Marianna Papadakis Reporter

Marianna writes for The Australian Financial Review and Business Review Weekly from the Sydney newsroom. She has an interest in legal affairs, technology and business.

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Cloud computing: what exactly is on offer?

Published 21 March 2013 15:39, Updated 10 April 2013 07:32

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Cloud computing: what exactly is on offer?

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It’s easy to be bamboozled by the chatter about the benefits of cloud solutions for business and what’s available. Deciding on the right mix of cloud versus having your own dedicated infrastructure is even more daunting.

So what exactly is on offer? At one end of the scale you have software-as-a-service, which allows businesses to use a provider’s cloud-based applications, such as web-based email systems. At the other end there is infrastructure-as-a-service, where companies outsource their entire operations, including servers and networks to a provider on a pay-per-usage basis.

In between there are platform-as-a-service models that enable companies to create their own software solutions using a provider’s programming and other tools.

Information technology research company Gartner forecasts the global public cloud services market to grow to $US131 billion in 2013 up 18.5 per cent from $US111 billion in 2012. The Australian market is forecast to grow 23 per cent in 2013 to $US3.2 billion, up from $US2.6 billion in 2012.

Gartner analyst Jim Longwood says the biggest advantage of cloud services for businesses is shifting from a capital expenditure model, where you pay for your own infrastructure or data centre, to an operating expenditure model which runs on a pay-per-use basis.

A business’s decision would be based on cost and capacity requirements but also reliability, availability, scalability and security.

Cloud elasticity a benefit to seasonal business

There is a lot of “razzmatazz” about cloud, he says, but businesses in manufacturing and retail, which have production and transaction costs, could be the ones to benefit most.

Peak periods such as Christmas sales push systems to their peak, while at other times of the year it might be working at 20 per cent of its full capacity, he says.

Cloud services are “elastic”, meaning businesses can scale up or scale down their capacity to manage peak processing volumes, without having to invest in costly infrastructure.

A huge overhead of $10 million spent on servers and networks in a traditional model can be reduced to between $1 million and $3 million, he says.

Costs are proportional to traffic, meaning they can be unpredictable, and businesses must be careful when looking at their projected growth and the unit costs of cloud systems to avoid blowouts.

Businesses can unwittingly be rushed into long-term contracts for cloud services that they are then locked into – as happens with mobile phone plans.

It is essential to analyse your business requirements to determine what kind of cloud services are appropriate and to be aware of “cloud washing”, where providers rebadge their existing services as cloud.

“A benefit of cloud is that it can be accessed anywhere in the world; the down side is that the quality of performance can’t be guaranteed,” Longwood says. “Internet-based solutions might not be efficient for high volumes of transactions.”

Longwood says it’s increasingly common to use hybrid cloud options. These allow a company to maintain traditional in-house operational systems for business or mission-critical applications, while using the cloud to store databases or other applications all of which can inter-operate.

Dedicated infrastructure is far less valuable these days, agrees Aaron Steppat, product marketing manager of cloud infrastructure and management at VMware. A specialist in virtualisation and cloud infrastructure, VMWare holds around 80 per cent of the global market share.

Cloudburst capacity

What the cloud does is free up computing requirements from the constraints of space, location and deployment time.

“The practice of ‘cloud bursting’ to access extra capacity during peak times is likely to become more common this year,” Steppat says.

He suggests that businesses need to map their core performance to a mix of infrastructure.This means balancing a need for scalability – best suited to the cloud – or disaster recovery, which utilises a combination of cloud and in-house systems.

Cloud is good for start-ups that don’t have the capital for infrastructure but larger organisations may have concerns around security. Protecting intellectual property is one example and conforming to regulations that require data storage within Australia means companies cannot use providers that host data overseas.

For any company, privacy, data sovereignty and security are paramount and it is difficult to control that if you don’t know where the data is stored or processed, Steppat says.

Businesses should look to providers that have policies for location and privacy and do not share with third parties. For example, under the US Patriot Act, authorities could access a company’s data at any time.

Public or private?

He says hybrid models can be a good compromise for companies that don’t want to take the full risks of migrating completely to the cloud. This includes businesses that want to keep customised or business-critical applications under their control. The public cloud has the advantage of fully flexible pricing but businesses can still get some of the benefits by implementing virtualised computing on in-house infrastructure. This halfway step can be called a private cloud.

Steppat notes that phasing in cloud services and applications is preferable and that existing infrastructure and platforms should be consolidated before migration.

Hybrid advantage

Tonkin Consulting, an engineering, environmental and spatial consulting practice, was looking for a cloud solution that reduced IT and management costs, while increasing its ability to rapidly scale operations up and down to meet its projected medium-term growth.

Tonkin adopted IBM PureFlex to replace its existing HP switching hardware and servers and the company’s chief executive Gerry Doyle says the hybrid model suited it. The cloud ensures that communication between its teams and clients around the country is speedy, while enabling easy access to documents, as well as swift, reliable recovery from a system disaster.

However, some of its operations involve client-sensitive data and because of its concerns about security, Doyle says the company prefers to keep some applications in its private cloud.

“We are confident our systems will last five to seven years,” he says. “We just didn’t think our business was ready for a full cloud.”

The company is using the cloud to test new applications. “Migrating fully to the cloud would have come out of our operational cash flow,” Doyle says. “This way we could make it a one-off capital purchase.”

Clouds don’t cost the earth

Travel discount website TripADeal has opted for a full cloud strategy, using software as a service such as Salesforce.com.

TripADeal founder Norm Black says cloud computing enabled it to set up a seamless customer service platform – accessible to all its staff from Britain, Indonesia and Australia – with limited capital. “We are fully integrated,” he says. “I’m not a code writer or computer developer but we don’t have to rely on our IT department to make daily upgrades.”

It costs TripADeal $20,000 a year, while writing the code to perform the same functions would have cost about $80,000.

“It gives small and medium-size businesses the opportunity to carry on business in the same way a corporation can afford to do,” Black says. “We’ve also saved on labour costs for administrative staff.”

David Merrill, chief economist at Hitachi Data Systems says businesses should undertake due diligence and be careful not to be seduced by low price offers for storage.

Accounting methods of owning and depreciating IT assets is on its way out because companies need technology that is flexible and agile.

Utility and capacity-on-demand computing is on the rise and operating expenditure models give companies the ability to use what they need when it is needed on a variable cost base.

“SMEs are embracing it much faster because they don’t have to own or hire equipment,” Merrill says.

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