How Cloud Computing Will (already has) Transformed Enterprise Computing

October 25, 2010

There is no shortage of definitions of cloud computing.  See the article in Cloud Computing Journal 21 Experts Define Cloud Computing.  And yes, there are 21 different definitions and many of them have significant differences.
Needless to say, the definition is subject to a variety of interpretations.  The latest Gartner report on Cloud Computing Systems did not include Google (their app engine was seen as an application infrastructure) or Microsoft (Azure was seen as a services platform).  You have to take these things with a ‘grain of salt’ – Gartner’s report did not have Amazon in the ‘leader’s quadrant’.
One general description that I like is that cloud computing involves the delivery of hosted services over the Internet that are sold on demand (by time, amount of service and/or amount of resources), that are elastic (users can have as much or as little of a service or resource as they need), and that are managed by the [service] provider.

I attended a recent TAG Enterprise 2.0 Society meeting (un-conference).  During the discussions one of the participants asked “how do we go about starting to use cloud computing?”   The first thought that came to mind was ‘you already are’.  If you socialize on Facebook or LinkedIn, if you collaborate/network using Ning or Google Groups, if you Twitter, if you get your Email via Gmail or Hotmail, or if you use then you are already using cloud computing – using applications/services that, in some form, run in the cloud.

A recent Newsroom release Gartner Research predicted that by 2012 (just two or three years hence), cloud computing will become so pervasive that “20 percent of business will own no IT assets”. No matter how you slice it that is a pretty bold statement to make (even for Gartner).
I don’t know if I believe that 20 percent of businesses will have no IT assets (by 2010).  I believe that there are significant issues that will preclude business from putting 100% of their IT assets in the cloud.  These include security of data (that is stored in the cloud), control and management of resources, and the risks of lock-in to cloud platform vendors.
What seems more plausible are reports by ZDNet and Datamonitor which predict that within the next few years up to 80% of Fortune 500 companies will utilize cloud computing application services (i.e. SaaS applications), and up to 30% will purchase cloud computing system infrastructure services.
In the near term, I see cloud computing as more of an implementation strategy.  Enterprise computing assets and resources (including social computing software and social media) that are currently implemented within enterprise datacenters will migrate into the cloud.
The shift toward cloud services hosted outside the enterprise’s firewall will cause a major shift in how enterprises develop and implement their overall IT strategies and, in particular, their Enterprise Social Computing strategies.
This shift toward and the eventual wide spread adoption of cloud computing by the enterprise will be driven by a number of factors

Cost (computing resources)
Late last year (2009) Amazon, Google and Azure lowered their published pricing for reserved computing instances (computing cores).  Amazon’s rate for a single CPU, continuously available cloud computing instance was little as 4 cents an hour (effective hourly rate based on 7×24 usage) for customers that sign up for a three year contract.
Single year contract rates were about 20% higher.  Pricing for on-demand instances (no upfront payments or long term commitments) was about two and a half to three times the three year contract rates.
A rough calculation says that a cloud data center of 10, single core servers (at a three year contract rates) could be operated around the clock under $0.50 an hour, or just under $3,500 a year (about $350 per server per year).  And that includes data center facilities, power, cooling, and basic operations.  Pretty impressive numbers!

Commoditization of Cloud Computing
And if the costs of cloud computing weren’t low enough Amazon announced pricing for EC2 ‘spot instances’.  This pricing model will usher in the beginnings of a trading market for many types of cloud computing resources: support services, storage, computing power, and data management.
Under the old model you had to pay a fixed price that you negotiated with a bulk vendor or a private supplier.  Now in the new spot market you can look that the latest price of available cloud capacity and place a bid for it.  It your bid is the highest, then the capacity is yours. Currently this is available from Amazon’s EC2 Cloud Exchange.

Leveling the playing field for startups and SMBs
One of the most important aspects of cloud computing is that SMBs can afford to do things they could not have afforded to do before;  they can do new, exciting, innovative things – not just the same old things for less money.
In the past, when SMBs needed to build a new IT infrastructure (or significantly upgrade the current one) they often could not afford to buy large amounts of hardware and the latest/greatest enterprise software.
In the cloud you pay for the hardware and software that you need in bite-sized chunks. Now the SMBs can afford clustered, production-ready databases and application servers, and world class, enterprise software (via SaaS).  Having equivalent technology can help ‘level the playing field’ when competing against large enterprises.
New Products and Services
The availability of large amounts of computer processing power and data storage will allow innovative companies to create products and services that either weren’t possible before or were not economically feasible to deploy and scale.
In the past, business ideas that required prohibitive amounts of computing power and data storage may not have been implemented due to technical restrictions or cost-effectiveness.  Many of these ideas can now be realized in the cloud.

Most cloud computing vendors offer three and a half nines of service level availability – annual percentage uptime of 99.95% (or about 4 ½ hours down time per year).  If applications can be deployed to clusters of servers then downtimes will be greatly reduced.
Note:  ‘Five nines’ of SLA is said to available from a few vendors.  However, upon closer reading of their offerings you may find wording such as “we are committed to using all commercially reasonable efforts to achieve at least 99.999 percent availability for each user every month.”
As always, read the SLAs very carefully.

Cloud computing enables two types of ‘agility’.  The first is time to realization; how fast you can see that an idea is working or is not working.  Cloud computing support the rapid acquisition, provisioning, and deployment of supporting resources (potentially much faster than in traditional TI environments).
The second type of agility is flexibility (aka elasticity) of computing and service resources.  Elasticity can reduce the need to over-provision.  The enterprise can start small, and then scale up when demand goes up.  And, if they have been prudent with their contractual obligations, they can scale down when resources are no longer needed.

Cloud Vendors – The New and the Old
The early leaders Amazon, Google and Microsoft have been joined by big names like HP, IBM, Dell, and Cisco; even Oracle has gotten into the game. They are utilizing existing strengths to create successful cloud computing products and services for their customers and partners.
There is new generation of companies that are developing cloud offerings – see The Top 150 Players in Cloud Computing.  These new companies are likely to be more nimble and move more quickly than the current leaders.  We are already seeing a number of new, innovative approaches (technologies, business models, and openness) to cloud based services.

It is not an exaggeration to say that ‘the IT industry landscape will be remade by cloud computing’.