, restricted capital and a dearth of advanced equipment.
“What cloud brings to the table is the opportunity for small businesses to improve their operational or business processes in order to improve their business overall,” Edwards said. “This is something they haven’t been able to embrace in the past because of on-premise technology costs.”
Edwards said because of this, a higher proportion of small businesses are looking to adopt cloud-based services in 2011. He calls cloud-based Software-as-a-Service and Infrastructure-as-a-Service the building blocks that small businesses can use to rise up to operate like a larger business.
Sloan likens the small-business cloud use trend to the shift toward distributed computing in the early 1990s. “Small businesses were a growth engine for distributed computing,” he said. “Most small businesses couldn’t afford big-iron (mainframe) processing, so they built their businesses on PCs. I think that there’s a similar opportunity now with cloud, where smaller businesses that need services of some kind can look to the cloud and might have higher tolerances for the risks or concerns.”
Niche sweet spots
Cloud-based services are more suited for some businesses. Those with computing needs that fluctuate seasonally or are hard to predict can find the economics of pay-per-use technology procurement beneficial over purchasing software and servers themselves.
As well, technology-oriented businesses, like software developers or Software-as-a-Service companies, find the cloud compensates for uncertain computing power needs, or to ramp up and down infrastructure for a major project or deployment.
“Primarily, cloud adoption is (most significant) among the furthest along in the developer space—the Silicon Valley crowd, the geek crowd, the very technically adept—who are better able to understand and manage technology at a high level,” Shih said.
These tech-savvy companies have kicked off the momentum for cloud, since moving to a cloud service provider like Amazon.com still requires a lot of difficult manual technical work. He said developers who have turned to the cloud for storage of non-critical information and the processing power to run and test their applications during development are the first wave of what is still a nascent technology.
The second wave, according to Shih, includes retail businesses with e-commerce sites, “any type of Web application or content that gets high-degrees of variable and unpredictable, if not explosive, traffic.” These businesses do not fit well, Shih said, into the traditional model of outsourcing on a per-server-per-month basis, as these approaches are less granular in terms of cost and capacity.
Shih said the third wave buying into the cloud are mid-sized business and enterprise companies looking to cut costs and offload certain process workloads from their own infrastructure. Small businesses, he said, aren’t technically looking to cloud as Shih defines it but are porting some applications to cloud-based SaaS.
PaymentEvolution is one such Canadian SaaS company with cloud-based service focused on the small business market. Users of its payroll application operate in a familiar, and therefore simple, Web browser environment. “Most small business owners really just care about getting a job done and payroll is one of those nuisances they just need to handle,” said Sam Vassa, managing director at PaymentEvolution.
Vassa said payroll was an area begging for a cloud overhaul. “The industry was really in need of some innovation; the last innovation in the market was direct deposit and that was in 1990.” Moving to a cloud model allowed the software company to cost-effectively service a growing number of customers more effectively, he said. In addition, the company can offer more sophisticated and constantly up-to-date software, since updates and new versions are deployed on their end before being accessed by customers.
Vassa said traditional software deployment models would cost between $50 and $60 per user for each update, and users would have to install the software locally, often with tech assistance from the vendor. Now, PaymentEvolution updates its feature set weekly to deal with market changes and at an internal cost of only pennies per user.
Not without risks
The economics and opportunities are promising, but the cloud is not perfect. Phil Shih, Web hosting and Internet infrastructure services researcher at Tier1 Research, pegs fear of the unknown as the number one barrier to adoption. This can even be true among IT professionals, as procuring technology over the cloud is simply not in line with the way many built their careers. That reduces comfort levels among the group tasked with ensuring cloud environments work and function as needed.
Security and accountability are also chief concerns. Although the electrical power grid is a commonly used metaphor for cloud computing, the parallels stop at delivery, said John Sloan, lead analyst at Info-Tech Research Group. “Generally electricity goes only one way. If you have a relationship with a cloud service provider, data usually goes both ways. So, how secure is that data? And also, from the perspective of accountability, if you have to comply to certain government regulations around the state your data is in, or where it is and who touched it, it becomes problematic, but not impossible, to move it to the cloud.”
Businesses looking at a move also need to consider reliability and availability of the applications. Sloan said this is an area that has improved, but he has heard horror stories about cloud providers going down and leaving outages across an entire ecosystem of startup companies.
Data mobility is a further concern, Sloan said. Just like the telephone industry before number portability, businesses can feel trapped with a cloud provider since their data and applications could be tied to a proprietary architecture. “We say cloud in the singular, but it’s really clouds, and you have to consider that.”
Finally, the economics are not a guaranteed fit for every company or every application. Although cloud can eliminate up-front capital costs, over time operation costs could climb to a point where it is not effective from a total cost of ownership (TCO) perspective.
Michael Redding, managing director of Accenture Technology Labs, cautions business executives to look closely at the costs of moving certain applications to the cloud, as in some cases the online world will increase costs. “A lot of times with cloud, just because you can do something doesn’t mean you should. [There isn’t necessarily] a better total cost of ownership, so for the CIO and for the business you’ve got to make a business decision on whether the cost of change is worth the pain and agony of moving to the new model.”
The first place to look, he said, is at functions that are basically commodities, like e-mail. These offer reliable savings with fewer risks.
At the same time, some very complex applications are moving to the cloud. For example, BPS Resolver, a Toronto-based governance, risk assessment and compliance company, has offered its software in a SaaS model for more than six years and it recently ported it to a cloud delivery model.
“When virtualization became more commonplace, we looked at a model where—instead of…basically locking into specific periods of time—we would have more flexibility to ramp up and down our specifications, our individual servers and the ability to add more servers or take them away for peak-load periods,” said CTO James Patterson.
Unique Canadian opportunities
Where issues of privacy are involved, location ends up being a major concern, as companies wish to ensure their data is in—or not in—specific locations. Canadian companies concerned that the U.S. Patriot Act might open their data to government access seek Canadian facilities. And on the other side, American customers often feel more comfortable with home-soil facilities, said John Sloan, lead analyst at Info-Tech Research Group.
Distance can also create latency or performance issues when accessing IT resources over the cloud, he said.
Jim Latimer is vice-president of client services at CentriLogic, a hosting company with cloud services offered from facilities in both Ontario and New York State. He said there is a market for Canadian facilities that his company is tapping into, and it’s not just for Canadians. Latimer pointed to a New Zealand-based health-care software provider. That company found it beneficial to seek a cloud provider with facilities that meet Canada’s “strict-but-fair privacy rules.”
Canada also enjoys greater access to clean energy and even the weather is a benefit, as our climate provides natural data-centre cooling during the winter months.
According to University of Ottawa law professor Michael Geist, Canada may currently lag behind other countries in the area of cloud computing, but it is well positioned to become a leader. “We already have much of the technical and privacy infrastructure in place, we are in close proximity to the U.S. and our privacy legislation meets international standards.”
Large well-funded telcos, government incentives to install fibre, R&D tax credits, strong talent coming from Canadian universities and strong integration with American networks are other drivers making businesses seek Canadian cloud service providers, Latimer said. “In Canada, we’re right next door; we’re America’s hat, giving us the best of both worlds.”
Illustration: Jon Berkeley
Also in this issue:
What cloud computing and social media tools bring to corporate Canada
Steam Whistle nets significant savings by moving to cloud-based solution
Better, faster, stronger: Productivity gains edge out cost as key cloud benefit
Cloud Computing Supplement: Soaring upwards with cloud communications
VoIP Supplement: Moving to modern cloud-based communications
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