InterWest News
Living in the Cloud - Meaning, Myths and Opportunities
A Laurel Group publication
Bruce Cleveland
Partner, InterWest Partners
What is the meaning of "Cloud Services" from your perch, and what are the most important benefits emerging from Cloud Services that will transform the economics of IT?
"I generally define "cloud services" as virtual development, application, computational and storage services available over the Internet that can be automatically and instantaneously provisioned and released as application requirements dictate. We aren't quite there yet in reality but the vision is well set.
The concept of replacing traditional computing resources with cloud services is gaining traction because for most companies their data centers and application software are not competitive differentiators. Consequently, every dollar invested in running these systems is a dollar unavailable to invest in differentiation. Just as the mainframe to minicomputer business proposition and the proprietary OS to Unix business proposition were simple, so is the business proposition of cloud services: dramatically reduce the cost of developing, provisioning and managing non-differentiating applications.
Cloud services will primarily use a variable expense pricing model based upon use. This pricing model has the potential to significantly disrupt the status quo of the incumbent global market application software and infrastructure leaders. As a result, I suspect that in 10 years, maybe less, we could see a different set of brand names leading the technology markets."
How will concerns around data governance, availability and security impact the adoption of "Cloud Services"?
"Today, the cloud services market is nascent and constrained due to its immaturity. There are various offerings that range from simple compute and storage services to higher level services such as application, development, and management services but no single provider offers a comprehensive and complete suite of services.
Service Level Agreements providing uptime and security guarantees, disaster recovery services and/or financial remuneration for failure to deliver vary widely. There are no industry or de facto standards in place. Current "brand name" cloud service providers don't offer the enterprise-class support and service that medium to large companies demand. Start-up cloud service providers are too small for enterprises to fully trust. These impediments are temporary though as competition will rectify most, if not all, of these issues."
How are "Cloud Services" testing traditional thinking around "control of data" and "guarantees of safety"; to include ownership, access and rights that supersede failure of the provider? Ultimately, who should be accountable; vendor or service provider?
"These are interesting issues that must be dealt with by both end-users and some cloud services vendors themselves - those who are in turn customers of Platform-as-a-Service (PaaS) providers.
Ultimately, the vendor who contracts with a customer must be held responsible for providing the service they promised to deliver. This means that the vendor must secure a comprehensive Service Level Agreement with their PaaS provider and end users must demand a Service Level Agreement with their provider that meets and/or exceeds their needs.
Issues such as disaster recovery, hot standby, and overall application performance - not normally under the purview of "business users" - need to be considered and engineered into the contractual agreements. End-users need to be very careful and ask a lot of questions before fully committing to a provider.
That said, failure of the provider isn't the only risk.
PaaS providers who also sell their own applications may have a potential downstream conflict of interest with a company whose application they host. If they see their hosting customer succeeding, they may find themselves tempted to compete with them by launching their own application and possibly making life difficult for the original (now competing) application that they host. In that case, the PaaS provider would know everything about their customer's customers (who they are, usage rates, adoption rates, etc.) making them a formidable, if unethical, competitor.
End-users risk getting caught in the middle."
What are the SME benefits that would work well in a departmental setting? What are the key adoption barriers?
"Due to their initially constrained feature sets, SaaS applications have tended to get their foothold in small- and medium-size businesses. As SaaS providers introduce more robust features into their offerings they can migrate into larger enterprises and give rise to "departmental applications." This has already happened with Salesforce.com as they are now moving up market.
The key benefits to the SME market is that the SaaS business model can give them access to powerful applications they can use to run their business without most of the capital expense or IT investment typically required with traditional software.
Even in larger companies, departments such as marketing seldom have access to capital dollars or IT resources. SaaS uses a subscription model - a variable expense - and does not require IT resources. Therefore, the Marketing Automation market, which never materialized under the traditional enterprise software model, is now emerging and growing rapidly.
The key adoption barriers are consequently no longer tied to the size of a company. Instead, adoption barriers will primarily be tied to ease of use and business benefit placing the onus upon application developers to develop and deliver simple to use yet sophisticated application software."
Is dominance among a few industry giants a good thing for cloud computing? What are the implications for the rest?
"The cloud services market is by its very nature conducive to start-ups. The cost of entry and the technical barriers are relatively low - and should stay that way for a long time to come.
That said, consolidation is inevitable and will allow the best providers (whether of an application or of a platform for others to build on) to provide the stability and security that customers - especially larger customers - will require.
The ease with which customers can change vendors will allow new entrants the opportunity to challenge the giants and attempt to become giants themselves. More frequently, however, lower technical barriers will make it relatively easy for successful start-ups to integrate with existing giants through partnerships or acquisition.
Either way, new entrants will continue to bring new ideas, innovation and competition to the cloud services space, challenging giants there and in traditional software."
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