Cloud and the small Business

This article at forbes addresses how small businesses are rapidly embracing cloud and what are the potential success factors needed to address the small business space. All the major players are making products in this space. As pointed out in the article the Cloud does enable the small Business segment to buy and consume services without the pain of buying, setting up and maintaining hardware infrastructure and software products.  

In my opinion selling applications to the small businesses could be  the Long Tail of the Cloud. For those not familiar the Long Tail by Chris Anderson talks about how the internet enabled businesses like Amazon to cater to niche audiences that were not served by big retailers due to the low volume of business. I do not believe that there will be vendor loyalty and the businesses will cherry pick the services from multiple vendors.
Vendors like Zoho are aggressively targeting this space with services in the $10-$12. I do believe that there will be a market for custom applications as well. Maybe not for an individual business but for a cluster of businesses. CustomerSquare run by a friend of mine is targeting specific verticals in the retail space. The cloud   reduces the risk significantly for the small business provider . He pays per month , if it doesn't suit him he can dump it with a second thought. He will not be stuck with a boxed piece of software that lies unused. For the vendor also there is an increasing opportunity to upsell services , add small incremental features ,test market them and get additional revenue. He get's instant feedback and can drop things that don't work out well. No more long product cycles and no more upgrade battles.

Cloud Computing - Harnessing the Client side power

A common vision of cloud computing is of massive data centers running in remote locations and clients utilizing the power over the network.
One aspect of the Cloud computing that I still believe is in infancy is in utilizing the client side computing power.
This team here  at MIT used a cluster of Nokia N900 smartphones to deploy a version of MapReduce called misco.
While there are challenges with reliability and network failure there are a lot of potential ways in which this could develop and I am going to indulge myself a bit in some fanciful thinking.
 The co location and GPS capabilities are fairly well developed in the telecom world. What if the smartphones within a particular network tower are able to automatically form a collaborative network?Wouldn't that lead to faster responses and quicker processing for a map reduce kind of  problems. We could be looking at self forming networks that could be used in disaster recovery efforts.
And what about within a private area like an office or a university campus? The availability of these client side devices are fairly predictable. You could expect these devices to be available during the working hours. The organization can potentially harness this additional capacity. This 'loosely coupled network' will require an intelligent design to manage  it effectively but it does open a lot of possibilities. While the processing power of Arm processors may not be much compared to Server processors they are quite powerful. And with ever increasing power on the client side who knows what this may lead up to?

Is Cloud a throwback to the mainframe era?

A common refrain that we hear is that cloud computing is nothing new but a fall back to the centralized model of computing that existed in the seventies. After all Virtualization is a technology whose origin goes back to the mainframe days and languished while the desktop took sway.
I do believe that people are missing the point about the cloud by comparing it to the mainframe era. Yes it does mean more centralization of resource pools but there are some fundamental differences.
Mainframe computing was about efficient utilization of scarce resources. Everything from CPU, RAM , storage and network were expensive and the goal of the mainframe operating systems and the system administrators was to ensure that these resources were utilized to the maximum and that there was no wastage. The decision to use 2 bits to store the year and not 4 was purely driven by the fact that storage was extremely expensive.
Cloud Computing is more about getting more out of abundant resources. The cost of computing resources (except network bandwidth) has become really trivial and are hardly factors in the decision making process.
Amazon's EC2 was really about generating revenue from idle resources and ensuring that their vast computing resources get better utilized. We can get terabytes of storage available at cheap rates but a service like dropbox offers convenience and an easy way to manage your storage needs across machines.
Cloud computing is about gaining efficiency in managing the computing resources. So while the cost of processing power and storage has fallen exponentially the limiting factor is in managing these resources.
If you are looking to use dropbox do use my referral link as both of us can get an additional 250MB more that way.

Cloud Computing and Costs - Capital Costs

One of the biggest marketing pitches about the cloud is how it will dramatically reduce the cost of IT spends and how businesses will be freed from the tyranny of big name hardware vendors and the software vendors. The truth I am afraid is far from that. Cloud computing being a disruptive technology will impact the industry. We will see a shakeout and a new order will emerge in the due course of time. I will leave the impact that Cloud computing is having on the industry to another blog entry and focus on costs.

Borrowing from Wikipedia cost is the value of money that has been used up to produce something, and hence is not available for use anymore.

There are various kinds of cost and we will see what impact cloud computing has on them.

Capital costs. These are the costs you incur for fixed equipment or assets. With respect to IT we can consider the cost of servers, real estate space, cooling equipment, network gear and cabling to be all part of the capital costs. Apart from the cost of buying capital goods there is an associated cost called depreciation. Depreciation very simply put is the expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. With continued innovation the rate of depreciation in the computing industry is very high. Thanks to the hyper competition and high degree of investment by the computing industry in R &D Moore's law continues to be sustained. The value of your equipment falls dramatically with each passing day and that does reflect in your balance sheet.

Small and Medium Enterprises

Cloud computing has the biggest impact on capital costs especially for small and medium enterprises. You don't own or build all this equipment except for the client machines and minimal networking equipment. You are able to free up capital to grow your business. Put more towards marketing, hiring more people or towards other measures to grow the business.

Animoto and SmugMug are two examples of startups having successfully leveraged the cloud. All these firms have been able to rapidly bring out new products and services with minimal or close to zero capital investment on IT equipment.

Venture Capitalists

Cloud computing is also a big hit with the Venture Capital community . As per industry figures going around for quite some years only 5% of the startups succeed and last beyond 2 years from opening shop. Given the reduced capital spending and the rapid time to market that is possible with the cloud for the VC's Cloud computing is probably the best thing since sliced bread!

Large Enterprises

For large enterprises that have large investments in existing data centers the savings in capital costs may not be significant. Also given that these companies get the best volume discounts from suppliers like HP,IBM and Oracle setting up in the cloud may turn out to be more expensive. That does not mean the large companies are shying away from the cloud. Reducing the capital costs is always welcome for a company irrespective of the size. It makes the company more agile and responsive to fast changing market conditions. With a slow down in demand a company using the cloud can simply reduce their consumption of services from a cloud provider and in case of a fast turnaround they can ramp up as quickly. In a traditional data center setup ramp up and ramp down is not easy. Long procurement cycles (typically varies between 2 weeks to 3 months), high setup and configuration costs, ongoing maintenance costs and low utilization of resources are factors can make data centers seem very inefficient as compared to a Cloud computing setup.

As Nicholas Carr wrote way back in 2003 IT does not have strategic value anymore and is moving towards being a commodity. So far large enterprises cloud computing can also be seen as the next logical step in outsourcing. Running Data centers is not their core competence so outsourcing them would be logical. All the major hardware vendors (HP,IBM,Dell) have service offerings around outsourced data centers and there are a lot of hosting providers as well. Cloud computing brings about some more abstraction and a higher service orientation.

To summarize I think Amazon has put it best in this eweek article

"There is a big savings in capex and cost but what we find is that one of the main drivers of adoption is that time-to-market for ideas is much faster in the cloud because it lets you focus your engineering resources on what differentiates your businesses."

Cloud computing and Costs

Watching with great fascination on how the discussion on cloud computing and costs is evolving.

On one hand we have the famous New York times case study that every presenter worth his salt talks about in an introduction to cloud computing. And then we do have blogs tell you that cloud computing will end up costing you more money.

Talk to a CFO and he will tell you that he is waiting for a positive ROI from IT right the days of client server computing !

Cloud computing or for that matter all of IT is more than just cutting costs. It is about empowering you to deliver new services and products to your customer in rapidly shrinking time frames. Veterans of the dot com boom/bust will remember the phrase Internet time and how things had to be rapidly done to keep pace with the market place. While we can debate on the real value of the dot com boom and look back with nostalgia on the excesses of that time the fact remains that the Internet has led to a drastic reduction in product and service life cycles. We can see the same leap happening with cloud computing. For businesses IT has gone from an enabling factor to a constraining factor.As this blog from Elli Lilly points out it is all about getting faster responsiveness from IT. The ability to cut the lead times from 90 days to near zero should tell you that it is more than just cost.

Cloud computing allows you to rent IT services v/s having to buy , build and maintain the service. Using a car analogy if you are a periodic user of a car it will be cheaper to rent. If you do use the car everyday then you will probably be better of buying it. Do remember these are not exclusive options. You may choose to rent a car for a weekend trip or a larger car if you have guests visiting you. Same thing with cloud computing. You get an additional option that you can choose from. It gives you a flexibility that wasn't available earlier and trying to quantify and compare the value with what didn't exist earlier is quite challenging.

Stay tuned for more thoughts on cloud computing and costs.