Cloud Wars: A New Hope

Merrill Lynch once forecast that the cloud computing market would reach an eye-popping US$160 billion by 2011, a prediction that mostly drew skepticism. While sizing up the expectations for a nascent tech market is equal parts art and science, there are growing indications that $160 billion may indeed prove to be accurate.

In increasing numbers, enterprises are studying the business case for cloud computing and coming to the conclusion that it could work for them.

More firms are looking at the financial benefits of outsourcing their IT operations as much as possible, Charles King, principal with Pund-IT, told the E-Commerce Times.

Indeed, the issue of how much money can be saved by moving to the cloud has become the top question during the due diligence phase of a project — even more so now than just a few months ago.

“Putting together a numbers-driven business case for [return on investment] has become critical during a customer evaluation, Ariel Kelman, senior director of platform product marketing at Salesforce.com, told the E-Commerce Times — a trend that he said has markedly increased since the economy went south.

The Cloud Landscape

Leaving aside for the moment the question of which vendor can help save the most or deliver the best ROI, companies considering the array of vendors capable of providing enterprise-worthy cloud computing will find a number of choices.

To start at the broadest point, these vendors differentiate themselves in terms of how they provide access to data. Data can reside in the cloud, with the vendor giving the user a conduit to the data as well as providing the application to access it. Or, data can reside in the client’s own database, with the vendor providing an application that is hosted in the cloud.

Companies evaluating the likes of Amazon, Google, IBM, HP, Salesforce.com and AT&T can start to narrow the field based on a few broad strokes of differentiation. Amazon’s cloud computing service, for instance, might be better suited for an e-tailer, while a computer reseller might find HP a better fit.

Another way to distinguish among the providers is by scale. In that respect, Google is a leader with its massive infrastructure.

Another consideration is the software a client would be running on its PCs. A Windows shop would likely be interested in Microsoft’s recently launched large-scale cloud computing initiative focused around Windows Azure, the software architecture that runs in Microsoft’s data centers.

Companies that are seeking private clouds — or enterprise clouds, as they are sometimes called — would want to consider IBM, said Dennis Quan, director of development for autonomic computing with IBM Software Group.

“Issues of security and privacy are paramount for a lot of our clients,” Quan told the E-Commerce Times. “This is the top request we get from clients who inquire about our services.”

Cloud Shakeout?

A vendor’s viability is also a consideration. Cloud computing is still new enough — at least, in its current incarnation — that some of the smaller, specialized players will either fold completely or be folded into a larger offering, King said.

“I think over the next year or so, we will see smaller, specialty vendors go by the wayside,” he predicted. “It will be critical for vendors to show clients that they have the financial wherewithal to continue their cloud efforts. This, of course, plays to the strengths of the larger vendors.”

Financial stability could trump other considerations. For instance, a firm may be attracted to a smaller vendor because of its specialization or a larger company because of its breadth of offerings. If a vendor shows any signs of financial weakness, though, the customer might decide to go with, say, Amazon, even though it might not have been at the top of the list.

“Amazon is simply a company that has been leveraging its own cloud infrastructure to benefit developers — but its economic viability puts them in good position to continue with that rollout,” King said.

Making the Case

While vendors will continue to distinguish themselves along these lines as the battle for cloud share continues, the real selling point will be the business case that a vendor can deliver.

“The lack of up-front capital expenditures is making the cloud computing model appealing for new IT products,” Salesforce.com’s Kelman said. Every dollar being spent is being scrutinized by businesses — and if they are going to make new investments, there has to be a solid, valid business case.”

Kelman pointed to a three-year TCO (total cost of ownership) comparison between on-premise application development and cloud computing via Force.com for a 250-user, medium-complexity, departmental business application. Essentially, the analysis found that building and running apps on a cloud computing platform is at least 50 percent cheaper and 40 percent faster than developing an on-premise platform.

In the comparison, software license and maintenance list price fees for the cloud platform are $225,000, compared to $448,947 to maintain the same functionality on premise. The example’s on-premise hardware infrastructure, data center infrastructure and infrastructure administration cost $161,000; in the cloud comparison, that number is zero.