Published in The Market magazine, January 2012. Original article here.
The technology in the Cloud
Technology is on the move: data storage is migrating from the computers on our desks to a place we call the Cloud. As the transition is gathering pace, we take a look at Cloud computing and consider what it really means.
The transition to Cloud computing is well underway. It seems almost certain that all information will be stored remotely in the future: we will access our software or even hardware via network cables leading to a remote server, either the communal internet or a so-called private Cloud if the data is sensitive.
The term Cloud computing is sometimes used to describe any information that is accessed over the internet, and metaphorically it is fitting: the idea of a big pool of information just waiting to be tapped into from our computer screens. But technically speaking, Cloud computing is more specific than that. Web-based email, such as Gmail or Hotmail, is probably most people’s first experience of the Cloud, and it is a good example of what is actually meant by the term: data that is stored remotely for the user to access whenever they want, and in a quantity as large or small as they like.
“The Cloud represents the industrialisation of IT,” says Simon Daykin, chief technology officer at Logicalis, an international provider of IT solutions. “It represents a move from IT being a cottage industry, where people or companies do things their own way, towards a consumer market where services are increasingly delivered remotely.”
The case for Cloud
For consumers, a smartphone such as an iPhone or Blackberry will be another example of a Cloud experience. But the real attraction is not in the gadgets, but rather in their ability to access information stored elsewhere. As much as the mobile experience has changed people’s lives, the transition to the Cloud has even bigger consequences for business; it has significant potential to drive down costs and improve services by the efficient pooling of resources.
“In order to be classified as a Cloud service, we look for five characteristics,” says Katherine Thompson, technology analyst at Edison Investment Research. “It has to be an on-demand self-service; there has to be ubiquitous network access; the resources must be pooled; you need to be able to rapidly scale the service; it has to be delivered on a pay-per-use basis.”
So what does this look like for a business? Say a company needs a piece of software, for instance for payroll or customer service management. Traditionally this would mean loading up the company computers or servers with software from a disc, with upgrades arriving every year or so. A Cloud delivery system, however, means accessing the software remotely, only using the quality needed and paying accordingly.
Customers benefit from the elimination of upfront costs, as the charge for the product is spread out and no additional storage or security is needed because the provider takes care of everything. This delivery method, known as Software-as-a-Service (Saas), should reach $12.1 billion in revenues this year, a 20% increase from last year, according to technology research house Gartner. Still, this is only a fraction of the overall software market, and the transition will continue for a long while yet.
Resistance to change
“There are several areas where it is difficult to use a Cloud delivery, especially when customers’ data is very sensitive,” says Thompson. “The financial services sector will be more reluctant to make the change, partially because of regulatory requirements to keep certain data in a known location.”
While taking software delivery via Cloud makes a lot of sense for a company buying a product for the first time, getting businesses to change old habits is harder. While some new technology, like a flash new TV, can be fun to try out, people tend to be less keen on the idea of breaking in a new booking system at work. This is why Saas providers are reporting resistance to change, especially when a software package is deeply embedded into the company’s operations.
New technology companies are often setting out as pure Saas vendors, with US-based Salesforce.com being the star example. More mature software companies are launching Saas-versions of their existing offerings; moving to Saas is not only beneficial to customers but is also highly profitable for the provider, because it ensures a predictable monthly income stream instead of the lumpy licence sales of the past. “Although the downside is that Saas is less sticky. The software does not become a part of your system in the same way as before, meaning the customer can leave at any time,” says Thompson.
While the new and old will co-exist for a long time still, there is little doubt that Cloud is the future. While some sensitive legal and financial information will have to sit on dedicated private Clouds, Daykin is certain that one day all technology will live in the Cloud: “Software companies have a stark choice: start to change, or die.”
The good news is that the move to Cloud computing represents an opportunity as well as a threat: “Cloud means higher quality services at lower costs, and this forces people to act differently, to look at software and see how savings can be made and how services can improve,” says Daykin. “Adaptation is ramping up very fast. Organisations are being forced to think of IT in a new way; they need to be more aerodynamic.” Especially in the current economic climate, Cloud can help companies become more streamlined and adaptive, as it is a system that is more flexible in the face of change.
Anyone who uses web-based email that can be accessed from anywhere can testify to the practicality of a remotely delivered software service. While the concept behind the Cloud is nothing new, a key reason it has now started to take off is the availability of high quality internet connections.
“Cloud is a gradual trend. Big business will gradually adopt it, maybe first choosing Saas for a new piece of software they have not used before,” says Thompson. “Start-up companies will probably go for a complete Cloud solution, while medium-sized businesses will take a little longer. So there will still be space for on-premise software for a while yet.”
Safety in numbers
Security is a key concern for both providers and customers of Cloud services. The thought of losing access to your personal email account is bad enough, but losing an entire business segment would be a small disaster.
“Accessing information over the internet can be risky, but what it also means is outsourcing a large proportion of security efforts to your provider. Especially small companies may actually find their security improves,” says Thompson.
Size is of the essence here: a specialist providing a Cloud service may have a better grasp on security for that product than a small business with half a dozen employees. Still, with many small Cloud providers now popping up to cash in on the trend, it is important to check their credentials; most Cloud horror stories are not about security breaches but data outages.
“The Cloud means the security model is changing,” says Daykin, pointing out how we all got over our fear of internet banking in the end, as banks built strong systems that minimise the risks. “While due diligence of the service provider will be important, there may be an opportunity here. Even big companies struggle with data recovery, meaning enterprise Cloud provider may be a better bet for keeping data secured and backed up.”
Annual global Cloud traffic will reach 1.6 zettabytes by the end of 2015, according to the ‘Cloud Index’ from networking giant Cisco. This is a twelvefold rise on today’s cloud traffic. Or put it this way: by 2015 we will generate about the same amount of cloud traffic every year as the amount of digital information that was created from the birth of the computer until 2003.
As if this was not a staggering amount in itself, Cisco also says that the expected cloud traffic is only a third of the global traffic expected to pass through data centres by 2015; this number is expected to come in at 4.8 zettabytes every year. Data centres are buildings full of servers, physically storing the internet and corporate networks. These buildings are sitting on the ground, but still it is no wonder they called it the Cloud: the future size of the internet is inconceivable and we may well run out of space down here to keep it all.