Who’s Getting ROI from Cloud Computing Now

Recently the SDForum, a Silicon Valley-based technology and business incubator, hosted an all-day Cloud Computing Symposium. If the presenters at the Symposium are to be believed, cloud computing represents an infrastructure revolution, moving infrastructure use from a capital expense to an operational expense and cutting the overall cost by at least 90 percent.

Of course, one must question the validity of these assertions and, crucially, understand the assumptions and implementations of the examples to really grasp whether cloud computing can deliver on the hype. And hype is the right word. I had coffee recently with a “sell-side” financial analyst (i.e., he analyzes stocks with an eye as to whether they are appropriate investments); he told me that, in his estimation, cloud computing had already reached the silly season, with every product under the sun being branded as a cloud offering.

Nevertheless, there was evidence of tremendous payoff from cloud computing at the Symposium.

The Symposium kicked off with an overview presentation by James Staten of Forrester Research. He noted that cloud computing is today being applied very inconsistently, which is to say that startups have embraced cloud computing, particularly Amazon’s EC2 and S3 services, while enterprises have not yet begun to adopt cloud computing to any extent. He did note that one place cloud computing will be adopted in enterprises is by end user organizations in an effort to bypass IT organizations seen as expensive and unresponsive.

Staten identified these four types of cloud computing users and the driving reasons for their use of the cloud:

1. Startups (cheap infrastructure, low investment)
2. Entertainment (highly scalable, temporary systems; think movie promotional campaigns)
3. Small businesses (similar motives to startups)
4. Enterprises (quick and cheap experimentation)

Interestingly, he pooh-poohed one trend forecast as being high-potential for clouds: internal clouds. Essentially, he believes that enterprises cannot create internal clouds that will be cost competitive with external clouds and therefore will ultimately fail. However, he forecast a bright future for virtual private clouds (akin to VPNs) which will carve out sections of a public cloud and provide cloud services overlaid with enterprise-appropriate security, namespace, and isolation.

So what is the big deal about clouds? Why all the excitement?

Essentially, cloud computing offers three key benefits:

First, it provides cheap and easily available infrastructure provided by a third party which specializes in managing computing resources. In some senses, this is akin to what has been called utility computing: its computing and storage on tap.

Second, these resources are managed by the provider to be “always on” and ready to scale. In other words, the provider manages its resource pool so that there is always sufficient headroom so that increased demand can be met. This is in contrast to self-hosted systems, in which scaling up typically runs into issues of budget approval, equipment ordering, and operations overhead.

Third, this easy availability enables quick response to business demands. For startups, as they offer new services or meet sudden demand, the cloud provider makes it easy to respond. For enterprises (as noted earlier), business units can turn to the cloud for IT resources and bypass corporate IT, which may be viewed as overstretched or unresponsive.

What are some examples?

In the realm of startups, several were present at the Symposium and told their story.

One company, Mashery, shared that they were able to build out their IT infrastructure to something like 1000 machines without a single system administrator! Moreover, the CEO indicated that they operated for two years on a total IT investment of less than $100,000.

Another startup, Sharethis (a social media company whose service can be integrated into other websites by merely embedding a button in the site), told the audience that they had been picked up by a very popular website and had to scale from something like 100 to 3500 machines in a single day. Using Amazon’s EC2 service, that was achieved easily. The next day, when things had quieted down, they took down many of these instances. Total investment in meeting this transitory spike was less than $200.

As Staten indicated, enterprises have been slow to adopt cloud computing, so examples are few and far between. However, there is one striking example available The New York Times. The Times wanted to makes its historic archives available for online access. They needed to process 11 million articles and turn them into .pdf files. Initial estimates outlined that hundreds of servers and about 4 Tb of storage would be necessary. The IT organization at the Times outlined a months-long delay before beginning, not to mention the question of identifying the significant budget needed and locating the computing resources.

The fellow in charge of the product decided to give Amazon Web Services a shot. He signed up with his company credit card, and kicked off 100 EC2 instances and 4 terabytes of S3 storage (S3 is Amazon’s storage services). The job was finished the next day with a total cost of $240.

The Times anecdote illustrates the dramatic potential of cloud computing—and the challenge it poses to IT business-as-usual.

However, there are, inevitably, concerns about cloud computing: conformance with corporate IT security policies, the lack of SLAs, and support for commercial software applications. What about hese issues?

With regard to the security policy issue, it’s hard to know what to think. While this certainly needs to be examined, the experience of most IT security professionals is that they have a hard time getting their message across to IT as it is performed today. In other words, the track record of IT security isn’t that great already, so is cloud computing any worse? One might argue that the commercial cloud providers are likely to be more security capable, given their competitive advantage vis a vis internal IT—in other words, they specialize in IT infrastructure and are given the resources to implement security properly, whereas internal IT organizations aren’t truly experts in IT infrastructure and often are unable to obtain enough budget to implement security measures they know are necessary.

The question of SLAs is tricky. As one panelist noted, most SLAs from hosting providers are limited to the cost of the hosting itself: he had suffered an outage from a supposedly rock-solid hosting provider, and his refund from an outage that harmed his business was 38 cents! Of course, many internal IT organizations also focus on SLA numbers; however, the track record of these organizations is mixed— some do a very good job, while others suffer repeated outages, and in that case, what’s the use of having an SLA? For what it’s worth, I ran into a parent of a child who goes to the same school as one of my children; he works at a company called Brightroll that is partially hosted on Amazon EC2 and he swears by EC2’s stability.

My own view is that a fairly sophisticated risk assessment methodology for deciding whether to use internal or cloud resources will need to be applied. A key part of that methodology will need to be fair costs for the services as well as an objective perspective on actual implementation time frames. With the cost and responsiveness of cloud computing weighed against risk profiles, a mix of internal and cloud computing is likely to be a common feature of future enterprise IT approaches.

Turning to the issue of commercial software support, this may prove to be less of an issue than might be expected.Despite Oracle CEO Larry Ellison’s sniffy dismissal of cloud computing last week, just a day later the company announced support of its products in the Amazon Web Services infrastructure. Hard on the heels of that announcement, Amazon itself announced that it will soon offer Microsoft Windows Server EC2 service. Given these two big dogs are going to support cloud computing, I think it’s probable that commercial software providers will make their products available in advance of true enterprise demand.

The Symposium gave a glimpse of the potential and possible future of cloud computing (If you’re interested in looking at the agenda and some of the speaker presentations, see them here).

Certainly early adopters have reaped excellent results, making the excitement (and hype) on the topic understandable. I predict increased adoption with continued positive outcomes, tempered by reluctance to leverage “different” technology and the always-present organizational procrastination and dawdling.

Bernard Golden is CEO of consulting firm HyperStratus, which specializes in virtualization, cloud computing and related issues. He is also the author of “Virtualization for Dummies,” the best-selling book on virtualization to date.