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Leveraging Cloud Computing:
Pie in the sky or the next big thing on the horizon?
(June 12, 2009)
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If Cloud Computing is indeed the next big thing, then
it is certainly a high stakes game. Current investments undertaken by
Microsoft, Amazon, and Google in cloud computing indicate these firms
are gambling with a Royal Flush; however, at the conclusion of ITEE’s
latest discussion session on cloud computing, the group concluded these
firms might merely be gambling with three of a kind.
Conceptually, cloud computing is compared with a utility—the source of
the power, data and processing of data, can be distant from the final
user. Just as electric power generation moved away from individual firms
and became centralized, cloud computing promises to move our computing
infrastructure to a utility that can securely, efficiently and
cost-effectively manage systems in such a way as to allow us to plug
into these networks with our devices of choice. The concept and vision
of the cloud is revolutionary in scope, but is it practical? Is it the
“next big thing,” or the “next big buzzword”? Millions of firms, large
and small, have already invested in their own computing infrastructures.
What Differentiates Cloud Computing from Prior Models? Is It New?
Although there remains no formal definition of cloud computing, it
certainly means that computing power is “not here.” It implies capacity
on demand such that the cloud can add or subtract servers as necessary
to meet demand. Consequently, the user pays for only that capacity which
is necessary. “Instant on,” “pay as you go” and “capacity on demand” are
buzz phrases of this movement. CIOs do not have to commit up front to
buying capacity in the hope that they are making the right choices;
instead, they can buy what they need, when they need it. It is not so
easy to scale down if you have invested in hardware (however, it was
noted that HP has a new rental model that provides a variable cost above
a certain level of usage and does, in fact, allow some meaningful
down-scaling to take place).
It is possible that currently existing IT practices have been renamed
cloud computing due to marketing initiatives by major firms. There are
three models where “cloud” computing may already exist. These three
models include application hosting, a centralized data center, and the
ASP (Applications Services Provider) plain vanilla model. They move from
one extreme of strong user control over most elements (hosting) to the
other of very little control (ASP vanilla).
• Application Hosting: a third party provides the physical data center
infrastructure and (possibly) the hardware. Beyond this the user is free
to run the application however he/she sees fit.
• Centralized data center/Private Cloud: A company may customize its
version of the application, but consolidates servers such that they run
the application from a single location and serve it to everyone from
there.
• Application Service Provider (ASP)/ Software as a Service (SaaS) Plain
Vanilla Model: remote users utilize an application just as it is, with
no modifications beyond individual data. Examples: Salesforce.com,
Google apps.
Further layers may be defined, e.g. business process management. In the
imagination of business writers such Peter Fingar, any layer becomes
subject to outsourcing (his book, “Dot Cloud,” received a partially
enthusiastic review).
It was suggested that the scale of the investment by these large firms
is the main differentiator between cloud computing and the three
existing models. Other firms in this business, such as rackspace.com,
are not as big as Google!
The Kindle also provides a window into how cloud computing may be
different, as Amazon can now bundle the download cost into the book cost
and, in essence, give the connection away for free. A similar move in
the cloud computing world would indeed open up great new possibilities.
Other qualitative difference may comprise advances in virtualization,
hyper-layer scanning (e.g. where virus scanning is done for all the
processes running on one server or one part of the cloud, obviating the
need for each process to do it), and the installation of patches. But
some of these can be done, and are being done, by individual firms using
virtualization, and so it is not obvious exactly what are the unique
advantages of cloud computing.
What do Users Get from Cloud Computing?
A few in attendance have had experience with cloud computing. Benefits
include minimizing hardware and running applications off site with
ownership and management still available. Other motivations involve cost
savings of shared servers and minimal security issues. Potential
drawbacks surface in data transfer and it becomes clear that firms
remain tethered to their local computing power when the applications
involved are sharing large amounts of data remotely (e.g. with a video
or media server application). Doing .NET development remotely is
entirely possible.
The primary utilization of cloud computing among some of our
participants currently consists of e-mail. Investments of large firms
such as Microsoft currently center on hardware, applications, and
building data centers. Currently, applications only handle e-mail;
however, in the future, opportunities to develop custom applications
within the cloud may become available.
Perhaps the best candidates for cloud computing comprise firms
experiencing drastic shifts in capacity demand. Examples given included
elections and the Olympics because purchasing hardware creates excessive
and unnecessary expense. E-commerce companies experiencing seasonal
demand patterns and utilizing customized software applications might
fair best in a cloud-computing environment.
Project based models like R&D that need to scale up quickly over short
times are also best suited to cloud computing. This is the exception
rather than the rule for most firms because it does not operate in a
vanilla state. Future options include vanilla and customized models
available for different needs. Pharmaceutical work could also be ideal
for cloud computing, because demand varies so much depending on stages
of drug research.
Can cloud computing give open source computing a boost? The panel agreed
that migration by service providers and e-commerce firms looking into
clouds provides evidence.
Viability and Maturity of the Cloud Model
Users’ Perspective: The first question
under this topic is whether there is sufficient demand for cloud
computing. Cloud computing will not make mainframe or super computers
obsolete. The insurance industry, for example, relies on mainframes to
manage its bulk of data. Current budgets on cloud computing within the
panel are very small and less than $500,000. Large companies, currently
heavily invested in their own IT, will not give it up immediately to
move into clouds. A firm that was writing a lot of its own software, and
needed peak capacity for things like stress testing, could find the
cloud quite beneficial. For example, this model might be beneficial to a
firm that writes its own ERP system; firms that are writing custom
applications may be able to write them to specifically take advantage of
the cloud’s ability to scale. However, today there are few firms writing
their own ERP systems due to economies of scale. This case and the case
of using vanilla applications like email are two strong candidates for
cloud computing.
Several other points surfaced during the discussion concerning the
viability of cloud computing in an environment where the majority of
what a company runs is not compatible with the Software as a
Service/Cloud model. First, most businesses modify vanilla programs
(such as accounts payable) to suit their preferences. Second, using
custom software to obtain a competitive advantage is a primary concern
of most firms. Most firms desire to keep this strategic software in
house for security purposes. Third, purchased commercial software does
not currently sit well in the cloud environment because most businesses
do customize the programs. If the cloud provider could serve the
versions that had been customized to each individual firm, the model
would be more attractive (note this is like saying that an electrical
utility would provide different grades or types of electricity to
different firms). How would the cloud provider know how to upgrade a
package you had customized? It was asserted, therefore, that the bulk of
the software that businesses currently run is not well suited for the
cloud model.
A firm that wants to use customized software versions can use the
Application Hosting model, but has to be responsible for taking care of
all these details itself. And because infrastructure is so cheap these
days, the hosting model does not seem to offer than much of an advantage
to firms with existing infrastructure already.
Additional questions came forward such as how much control a firm
desires over its hardware and renting space on a commercial server
versus owning its own.
Other dangers in entering into cloud computing entail different
departments utilizing different clouds independently. Corporate policy
must dictate future procedures. And there seems to be some risks if the
cloud should experience large failures.
Providers’ Perspective: A second set of
questions involves the provider firms themselves. One possibility is
that these big companies will now become experts at forecasting demand.
The maturity of the cloud concept may develop when we see supply chain
visibility such as e-commerce businesses exchanging forecast data with
cloud providers.
Issues arising from cloud computing involve the need for the host
companies to change both pricing and licensing structures due to the
scalability factor. Currently, contract violations may exist if demand
drops and the contracted capacity becomes unnecessary. So how do these
firms scale down? The answer is that the big firms are gambling that
customers will come despite the fact that scalability remains unclear.
Using the Cloud In House
Currently, many companies create their own private “clouds” to store
data. The primary inhibitor of this is slow data transfer rates. By
consolidating servers and adopting virtualization, many firms are
already, to a certain extent, creating their own clouds. For companies
that are thinking about implementing a “private cloud,” scalability is
much easier for large firms possessing elevated internal IT investments.
Resources re-deploy easily to other uses as necessary. An advantage
exists for large firms with established IT resource investments.
Bottlenecks must be identified in order to allow the successful
implementation of cloud computing. Applications must be able to scale
according to demand. Current software packages may not take advantage of
a scalable hosting platform. Some applications are still
single-threaded, whereas with a four-core Intel processor with
hyper-threading, there are sixteen processors available. Software
written in house may require extensive re-tuning when changing hardware
platforms. The existence of massive hardware capabilities, in a sense,
guarantees that something else will be the bottleneck.
Economic factors must provide necessary incentives. Long and short run
costs require comparisons similar to leasing a car. The long run
question of whether or not to host in-house requires comparing the cost
of internal inefficiency by doing it in-house, vs. the cost of loss of
margin by paying for it “out of house.” The gap between the two provides
the answer. Determining how all of the pieces work together becomes
critical in the future of cloud computing viability. In the end,
companies must resist the seduction of capacity or scalability benefits
alone. E-mail is an example of something that firms are becoming more
and more hard pressed to do more efficiently in house than can be done
by an outside provider.
Security of the Cloud
What are the advantages and disadvantages concerning security? The group
cited advantages regarding patches and updates performed on one cloud
benefitting multiple companies. More than one company may use the same
physical server, so all benefit when patches are applied. Disadvantages
included the possibility of a hacker gaining access to a cloud and
gaining entrance into multiple companies. One panelist jokingly remarked
that hacking clouds might become a topic of instruction at the college!
It was noted, however, that the argument about hackers has been around
for some time with respect to virtualization. It has to be reviewed and
addressed, but such instances are not being seen, at least not yet.
Server confiscations and other legal disputes also raised concerns among
the group.
Another question concerned how to handle outages in a global
environment. Some large firms locate their clouds as close as possible
to the customers. Theoretically, technology might provide zero outages;
however, applications must develop to eliminate downtime.
In addition, Sarbanes Oxley auditing concerns might pose problems
especially with global companies where a cloud might be located in one
country and the operations in another country. Will auditors need to
know who is in the cloud? A member of the panel indicated that these
concerns are unfounded because this type of auditing occurs currently
without issue.
Further concerns surfaced about possible locations of data centers. I a
firm receives a cheap price in Burma or Myanmar does it need to worry
about a rebel overthrow and data falling into the wrong hands? From a
security standpoint, does a firm care that someone might be physically
on site in the cloud facility?
Does cloud computing comprise a new un-regulated frontier? Are there any
companies currently facing regulatory issues hosting in another country?
Is privacy an issue, especially concerning credit card transactions? The
panel agreed that all these concerns deserve investigation.
The Bottom Line (For Now)
In sum, the complexity of the entire IT industry is rapidly advancing.
Industry CIO’s face a mosaic of both long and short-term choices
entailing critical decisions. It is entirely possible that the term
“cloud computing” is a mere buzzword to drive increased revenues. Or
firms are just on the cusp of shedding their own computing capacities;
once data transfers for really large amounts of data become possible,
the source of the computing utility may shift. Only time will tell if
the gamble of the large IT firms in cloud computing infrastructure will
pay off. The “three of a kind” models already exist, but perhaps cloud
computing will prove to be a “Royal Flush.”
This summary was prepared by Paul Evans and
Prof. William McHenry of the University of Akron’s College of Business
Administration.
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