VideoOver the past two years, Google has spent a whopping $5 billion to construct a network of state-of-the-art data centers. The company's goal is to meet not only its own insatiable need for computing power, but yours as well.
Google's investment is part of a broad movement toward "cloud computing," a literally hazy term for a concept that takes outsourcing, software as a service, and similar rent-don't-own trends to their logical conclusion. Think of it as a ubiquitous Wi-Fi hotspot that can satisfy all of a company's computing needs, from software applications to data to communications and collaboration. No more data centers; everything you need is "out there" in the cloud, accessible for a fee. Or fees.
Your company may already be migrating to the cloud without your even knowing it. A recent McKinsey & Co. survey found that companies are increasingly moving away from being owners of IT platforms. Companies are spending 19 percent of their software budgets on applications delivered as services, the survey said. That is, they are eschewing the traditional model of licensing software for use on a company server in favor of subscribing to software that is housed on a vendor's server. What's more, 23 percent of executives think cloud computing is the best model for running IT systems outside a company's four walls.
Cloud computing is a rebranded form of "utility" computing, a less-clever but more-apt description for the underlying model: computing becomes a utility that you simply plug in to. You would no more think of owning your own IT infrastructure than you would of owning your own power plant. Many of the products and services needed to achieve this vision exist today, but, as Frank Gillett, a principal analyst at Forrester Research, has noted, "The rising buzz about clouds is creating a cacophony of confusion."
Cloud computing is not about handing off management of a data center. Instead, it's about buying standardized IT capabilities — memory, storage, processing power, software — on-demand, over the Internet, billed according to usage. Companies could ditch some or all of their servers and other fixed assets and tap a virtualized pool of computing resources via an interface as simple as a Web browser.
"You can access a server with the exact capacity for a given application," says Simon West, chief marketing officer of Terremark, an IT infrastructure provider. "When you don't need the server anymore, you delete the configuration" from your agreement, thus seamlessly evading a common and costly IT pitfall, buying too much capacity.
Beyond its potential for greater economy, however, cloud computing has the potential to give business units faster, more-direct access to IT resources — one of business computing's holy grails. "Cloud computing is really tackling how we manage the compute resources being utilized by a set of people," says Dennis Quan, a director of development in IBM's Tivoli division. "It represents a new level of efficiency in running and managing IT."
A CFO may well ask how far this concept can go: Could cloud computing drive IT capital expenditures down to zero? Why buy a truckload of servers, after all, when the company can tap into Amazon or Google's vast data centers and just buy processing power on an operating-expense basis? "The CFO is responsible for helping the company get the biggest bang for its buck," says Jose Granado, a partner in the IT advisory group at Ernst & Young. "With cloud computing, companies — especially small and midsize companies — can realize significant cost savings." The intense transactional workloads and other facets of large-company IT operations may not be as well suited to cloud computing — at least, not yet.
But even companies in the business of selling IT services are buying what they need via the cloud computing model. Consider Hoodiny, a Miami-based company that provides record labels with on-demand streaming capabilities for music downloads and other high-bandwidth services.
Hoodiny buys a bundle of processing and storage resources monthly, says Jose Gonzalez, executive vice president of business affairs, and can then configure virtual machines according to its needs. If the company needs to add five servers to handle a surge in additional Web traffic, it can bring new capacity online without a capital outlay or cannibalizing an existing server. And it can switch off the extra computing power when the promotion ends. "It takes 10 minutes to have a virtual machine available versus hours or days, depending on your financial position, to have the equivalent hardware ready," Gonzalez says.
While Gonzalez is still collecting data from his five-person IT department to calculate the firm's ROI, "instinctively you can begin to see there is some cost savings in cloud computing," he says. The more immediate value, though, lies in eliminating the time it takes to decide to buy a new server, configure it, and go through purchasing, only to have the asset sit idle or underutilized after it fulfills a temporary need. "From an asset-management perspective, cloud computing is very attractive," Gonzalez says. In the future, Hoodiny may rely on cloud services to replicate its production environment as a way to test upgrades and new software functionality. "I'll have a duplicate platform without shelling out for additional sets of hardware" or having to beg for money, Gonzalez says.
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