Cloud Computing What the Enterprise Needs to Know

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					Title of Enterprise
What the brochure Needs to
Know about Cloud Computing
Cloud computing is heralded
as the next big thing in
enterprise IT. While corporate
data centers and on-premise
software are not going away
anytime soon, “the clouds”
will likely have a growing
impact on enterprise IT and
business activities in many
large organizations. CIOs
and other business leaders
must look beyond the hype
to see what opportunities
and challenges lie in the
cloud—and how this approach
can be used to further the
organization’s strategy to
achieve high performance.

Although the term “cloud computing” is      Infosolve Technologies, a provider of        (for example, hardware, software or
quite recent, elements of the concept       data quality solutions, relies on Sun’s      services) from third parties over a
have been around for years. For instance,   Grid to scrub customer data.4 Semi-          network. By combining virtualization
timesharing and virtual machines date       conductor maker Advanced Micro               and one-to-many architecture with a
back to the mainframe era in the 1960s.     Devices (AMD) turns to the same              pay-as-you-go business model, cloud
The notion of “the network is the           cloud from Sun for product testing           computing represents a new paradigm
computer” was first coined by Sun           and simulation to achieve faster time        that will significantly impact the way
Microsystems in 1982. Grid computing,       to market.5                                  IT infrastructure, platform, application,
in use by the scientific community                                                       and business processes capabilities
since the early 1990s, has been widely      Cloud computing should be considered         are procured, delivered and supported.
deployed in financial services for the      another important step forward in the
past five or six years, especially in       continuing industrialization of IT and       • At the infrastructure level, companies
securities and trading operations. Even     could thus play a future role in enabling    have already begun to source raw
the on-demand business model dates          high performance. The changing busi-         computing resources—processing power,
back to the late 1990s, when it was         ness model, underlying technologies          network bandwidth and storage—from
served up by organizations known as         and architecture will likely create a new    the outside on an on-demand basis. In
application service providers, or ASPs.     wave of innovations. For enterprise IT       most cases, these resources are cur-
                                            users, the cloud holds great potential       rently used to augment rather than
What makes cloud computing real now         in delivering lower-cost services, greater   replace existing in-house infrastructure,
is the maturation of the Internet as an     IT agility, more flexibility and better      which itself is increasingly virtualized (a
IT platform, virtualization, hardware       user experiences. Indeed, Accenture          phenomenon known as “internal cloud.”)
commoditization, standardization, and       High Performance Business research           Unlike traditional hosting services, which
open source software. A key catalyst is     identifies virtualization—a major enabler    provide dedicated hardware to each
the success of major Internet companies     for the cloud—as a key contributor to        customer, infrastructure cloud providers
like Google, Amazon and Microsoft. The      high-performance IT.6                        draw from a vast pool of shared
highly global and scalable infrastructure                                                resources and dynamically expand and
these companies have built to power         The cloud also presents a number of          contract to accommodate fluctuating
Internet search, electronic commerce,       new challenges in data security, privacy,    demand from different user organiza-
social networks, and other online ser-      control, compliance, application inte-       tions. As a result, they provide far
vices forms the core of the current         gration, and service quality. To be          greater elasticity, economies of scale
cloud phenomenon.                           successful, companies should take            and cost advantage compared to
                                            small, incremental steps toward this         standalone datacenters. Amazon’s
Early evidence shows that cloud             new environment so they can reap             Elastic Compute Cloud (EC2), Sun’s
computing is clearly upon us. Citigroup     early benefits for applicable business       Grid Compute Utility, and VMware’s
recently purchased 30,000 seats of          situations, and learn how to deal with       vCloud are prime examples.
Salesforce’s customer-facing software-      the associated risks.
as-a-service (SaaS) applications for its                                                 1 Computerworld UK, “Citigroup signs 30,000 seat

financial advisors worldwide.1 Contract     The evolving enterprise IT stack              deal with,” November 16, 2007.
                                                                                         2 BusinessWeek, “Workday: The Next Software
manufacturer Flextronics has said it        The term “cloud computing” is known by        Power?” August 19, 2008.
will use human capital management           many other names, including on-demand        3 InformationWeek, “Coke's Largest Bottler Taps
solutions from SaaS newcomer Work-          computing, elastic computing, utility         Microsoft For SaaS,” July 19, 2008.
                                                                                         4 InfoWorld, ”Early experiments in cloud
day for its 200,000-plus employees          computing, grid computing, and                computing,” April 7, 2008.
around the globe.2 Coca-Cola is moving      everything-as-a-service. While each          5 ChannelWeb, “AMD Taps Into Sun Utility Grid,”
35,000 knowledge-workers from Lotus         captures facets of the phenomenon,            September 7, 2006.
                                                                                         6 “High Performance IT 2008: There’s No
Notes to Microsoft Exchange Online. 3       these terms fail to tell the whole story.
                                                                                           Substitute for Substitution,” Accenture, 2008.
NASDAQ turns to’s S3 to          Here, we define cloud computing as the
store historical data on stocks and funds   dynamic provisioning of IT capabilities
and a lightweight rich Internet appli-
cation to generate new revenues. 4

• At the platform level, cloud-based          • At the application level, the first wave   • At the business process level, cloud-
environments provide application devel-       of cloud-based services (also known as       based solutions, also known as business
opers similar functionalities as in the       software-as-a-service or SaaS) falls         process utilities or platform-based busi-
traditional desktop settings. Specifically,   broadly into the areas of CRM, human         ness process outsourcing (BPO), offer
these include tools and other support         capital, and financial management.           an Internet-enabled, externally provi-
for development, testing, deployment,         The second wave focuses on desktop           sioned service for managing an entire
runtime libraries and hosting. The            productivity tools, including word           business process, such as claims pro-
emergence of such platforms allows            processing, spreadsheets, e-mail and         cessing, expense management or
independent software vendors (ISVs)           Web conferencing. Today, application         procurement. Unlike traditional BPO,
and IT staff to develop and deploy            clouds span across all major enterprise      which requires the service provider to
online applications quickly using the         solution areas, from procurement to          take over an existing software installa-
third-party infrastructure. In the case       enterprise resource planning and con-        tion, the process cloud uses a common,
of, for example, developers         tent management. These applications          one-to-many platform to automate
can also take advantage of the existing       run on the third-party infrastructure.       highly standardized processes. It differs
data and customer base from the core          User organizations subscribe to these        from application clouds in that it pro-
customer relationship management              services based on the number of users        vides end-to-end process support,
(CRM) application. Google App Engine          or seats. Since these services are           covering not just software but also
and Coghead are two other examples.           available via standard browsers, they        processes supported by people, such as
Microsoft recently announced its              support device-independence and              contact centers. These processes are
Windows Azure service platform,               anywhere-access. Major pure-play             typically priced on a per-transaction
which extends its leading desktop             vendors include Salesforce, NetSuite,        rather than per-seat basis. Early exam-
capabilities (such as .NET) into the          Workday and Google (Google Docs).            ples include PayPal (consumer micro
cloud.                                        Traditional enterprise software providers    payments), ADP Employease (payroll),
                                              such as Oracle, SAP and Microsoft have       and Amex-Concur (business expense
                                              also begun offering their own hosted         management).

As shown in Figure 1, cloud-based                The rise of a disruptive                     emergence of cloud platforms will
services are available at all levels of the      technology                                   significantly ease the entry barrier for
enterprise IT stack. So far, each layer          Cloud computing is a classic disruptive      such small players to develop, deploy,
has evolved independently. Application           technology. As such, it has its origin       scale and integrate their services.
clouds are perhaps mature, while busi-           in the fringe of the IT market, i.e., the
ness process and platform clouds are             small and medium-sized enterprise            The battle between pure Internet
still at a nascent stage. Most applica-          (SME) and consumers, whose need for          players like Google, Amazon and
tion cloud pioneers (for example,                simpler and lower-cost or even free          Salesforce and traditional enterprise rely on their own home-          solutions is underserved by traditional      vendors has just begun. Incumbents
grown infrastructure. As infrastructure          packaged software. As cloud-based            such as SAP, Oracle, and Microsoft
and platform clouds continue to                  services matured, they started to win        have been investing aggressively to
mature, this scenario is likely to change.       broader acceptance from mainstream           extend their on-premise capabilities
New application players will be able             enterprise customers. Now, they com-         into the cloud. For example, Microsoft
to turn to these providers to achieve            pete directly with on-premise and            has launched online services to offer
better cost structure, elasticity and            packaged software.                           its software in the cloud. It is also
faster time to market. For instance,                                                          investing billions in datacenters to
thanks to Amazon EC2 and open                    The significance of the cloud, however,      help confirm quality and availability.
source software, the upstart Coupa               lies far beyond cheap computing. The         Microsoft has developed a Software +
successfully launched an on-demand               Web-enabled, variable cost model             Services hybrid model to offer its cus-
e-procurement solution six months                represents a huge departure from exist-      tomers a choice between on-premise,
after closing its first round of funding.7       ing practice, and carries far-reaching       partner-managed or Microsoft hosted
Potential process cloud providers may            implications for IT providers and users      solutions.
follow a similar path to offer virtual           alike. A new wave of venture-funded
BPO without owning their own hard-               startups are likely to appear, offering an
ware and software platforms. This                array of innovative solutions ranging
reinforcement effect is likely to accel-         from niche applications to cloud middle-
erate the uptake and the long-term               ware and infrastructure services. The
success of the cloud ecosystem.


Figure 1. The enterprise IT stack: traditional solutions
versus cloud-based solutions
Traditional solutions                                                                         Cloud-based solutions

    BPO offerings from Accenture, IBM             Process                                      PayPal, ADP Employease,

    SAP ERP, Oracle CRM, IBM Lotus                Application                        , Workday, NetSuite,
    Notes                                                                                      MS Exchange Online

    Microsoft Windows/.NET,                       Platform                           , Windows Azure
    Linux/Solaris/J2EE                                                                         Google App Engine

    IBM BladeCenter, Sun Fire X4100               Infrastructure                               Amazon EC2, VMware vCloud, IBM
                                                                                               Blue Cloud

For IT organizations, the cloud means       Accenture believes that the IT depart-     businesses no longer have to wait for
that more IT functions will be accounted    ments of large organizations will          the provisioning of servers or worry
for as variable costs. This change from     continue to supply the majority of IT      about project delays. By tapping into
“buy-and-own” to “pay-as-you-go” has        services, especially those enabling core   the right cloud capabilities, companies
broad implications for activities such      business functions. Nevertheless, these    can quickly enter new geographical
as procurement and staffing—and it          departments must still be ready to         markets or launch new products or
could lead to a new role for the IT         accept a gradually shrinking footprint     services in existing markets. As demand
department. As the cloud continues          while dealing with new challenges          grows, they can quickly scale up. Con-
to gain momentum, more business             associated with the emerging hybrid        versely, when demand eases, they can
units and users will turn directly to       environment, including service quality,    just as quickly scale down and, if neces-
cloud-based solutions to meet their         data and integration.                      sary, exit the market entirely with
infrastructure and application needs.                                                  minimum loss of time and capital.
As a result, the IT department’s role       In general, cloud computing will act as
as the sole provider and operator of IT     an accelerator for enterprises, enabling
will slowly diminish. At the same time,     them to innovate and compete more
the IT department will likely see a grow-   effectively. With elastic and theoreti-
ing demand for security, procurement,       cally unlimited IT resources on tap,
data, and other similar services from
the business units.

Why now?                                     Another factor pertains to the growing     On the technology front, a number of
Several forces are converging to create      demand for seamless collaboration.         recent developments have combined to
the recent surge of interest in the cloud.   As the globalization trend continues,      make the Internet an emerging enter-
On the business front, today’s macro-        coupled with rising energy prices and      prise IT platform. At the center is the
economic conditions continue to put          widespread concerns about climate          widespread adoption of Web services,
pressure on overall business spending,       change and traffic congestion, distrib-    allowing easy publishing, access and
which drives ongoing IT rationalization,     uted work has become an everyday           integration of application functional-
datacenter consolidation, outsourcing        reality in large organizations. Many       ities and infrastructure capabilities from
and now cloud computing. For orga-           existing on-premise applications were      different organizations. For instance,
nizations eager to delay, reduce or          originally designed to support individu-   the entire Amazon cloud is accessible
eliminate capital spending, especially       als or same-time, same-place work          through Web services. The second is
on one-off or marginal projects, the         styles. By contrast, cloud-based pro-      Rich Internet Applications or RIAs (for
pay-as-you-go model provides an              ductivity tools (for example, Google       example, AJAX, Flash/Flex, OpenLaszlo)
attractive option. Increasingly, compa-      Apps, Microsoft Office Live Workspace,     which support desktop-like client-side
nies also are turning to cloud-based         Intuit’s QuickBase, Facebook) are          functionality within a browser, includ-
solutions as a way to counter the high       inherently collaborative and accessible    ing local persistence for offline use,
licensing costs of enterprise software.      anywhere. These same applications are      enriched graphics processing, integra-
                                             also used by many younger employees        tion with local devices and enhanced
                                             outside of work, making them a more        user experience. Without RIAs, appli-
                                             natural fit for tomorrow’s workforce.      cation clouds such as
                                                                                        and Google Apps would not have been
                                                                                        possible. In addition, other advances
                                                                                        such as hardware virtualization, multi-
                                                                                        tenant architecture, parallelization
                                                                                        engines (for example, MapReduce,
                                                                                        Hadoop), and grid architecture are
                                                                                        essential to support for the elasticity
                                                                                        and scalability of the cloud.

A business case for using the cloud
A global logistics company                   world. Among its requirements                   software licensing, and the
ESB handles tens of millions                 are large data volumes and near                 time lost to setup and testing.
of packages each day. To help                real-time response. The table                   The result ($130,000 annual
prevent millions of dollars in               below shows a cost comparison                   operating cost versus $4
lost revenues each year due to               among three different solutions.                million upfront capital cost)
fraud, ESB looks for a solution                                                              clearly favors using Amazon
that is capable of detecting                These numbers represent a                        EC2 over buying, installing and
duplicate barcodes on the                   conservative estimate since                      operating one's own servers.
shipments originated from                   they do not take into account
different locations around the              other costs, including energy,

 On-premise approach                        Using Amazon EC2 public cloud                 Buying internal cloud
• SUN   E25K: 72CPU + 1 TB memory           • 150   virtual servers                       • 150   servers
• TimesTen  In-Memory Database
• Capital   cost = $4-plus million                  cost = $131,000/year
                                            • Variable                                    • Capital   cost = $150,000
• License   cost = $1-plus million/year      assuming 24x7x365
• Powercost = $70,000/year                  • Power   cost = 0                            • Powercost = $39,000/year
• 40kW/hour + 40kW/hour                                                                   • 45kW/hour

Five major challenges                        with its proprietary disk virtualization        providers, each specializing in a specific
Just like other technological advances       layer that automatically cleans up every        vertical market. Even though consoli-
in the past, cloud computing brings          block of storage used. The fact that            dation among providers is inevitable,
major challenges as well as opportuni-       major financial services firms like Citi-       most companies will most likely end up
ties to IT organizations and businesses.     group have embraced cloud solutions             using multiple clouds. As a result, they
While some of these issues are techni-       suggests that the cloud has success-            will have to deal with data scattered
cal (for example, performance), others       fully passed early tests. However, there        across clouds, not to mention the data
are more organizational (for example,        are still many open issues such as data         residing behind the firewall in their own
data location). How well and how soon        control and certification. The pace of          data centers. To further complicate the
these issues are resolved will determine     the future uptake will depend heavily           situation, cloud operators must also
whether cloud computing will eventu-         on how soon these issues are resolved,          meet government regulations that
ally live up to its lofty promises.          and when cloud providers will be able           require customer data (for example,
                                             to obtain official certifications of their      banking and health) to reside within
For most companies, the single most          security practices from independent             specific geographic jurisdictions. This
important near-term concern is secu-         third parties.                                  fragmentation of data presents huge
rity, namely, how enterprise data is                                                         integration challenges. It also empha-
safeguarded in a shared third-party          The second significant problem is               sizes the importance of developing a
environment. Since their core business       around data, including data location,           comprehensive enterprise architecture.
is based on securing customer data,          compliance and integration. Current
major cloud providers have made strides      cloud solutions require data to be
in this area. In fact, many of them offer    stored in the cloud. This approach
more sophisticated end-to-end, base          assumes that a company relies on
level security and privacy protection        one or two providers at a time. Yet,
than do the data centers in any single       the current market is extremely frag-
enterprise. For example, to preserve the     mented. By some estimates, there are
privacy of a customer’s data, Amazon         about 700 cloud-based application
augments the standard hypervisor

The third major challenge pertains to        The fifth challenge concerns the actual          The emergence of platforms represents
service-level guarantees. Many enter-        purchase process of cloud-based                  a new phase in the evolution of cloud
prise applications require certain levels    services. On the face of it, using               computing. Just as in the desktop envi-
of service. In the traditional on-premise    pay-as-you-go IT services should be              ronment, this new development will
setting, these requirements are rela-        highly attractive from a procurement             lead to improved tooling, programmer
tively easy to satisfy because the IT        standpoint, moving payment and                   productivity, market consolidation
department controls the physical and         authorization processes from capital             and, perhaps most importantly, a sus-
software environment in which the            expenditure to operating costs. In               tainable developer community. At the
application runs. But this is not true for   theory, this could be accomplished               same time, it can result in incompatible
the cloud. Application cloud providers,      by having individual users pay with              ecosystems and customer lock-ins. As
which have control over the running          their own credit cards, expensing the            more companies start to embrace the
environment, cannot guarantee response       costs much as they would expense                 cloud, they will need to ensure the
times because the data has to travel         business meals or taxi fares. However,           long-term viability of their chosen
through the Internet. The challenge          few corporate finance or procurement             platform(s). Table 1 provides a com-
becomes even greater for the infrastruc-     processes are set up to support such             parison of the main features offered
ture cloud, since it essentially supports    levels of flexibility. The procurement           by the six leading cloud providers.
the software code from other organi-         of the cloud, and the whole concept
zations. Despite steady progress made        of what an enterprise agreement looks            Even though early cloud players enjoy
by major providers, this lack of service-    like in a cloud environment, are stick-          clear advantages, it is worth noting that
level guarantees will prevent critical       ing points that will not be resolved             the competitive and technological
enterprise applications from migrating       overnight.                                       landscape is likely to change dramati-
into the cloud anytime soon.                                                                  cally over the next few years. It is
                                             A comparison of major cloud                      therefore far too early to predict which
The fourth major challenge is related to     platforms                                        players might eventually succeed. How-
legacy systems. Legacy applications in       One of the latest trends is that cloud           ever, those uncertainties should not
general do not adapt well to the cloud.      service providers are moving beyond              prevent businesses from using the
Since such systems are often critical to     specific verticals to offer integrated           cloud to meet their near-term IT needs.
core business functions, today’s cloud       platforms to support other developers            For example, companies with one-off
infrastructure simply lacks the service      to create new services. Salesforce,              applications can immediately benefit
levels to support them. In addition, many    which first introduced the concept,              from Amazon EC2 and S3. Existing or
legacy applications are tightly coupled      has gradually transformed itself from            prospective customers of Salesforce
to the underlying hardware. Without          a CRM specialist into a full-fledged             should consider leveraging
costly redesign, they cannot benefit         application development and hosting              and integrated Google Apps to further
from the virtualization and paralleliza-     platform. Its currently has            extend core CRM capabilities to other
tion features of the cloud. The mere         more than 70,000 applications devel-             application areas, such as collaboration.9
presence of legacy applications means        oped by third parties, ranging from ERP          Large enterprises may find that, over
that a significant portion of IT in large    and human resources to compliance                the long run, the hybrid approach from
enterprises will not be part of the          tracking and billing.8 Through the App           Microsoft and IBM offers them the
cloud anytime soon.                          Engine, Google also offers a suite of            most sensible way to accommodate
                                             tools that enables developers to develop         their on-premise legacy and growing
                                             and deploy their Web applications onto           cloud-based applications.
                                             Google’s infrastructure. Microsoft
                                             recently announced the Windows                   9 Google, “ and Google Introduce
                                             Azure service platform that extends                Salesforce for Google Apps,” April 14, 2008:
                                             its rich desktop integrated develop-               20080414_salesforce_google_apps.html.
                                             ment environment (IDE) capabilities
                                             into the cloud environment.

                                             8, “ Announces
                                      Cloud Computing Architecture,”
                                               January 17, 2008:

Table 1. A comparison of six major cloud platforms
                        Description                               Strengths                              Weaknesses

Amazon Infrastructure   An à la carte list of infrastructure      Ready-to-go, Web-scale infrastruc-     • No IDE support
Cloud                   services:                                 ture shared by, true        • Limited service level agreements
                        • Elastic Compute Cloud (EC2)             pay-as-you-go usage model,             • New to enterprise market
                        • Simple Storage Service (S3)             standard Web service interface,
                        • Simple Queue Service (SQS)              language agnostic
                        • SimpleDB

Google App Engine       A tightly integrated development and      Existing, mature Web-scale             Request-driven, page-oriented
                        hosting environment for Web applica-      infrastructure; rich set of Google     model; no direct access to Google
                        tions: dynamic runtime, persistent        services application programming       infrastructure; no service level
                        storage, user authentication, e-mail,     interfaces, low entry barrier (free    agreements
                        service monitoring, log analysis, etc.    to try)
IBM Blue Cloud          A family of hardware and software for     • Strong position in back-office and   Vendor-specific hardware;
                        building a private cloud: BladeCenter       development environments             complexity; high cost
                        with Linux-based servers, grid-comput-    • Open source components
                        ing engine, Xen and PowerVM, Hadoop,      • Customizability
                        and Tivoli
Microsoft Windows       Software + Services hybrid model, same    Scale of investment and complete-      Limited time in market, complexity
Azure                   functionality accessible through a set    ness of vision, large developer        due to option of business model
                        of core Online Services (for example,     community, existing development
                        storage, identity, data service), same    tools and skills, easier integration
                        application programming interface for     especially with other Microsoft-
                        desktop client and the cloud              based apps
Salesforce              Hosted development platform evolved       Existing customer base for core        Proprietary language (Apex Code),               from AppExchange with new tools like      CRM application, multitenant           scalable but not Web-scale
                        Visualforce (custom user interface        architecture, relative maturity        infrastructure
                        creation) and Apex Code (Java-like
                        language for manipulating business
                        logic and data)
VMware vCloud           A virtual datacenter operating system     Support portability between            Still just an initiative with a lineup
                        comprising of a set of representational   on-premise virtual infrastructure      of service partners—it is not clear
                        state transfer-based application          and external VMware-enabled            when it becomes a reality
                        programming interfaces for managing       in-the-cloud data centers
                        virtual machines running in a cloud
                        environment, and a set of services
                        (vServices) such as charge-back and
                        service-level-agreement tracking

Three ways CIOs can use the cloud today
Under the current economic                  mature enough for non-business-              For example, workers at contact
conditions, CIOs face more                  critical projects including research         centers and offshore locations
pressure than ever before to                and development and software                 are good candidates for using
cut cost and to do more with                development and testing. They                desktop clouds.
less. The “pay-as-you-go”                   are also well suited for compu-
model of the cloud provides                 tation-intensive jobs, such as               • Take  small steps toward an
them with an attractive option to           data cleansing, data mining,                 internal cloud: One of the CIO’s
defer, reduce or even eliminate             risk modeling, optimization                  top priorities is to continue
certain capital spending without            and simulation.                              improving the utilization of
sacrificing service level. Below                                                         existing IT resources through
are three steps for CIOs to take            • Target  the right users for                virtualization and datacenter
advantage of the cloud.                     cloud applications: Instead of               consolidation. The same effort
                                            buying or renewing software                  will eventually lead to an
• Use  the cloud for the right              licenses for every employee in               internal cloud.
jobs: Today’s infrastructure                the company, CIOs may want to
clouds such as Amazon EC2                   switch some workers to lower-
offer a relatively inexpensive              cost, cloud-based solutions based
and flexible alternative to buying          on the type of work they do.
in-house hardware. They are

A guide for action                          • Software development and testing.          In fact, IBM’s Blue Cloud has its origins
Even though cloud computing is still at     For companies with large in-house            in an initiative that supports internal
a nascent stage, businesses and govern-     software projects, moving to a cloud-        research and development projects. For
ment agencies should take steps now         based development environment (for           the same reasons, advanced product
to experiment, learn, and reap some         example, CollabNet) may make sense           development groups may also take
immediate business benefits. Here are       because it can provide more intuitive        advantage of the cloud to shorten
a few guidelines on how large organi-       support for distributed projects and         time to market.
zations might proceed without undue         global collaboration. Since project teams    • Business continuity and disaster
risk:                                       can obtain development resources on          recovery. Large providers of cloud ser-
                                            the fly, it can also help reduce potential   vices rely on highly distributed, robust
• Batch and data-intensive applica-         project delays. As a “virtual test lab,” a   and scalable infrastructure. For exam-
tions. Today’s infrastructure clouds        cloud-based testing environment (for         ple, Amazon, as part of its services,
(for example, Amazon EC2 and Sun            example, SOASTA) has a clear advan-          stores customer data redundantly in
Grid) provide a relatively inexpensive      tage for supporting realistic load and       multiple physical locations. In the event
and flexible source of raw computing        performance testing without requiring        of a natural disaster, such data will be
power for batch-oriented jobs with          a cost-prohibitive infrastructure.           more easily recovered than it would be
self-contained datasets. They are           • Research and development.                  in an enterprise data center that only
especially suited for data-intensive        Research and development projects            stores data in one physical location.
applications that require heavy CPU         in large companies may also be good          Thus the cloud may also be used to
cycles but not necessarily real-time        candidates because they are often            back up critical business data in exist-
network response. Examples of such          highly iterative, demanding fast             ing enterprise systems. This type of
projects include data conversion, cleans-   ramp-up and quick scale-up and               solution could support quicker retrieval,
ing and mining, data compression and        down—both hallmarks of the cloud.            faster recovery and lower cost.
encryption, simulation, risk modeling
and graphics rendering.

• Desktop productivity tools. Companies      • Peak load demands. There are two         is not yet ready for widespread use.
might be tempted to move commodity           broad types of peak load demands:          As these products mature, companies
applications like e-mail and personal        predictable and unpredictable. A good      should be able to plan for their internal
productivity tools into the cloud to         example of predictable peak demand         data center capacities based on stable
save money and to meet the demands           comes up when IT groups at financial       demand instead of peak numbers.
of younger employees. However, cur-          service firms have to handle the rush      Together with the broad adoption of
rent desktop application clouds are          of year-end statements. Similarly, IT      virtualization, this trend could lead to
still not mature enough in terms of          departments at large retailers must        drastic improvements in the utilization
feature sets and service levels for such     plan for peak demand during holiday        of data center resources.
heavy business use. At this stage, they      sales periods. In such cases, the cloud
may be best used to augment rather           can be used to accommodate demand.
than replace existing productivity suites.
Depending on the type and style of           Unpredictable peak load is more com-
work, it makes sense to target select        plex. It requires dynamic load balancing
groups within an enterprise for such         between the applications running on
applications. For example, offshore          in-house data centers and external
and contact center employees may be          clouds. While such software exists, it
good candidates. Groups that already
use other cloud applications may also
find desktop clouds appealing.

Three reasons why CEOs should care about the cloud
To compete effectively in today’s      or services in existing markets.            partners and even the public
multi-polar world, CEOs need           As demand grows, they can                   around the globe so that they
every edge they can get, from          quickly scale up. Conversely,               can harvest better ideas faster.
low cost to speed and employee         when opportunities dry up,
productivity. As IT becomes a          they can just as quickly scale              • Improving  worker productivity:
utility, it is now possible to focus   down with minimum waste of                  To attract top talent and stay
more attention on using IT to          time and capital.                           close to local markets, most
create business value. CEOs may                                                    companies must deal with a
find that the cloud in particular      • Faster and better innovations:            globally distributed workforce.
can contribute to their agenda         CEOs increasingly recognize that            Since cloud-based applications
through the following three            the traditional closed innovation           are inherently global and collab-
areas:                                 model is no longer adequate to              orative, they are essential in
                                       keep up with the rapid pace of              helping companies enable
• Faster  entry into new markets:      today’s market. By using                    distributed teams to work
One key advantage of the cloud         cloud-based solutions such as               together more effectively.
is elasticity. By tapping into         crowdsourcing, companies are
right cloud capabilities, compa-       able to open up innovation to
nies can quickly enter new             more employees, customers,
markets or launch new products

                                       • Public versus private clouds. A common    repository of electronic patient records
                                       misperception about cloud computing         (such as Microsoft HealthVault or
                                       is that, eventually, there will be only     Google Health) would bring together
                                       a handful of clouds, all of which are       payers, providers, drug companies and
                                       public. That is highly unlikely given the   health care consumers. Some large
                                       complex IT needs in large enterprises.      multinationals may opt to build and
                                       While some general-purpose public           operate their own “private clouds” or
                                       clouds will exist, two other types of       “internal clouds” while continuing to
                                       cloud are likely to emerge. One type,       tap into external cloud sources. That
                                       “specialty clouds,” will cater to the       way, they could achieve both elasticity
                                       particular needs of a select group of       and control over service quality, data
                                       organizations, an industry or even a        and other important variables.
                                       country. For example, a health care
                                       cloud based on a central or federated

Cloud computing will have significant        Just as the shift from isolated power                The message for large enterprises is
impact on enterprise IT as it trans-         generation to an electricity grid took               stark. Although many leading businesses
forms to fulfill its role of enabling high   several decades to make an impact                    and government organizations are
performance within a rapidly changing        nationwide, IT’s migration into the                  starting to experiment with the cloud,
business environment. With the unprec-       cloud will take years. Significant                   a more comprehensive approach should
edented economies of scale and elasticity    uncertainties and challenges still lie               be considered. Unless they seriously
of the cloud, companies will no longer       ahead—both technological and orga-                   consider making the cloud a part of
be limited by their in-house capabili-       nizational. What’s interesting is that               their strategy, these companies may
ties. Instead, IT will become a dynamic      the ranks of the early adopters include              find themselves disadvantaged when
resource that adapts automatically to        many emerging-market enterprises.10                  competing in today’s increasingly
business demand. By relying on the           Gaining access to the cloud may further              multi-polar marketplace.
standard Web platform, the cloud will        add to the advantages these companies
also help improve collaboration, access      already have in cost and nimbleness.
and overall user experience. Business
users will be able to buy, share, cus-       10 The Vietnamese government is among the

tomize, and even create their own              first users of IBM cloud computing infrastruc-
                                               ture. IBM’s first Blue Cloud Center was built
applications directly. Collectively,           and went live in early 2008 in Wuxi City, China.
these capabilities will help reshape           Of the 13 such IBM cloud centers, eight are
IT into a true utility that enables            located in emerging countries, including China,
                                               India, Brazil, Vietnam, South Africa, and South
businesses to innovate faster and              Korea.
compete more effectively.

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