VideoRebalancing Act
How useful will cloud computing be? For the most part, "companies are still struggling with it," says Major Horton, CFO of Nirvanix Inc., provider of a cloud storage platform. "They say, 'We get the advantage of not having to layout capital, but what do we use cloud computing for?' That's where there is still a learning curve."
Heavy-duty enterprise jobs are not an option at this point. "The best [service-level agreement] that I know of provides for only 99.5 percent uptime, whereas most enterprises are looking for 99.999 percent uptime or better for mission-critical applications," says Brett Waldman, a research analyst in system software at IDC.
Migration to the cloud will likely follow the same evolution other forms of outsourcing have taken: low-priority business tasks will be the early candidates. Instead of moving to cloud computing "en masse," companies will "look at their technology landscape and rebalance it by pushing some to the cloud," says Daz Wilkin, a program manager in Microsoft's platform strategy group. The technical infrastructure that is not part of a company's "secret sauce" will be best suited to cloud computing, Wilkin says, citing messaging and Web collaboration as examples.
Microsoft, for example, expects 50 percent of Exchange mailboxes to migrate to Microsoft Exchange Online in five years. "Customers are giving us jobs they cannot do themselves or that are peripheral and noncritical," agrees Eric Novikoff, former CFO and now chief operating officer at ENKI, a virtual data-center provider.
There are good reasons for that: pivotal issues have to be addressed before companies are confident enough to shutter their own data centers in favor of Google's or Amazon's. It's not clear, for example, that companies will always save money. Shifting the storage of unstructured data, such as multimedia libraries, to the cloud can reduce costs, Nirvanix's Horton says. But a CFO would have to compare the total cost of owner shipper gigabyte of storage, throwing in expenses such as the percentage of building maintenance, physical security, and even property taxes allocated to storage systems, to make a valid comparison.
"It's a highly individual calculation," says IDC's Waldman. "But what can be said is that cloud computing drastically reduces the start-up costs for new companies and projects, since there is no need to acquire hardware."
Pricing and billing models will continue to evolve. Right now an apples-to-apples comparison is difficult. ENKI, for example, charges customers by hours of CPU time, gigabits per second transferred, and disk space used, while Terremark levies a monthly fee for a pool of computing resources. And even cloud computing's largest ostensible appeal, a huge reduction in capex, can be a liability. Some customers are "resistant to switching their financial models from lump-sum expenditures to a flow-through-cash basis, often paid with credit cards or ACH," Novikoff says.
In addition, for some applications, like accounts payable, a CFO's priority may never be cost savings, points out James Zubok, CFO of Brainware, a developer of business-intelligence software. "The important thing," he says, "is to have the information auditable and correct. CFOs are less concerned about how it gets done than that an invoice gets paid on time."
The Not-So-Silver Lining
Left to their own devices, non-IT personnel could easily violate governance policies (and government regulations) by plopping customer data out in the cloud. "It's dangerous when business units try to get around IT," Microsoft's Wilkin says. But like Linux, Blackberries, and iPhones, "cloud computing will allow business units to elude outdated IT policies until they can be updated," Waldman predicts.
Other barriers to widespread enterprise adoption of cloud computing are only too familiar. "I have made zero progress in selling to top-level management of enterprises in terms of replacing a whole class of IT," Novikoff says. "Moving to cloud computing can be seen as introducing unquantifiable risk." Executives Novikoff speaks to grill him extensively about security, guaranteed uptime, and regulatory compliance and certifications, in that order. "The question is not just how secure is the datacenter, but how secure is the business process within the data center."
Vendors will need a transparent mechanism for proving that their services meet data-protection standards. That could take the form of a quarterly report that shows the results of services regularly being tested against such standards as those for the payment-card industry. Hyperic, a maker of Web-monitoring software, already does something like that with performance metrics. Its free open-source systems-management tool peers inside Amazon's cloud computing services to report metrics such as database query response times and system outages.
Even if cloud providers solve those critical issues, there are others. Right now the market is long on technology but short on services, which means that clients will need heavy-duty IT operations expertise. "Going to Amazon's Web services is like going to the grocery store — you can bring home a lot of groceries but you still have to make dinner," Novikoff says. And as companies move some applications, but not others, to the cloud, integration problems will arise. "No company runs just one or two business services," explains Microsoft's Wilkin. "I can't put some of those services out into the cloud and expect the same level of integration as if everything was on the premises."
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