Early Cloud Adopters Ride Out Hype Cycle

Pressure for flexibility, savings and speed are driving up CIO interest in cloud computing. But these grizzled veterans of the tech hype wars say they won't be won over by big promises.

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If a USGA server hits a problem, Carroll can click a button to switch to the replicated version that IBM maintains for her, she says, without USGA users noticing a thing. Then her IT department can fix the internal issues. The e-mail system carries USGA's most critical data, such as membership information and correspondences between the constituents.

Before Carroll could feel comfortable with the deal, however, she extracted stringent service-level promises from IBM. For example, in the event of a short-term outage such as a hardware failure, IBM must immediately provide a year's worth of backed-up e-mails for senior management of the USGA staff so they can continue e-mailing without waiting for repair. In the event of a full-blown crash, IBM would provide multiple years' worth of messages. The hardware and software for this kind of backup and recovery system would have cost the USGA too much to do on its own, Carroll says.

Hamilton Beach Brands also dipped a toe into cloud computing via e-mail. When the time came to upgrade Lotus Notes last year, the appliance company hesitated. Hamilton Beach hadn't refreshed Notes in three years and Jerry Hodge, senior director of information services, knew jumping from Notes 6.53 to version 8 would force him to upgrade his IBM iSeries servers and retrain the 500 users on the system. A lot of expensive work just for e-mail, he thought.

Hodge asked his staff to look into Google's Gmail service, among other alternatives. E-mail hasn't been a competitive differentiator for years, he reasoned. By subscribing to Gmail for a monthly per-user fee, Hamilton Beach would avoid the expense of new hardware, software licenses and training. Because Google provides archiving and retrieval, Hodge also figured he'd save on items such as backup tapes and disks and the IT labor to support electronic discovery for lawsuits or audits. "Over five years, the cost would be half," he says, looking at a spreadsheet comparing the Notes upgrade to Gmail. Such savings in capital and ongoing operating expenses were too compelling to pass up, he says. "Let someone in the cloud run e-mail and free up my guys' time to work on stuff that does make a difference."

Doubting the Cloud

It's one thing to put a basic, almost self-contained system like e-mail into the hands of an outside service provider. Quite another to off-load more complicated, interdependent applications filled with sensitive customer or competitive data, says Tracy, who recently left Rolls-Royce to become CIO of Dana Corp. "I don't think there's a mad rush for people to put their ERP systems in the clouds," he says.

For Tracy and other skeptics, security and reliability issues raise serious questions. Outages of Gmail for several hours in February and April frustrated a mass of customers. Amazon, too, has experienced outages due to authentication overloads and other problems.

How much these issues matter will vary depending on the criticality of the system and the risk tolerance of the CIO, Tracy says.

Security is especially important at Rolls-Royce, which makes such items as jet engines for military aircraft and power systems for Navy ships. (The fancy cars are made by BMW.) As a defense contractor, the company is bound by strict federal technology and physical security regulations. He contemplated cloud computing but not with Amazon or Google partly because, he says, they won't let customers inspect their data centers—and that's a show-stopper for Tracy. "You say you want to try cloud computing, but it's only a few hundred bucks a month to them and they say it's not cost effective to allow this tour," he says.

Google, for one, has heard this criticism before. Its response is that customers can feel comfortable with Google Apps because its systems and processes have passed a SAS 70 Type II audit of controls in place to protect data. Google has also published on its enterprise blog some of the ways it manages customer information.

That helps a little, Tracy says, but it's far from enough when he worries about exporting sensitive data. "That requires us to understand where the data is hosted and who has access, [even] the nationality of everyone who is a system administrator," he explains. "That's not feasible in cloud computing, where processing could be in any data center around the country at any given moment."

The People Costs

Adopting cloud whole hog could cut IT staff by 10 percent to 15 percent, according to McKinsey. That's just what no one below the CIO wants to hear. At Hamilton Beach, which simply handed over e-mail to Google, Hodge says he saw fear. "My team was apprehensive about cloud. Thought it would put them out of a job." But no one has lost his job because of cloud computing, he adds. Instead, he's been able to reassign duties to let staffers do more productive work in areas such as business continuity.

Back in New York, at the CIO Perspectives gathering of IT leaders, the enthusiasm about cloud computing's potential was tempered by sobering worries about early-stage hurdles. Still, the group estimated that within five years, as much as 25 percent to 30 percent of most companies' IT strategies will include services from the cloud.

"The will to experiment is there," notes Shiva Swamy, executive vice president of IT services firm ZSL and one of the attendees. "Surely the bad economy provides the impetus, but there are many unknowns that we all have to figure out together."

Senior Editor Kim S. Nash can be reached at knash@cio.com. Jarina D'Auria is a Boston-based freelance writer.

Do you Tweet? Follow me on Twitter @knash99. Follow everything from CIO Magazine on Twitter @CIOMagazine.

Copyright © 2009 IDG Communications, Inc.

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