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The Hitchhikers Guide To The Cloud

Many pundits agree that it is the age of The Cloud and that IT professionals need to prepare themselves. While everyone seems to be talking about “The Cloud” in excited tones, do we really understand what it’s all about? We helps demystify what it all means and navigates a clear path through all the hype. What are the implications of ‘going public’ and staying private? By Chris Bell…

The word “cloud computing” is being indiscriminately bandied about. Even the US National Institute of Standards and Technology’s Information Technology Laboratory (which offers a definition of cloud computing that’s about as exclusive as it’s currently possible to get) point outs cloud computing is still evolving and so its meaning will change over time. “Its definitions, use cases, underlying technologies, issues, risks and benefits will be refined in a spirited debate by the public and private sectors,” runs NIST’s disclaimer.

To paraphrase, cloud computing is a model for enabling on-demand access to a shared pool of computing resources, such that can be rapidly provisioned with minimal management effort or service provider interaction.

For most people, it means that applications are accessed through a browser.

The dollars and sense of it

There are two basic cloud payment models: the utility model, similar to the way electricity is retailed, where customers pay for what they use. The other is a subscription model where customers pay a flat monthly fee based on the number of their users.

If you’re ‘capex-poor’, cloud computing may make compelling economic sense, especially should you decide to focus on your core competency, which probably isn’t running and maintaining servers.

Because cloud providers can aggregate many customers into shared infrastructure they can reduce costs — or so their standard sales pitch goes. But that isn’t necessarily the case; especially for customers who select a local provider.

Aaron Kumove is the Wellington-based managing director of Horizon Consulting. He’s also a former chief information officer of New Zealand Post and self-confessed cloud computing sceptic. He warns that while moving to the cloud can help to cut your capital expenditure, depending on your choice of provider, your operating expenditure might increase.

“This is where New Zealand cloud providers may be at a disadvantage because we’re a small country. A public cloud provider in the US or Europe has a lot more customers than one serving the local market will have — they’re in a lower volume, higher margin business.”


In order for computing to accurately be described as taking place in the cloud, NIST says it’s essential for it to display each of the following characteristics:

  • on-demand self-service (the provisioning of computing capabilities without the interaction of the provider)
  • broad network access (capabilities are network-available and can be accessed through thin or thick clients, mobile phones, laptops or PDAs)
  • resource pooling (a multi-tenanted model with physical and virtual resources dynamically assigned and reassigned based on demand)
  • rapid elasticity (unlimited, fast up- and downscaling); and measured service (automatic, metered resource use).

In addition, cloud computing should operate according to one of three service models:

  • cloud software as a service (SaaS)
  • cloud platform as a service (PaaS)
  • or cloud infrastructure as a service (IaaS).

It should also be delivered via one of four deployment models:

  • private cloud (internal, corporate data centres)
  • community cloud (shared by several organisations)
  • public cloud (cloud providers)
  • hybrid cloud (a combination of traditional desktop and online access).

Source: US National Institute of Standards and Technology IT Laboratory

Not all are equal

James Maniscalco is senior director, product management cloud computing at Infor, based in Boston, US. Infor currently offers a subscription-based model for its cloudbased offerings. However, he says the market will soon demand utility pricing. “Given the richness of our cloud applications, we welcome a utility pricing model,” he says.

“We believe consumers of software applications understand that not all software applications are created equal and some will demand higher cost per computing hour than others, based on the inherent value it delivers.”

Cameron McNaught, executive general manager solutions, Fujitsu Australia and New Zealand, says it began looking at cloud platforms between 12 and 18 months ago, and it has since deployed a cloud service in some of its Australian data centres. It’s now looking at the New Zealand market to assess the viability of a local data centre and cloud platform next year, subject to customer demand.

Fujitsu charges for infrastructure on its platform according to a true pay-per-use model. “We offer a 30-day term for the consumption of storage and computing,” McNaught says.

“At any period in that 30 days, the customer has the ability to turn the server off and while the server is off they’re not charged for the compute component. That’s a 30-day term and a 90-day termination for convenience, so there’s no lock-in for this type of enterprise service, which we think is unique in the market.”

SaaS vendors also offer a variety of payment models.

New Zealand general manager of accounting software specialist MYOB, Julian Smith, says MYOB takes a “pure development view” of what a cloud application is:

“The cloud is stuff you do online — that’s the way we position it for our clients. Cloud or net-based solutions are based on a monthly subscription model, which is quite good for cashflow, no upfront cost, but you keep paying forever and businesses might want to factor into their thinking the total cost of ownership of the service. Whereas, for as little as $250 you can buy quite robust accounting software from us, and that’s all you have to pay.”

Local MYOB competitor Xero’s early adoption of a SaaS model for the delivery of accounting applications helped to add currency to the term ‘cloud services’.

The company has been in the news again with the announcement it will benefit from $4 million investment boost by PayPal founder Peter Thiel. Xero CEO Rod Drury says it would be prudent for organisations seeking a cloud provider to be concerned about sustainability when comparing pricing models.

“We’ve seen a lot of ‘freemium’ [online applications available at no fee, but with a premium charged for advanced features] companies that have packed up and gone home.

Trying to provide things for free is a really hard business model to build a sustainable business on. It can be a pain moving things if the business doesn’t exist in the future and there’s a lot of very, very small companies getting into this space.”

Best or worst of both worlds?

MYOB uses the hybrid delivery model, which Smith describes as “the best of both worlds” for its business customers. “We create demand for our solutions by really knowing what pain points businesses have and then showing them how our solutions will meet them,” he says.

But Xero’s Drury dubs MYOB’s hybrid delivery model “the worst of both worlds”. He says pure cloud vendors provide real innovation, which scares traditional vendors whose cloud investments have been too little, too late.

“MYOB is really struggling because they haven’t released a credible online offering yet. It might take them three or four years to rebuild for the cloud.”

Of course, MYOB would disagree with that point of view.

Smith says when cloud offerings require customers to make a complete leap from the desktop to the online world it acts as a barrier to adoption. “And we’ve got quite a lot of research to back that up.”

MYOB is working with research analyst McKinsey to help it evaluate and provide feedback on the ways businesses would like to work. The vendor asked 956 New Zealand businesses how appealing the cloud was compared with both maintaining the status quo and a combination of the two.

Smith says 59 percent of its respondent businesses said they want the richness of a desktop client and the speed of running their own application, along with all the features of being online.

MYOB remains altogether cautious about use of the term cloud. “We talk about the cloud to our developer partners or technologists, but when we’re speaking to end users or clients we just talk about being online — we don’t use the word cloud by choice,” says Smith. “Over time, that term will become more mainstream but it’s not that meaningful.”

Even Xero’s Drury agrees that the term ‘cloud’ acts as a turn-off to consumers. “When we talk to customers we never talk about cloud computing. We talk about the online benefits.”

Smith says MYOB will use Microsoft’s Azure platform to deliver its next generation of accounting applications, and that this will eventually replace all of its existing desktop software. The new offerings are scheduled to be released in the first quarter of 2011.

“It’s taken us a very long time to feel comfortable that online technologies can work in such a way that we don’t have to ask our clients to compromise the way they do things,” says Smith.

Mix and match

Steve Matheson, chief operating officer at Datacom New Zealand, says a mix-and-match approach should prevail when organisations are evaluating whether they would suit working in the cloud. “Businesses should look at the applications they require on a case-by-case basis and consider cloud offerings alongside the other options available.”

Infor’s Maniscalco says many CIOs are currently musing whether they’re suitable candidates for the cloud, which will largely be determined by their intellectual property and security concerns. “One thing most agree on, the cloud is a natural fit where the application is deemed a commodity and has a requirement of continuous availability — email, CRM, expense management and budgeting all maintain the characteristics to be a natural fit.”

A few companies may already feel that they could be operating all or most of their business applications in the cloud. Maniscalco predicts almost all businesses will eventually operate this way. “The IT cost reduction and the mere fact that the company can focus on its core business, rather than managing an IT infrastructure are just too compelling to ignore. At the present, those best suited to working in the cloud are those organisations that want to reduce their operating costs and manage their business, not IT.”

Many column inches are given over — and, it has to be said, largely for the benefit of local cloud providers promoting their own offerings — to the effect of unscheduled downtime on your customers, uncertain data jurisdiction and the service level constraints of moving your data to an offshore cloud provider.

Privacy an issue

Daniel Roberts, managed hosting team leader at local cloud infrastructure provider ICONZ, says the prevailing data privacy laws are a crucial consideration for prospective cloud customers. “You need to know the laws in the countries you’re buying these products from, how they relate to New Zealand laws and what your options are. If that’s a concern to you, you need to take that into consideration.

Because you can’t guarantee this physically, ask what country the provider’s data centres are in, look at the stability of the governments, do they have data privacy laws and what are they like? Or have they put their data centre in a particular country because it’s cheap?”

While choosing a local provider gives you the protection of New Zealand’s relatively robust privacy legislation, it doesn’t automatically protect your data or your customers against unplanned downtime. Datacom recently experienced an unscheduled outage that briefly affected some of its New Zealand customers. The outage occurred shortly after the company installed its enterprise cloud platform in its Auckland, Wellington and Christchurch data centres.

Datacom’s Christchurch data centre opened shortly before the September earthquake and survived it undamaged.

Matheson says the enterprise quality cloud services it offers from its data centres are accompanied by high-speed, relatively low-cost fibre connectivity options.

Investment is underway to extend the cloud platform to its Australian data centres.

Just under 100 customers are currently using Datacom cloud services, says Matheson. “We’re finding that most new customers are looking for both the traditional and cloud approaches — mix and matching to their requirements — and we expect this trend to continue.”

SLAs: nice on paper

So how can organisations ensure they receive the service levels they demand of a cloud provider? “The way you do that is by ensuring you have a detailed and well-thought-out service level agreement with appropriate penalty clauses in it for non-compliance to ensure that the vendor is motivated to respond accordingly,” says Horizon Consulting’s Kumove.

Local cloud providers place their responsiveness to support and provisioning requests near the top of their lists of reasons to choose them. However, the same providers rarely mention that the major overseas players are running global 24×7 operations, have the economies of scale and the reputation to insure against unscheduled downtime.

If you’re paying for top-of-the-range service from a large European or US provider, you’re also likely to benefit from chat room and forum-based assistance, as well as phone and email support. On the flipside, however well written your service level agreement with an overseas cloud provider may be, it’s likely to be unenforceable — unless you belong to a government agency or a large multinational.

Ben Kepes, analyst and blogger also sits on the boards of a number of commercial and not-for-profit organisations, and is regional organiser for CloudCamp, a non-profit cloud computing event. His view: “An SLA is a fantastic thing but you don’t really ever want to have to use it.”

Pure play, pure cloud, private cloud…

So-called pure play cloud is generally taken to mean no on-premise hardware, with computing delivered completely via the internet to a browser in an automated, selfprovisioning model. But Datacom’s Matheson says a pure play cloud offering is difficult to achieve unless applications have been specifically designed to work in the online environment.

“Applications that meet these requirements are beginning to arrive, but the technical difficulty and cost of building sophisticated applications is hindering progress. That said, pure cloud applications are appearing and some have successfully navigated the technical challenges to produce great outcomes, despite variable internet performance.”

Matheson says Datacom’s NetPay payroll service is an example of a pure cloud service. It was developed 10 years ago and its latest release interfaces with Xero. “This internet-based payroll software is designed for smaller organisations and was intentionally built less functional than our other offerings so it could be user-provisioned without our assistance. Customers are charged on a monthly subscription basis, upgrades are managed centrally by Datacom — removing any complexity for the end user — and the application is accessible from any internet-connected browser.”

NIST defines private cloud as an on- or off-premise cloud infrastructure operated solely for an organisation and either self-managed or managed by a third party.

Critics of private cloud say it isn’t really cloud computing at all, merely a way for big server vendors to greedily hold onto market share, which would suggest a symptom that cloud hype is as rife among traditional hardware companies as it is among software vendors. ‘Cloudwashing’ is the attempt to ride the cloud-related hype wave, with offerings described as cloud-enabled even when that may only be partially true.

“Everyone’s talking about private cloud and that’s a reaction from the traditional vendors,” says Dr Michael Snowden, director of local cloud provider OneNet.

“What do you think their negotiating strength is when they’re selling servers to Microsoft, to Amazon and Google? They’ve got no strength as opposed to selling to a distribution channel and individual buyers. Their market is not only being commoditised, it’s getting smaller and smaller. So they say to the CEO, ‘Don’t worry, we’ll build your cloud inside, you’ll get the same benefits!’ But the truth is you just cannot get the benefits.”

Nevertheless, private clouds may remain attractive to larger companies. “At the turn of the twentieth century, most manufacturers generated their own power. The economics didn’t make sense once the power networks were put in place,” Infor’s Maniscalco points out. “There are still manufacturers who generate their own power, but most buy their power off of the grid without any expertise around generating power. The internet is having the same effect on computing.”

Trouble in the engine room

You don’t have to think for long before you start deliberating about cloud computing’s potential for disruption in the industry as a whole. Customers must continue to challenge vendors who claim to be cloud-ready, until they’re satisfied they’re not just buying something cloudwashed by a rebadged hosting or application service provider. Fujitsu’s McNaught says cloudwashing is a disappointing side-effect of the increased interest in cloud and cloud services. “We’ve spent 18 months investing to deliver a true cloud service and we’re not sure a lot of the market has done that.”

There’s little doubt a global movement to working in the cloud would change the economics of the IT industry forever. Even some sceptics concede that if cloud adoption approximated industry predictions it would change employment dynamics, with fewer hands-on operational staff needed to run and maintain inhouse hardware. “You’ll probably still need the strategists, the analysts, the business architects,” Horizon Consulting’s Kumove acknowledges, “but the hands-on operational folk you probably won’t need.”

Smith of MYOB foresees only a kind of migration rather than an extinction of skills. “I don’t see it eliminating lots of IT jobs. Businesses are still going to need telephones and mobile phones and laptops that access the internet, and they all need servicing and managing.”

McNaught of Fujitsu is also unconvinced by suggestions the industry will experience a loss of operational jobs.

“Cloud will finally drive standardisation in an industry that’s struggled with standards. There’ll be less systems integration and customisation. We’ll see a simplification of IT skills in some areas.”

But Infor’s Maniscalco agrees with Kumove that a shift to the cloud would foreshadow a shrinking in the size of IT departments. “When the computing resources are consumed as a service there’s less and less need to employ server administrators and application experts to manage the install, patching and testing process for upgrades and fixes.”

It’s a mistake, then, to view cloud computing as an all-or-nothing business model. While it may be appropriate for highly commoditised aspects of your operations, prospective cloud converts should think carefully before placing applications that provide competitive advantage in the cloud.

“This industry runs on hype,” Horizon Consulting’s Kumove cautions. “It’s a matter of stepping back and applying some basic common sense — don’t get blinded by the hype.”

In an old Punch cartoon a curate is breakfasting with a bishop. The bishop says, “I’m afraid you’ve got a bad egg.”

Afraid of offending him, the curate replies, “Oh, no, I assure you that parts of it are excellent.” It might pay to treat cloud computing the way that curate rated his egg.

This article was originally published in iStart Technology in Business magazine

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