Cloud computing

Renting hardware and software comes of age

Dan Headrick
26 October 2013

5 min read

The cloud, like many new technologies transforming business and society, is gaining significant traction. With cloud’s clear advantages in terms of costs and flexibility, the biggest challenge most companies face now is deciding how to integrate the cloud’s varied services with existing operations.

For the vigilant CEO lying awake at night, grappling with the challenges of ever-shifting, continually accelerating, rapidly evolving business cycles, cloud computing offers a useful advantage: the flexibility to learn, adapt and even fail quickly so the company can minimize its losses and move on to the next opportunity.

“It’s OK to fail as long as you’re learning and moving forward,” said Shawn Rogers, vice president of Research, Business Intelligence and Data Warehousing at Enterprise Management Associates (EMA), a cloud services company head­quartered in Boulder, Colorado, USA. “But you can’t take two years to fail. Failure is not the scary thing. Failing slow is the scary thing.”

Cloud computing, Rogers said, allows companies to move more quickly than previous computing models to deploy new strategies and better compete in a rapidly accelerating, digitally enabled, data-driven business world. That speed is critical to success in an environment where new competition can pop up almost overnight and market demands shift almost as quickly.

Of all that cloud computing promises – elastic information technology (IT) infrastructure, fast deployment of data and applications, greater productivity, improved cost control, support for mobility – being able to quickly execute new strategies and then determine their success is no small advantage.


When US-based cosmetics maker Revlon launched a program to globalize its operations, Senior Vice President and Chief Information Officer David Giambruno set about to virtualize nearly all IT functions with an outside cloud vendor. His concern wasn’t that the company’s IT budget (2% of its US$1.4 billion revenue) was too high, Giambruno said in an interview led by Revlon’s virtualization vendor. He just wanted to make Revlon’s operations better and simpler.

Revlon transferred more than 500 IT applications representing 98% of its global workload to a private cloud service in 2011. Since then, the move has saved US$70 million, triggered a 300% increase in project throughput, reduced downtime to zero and cut data center energy use by 70%. For sheer agility, Revlon’s cloud-based operation proved itself when its data center in Venezuela was destroyed by fire. Revlon switched its IT operations to New Jersey in just two hours.

Cloud comes in so many varieties that calculating comparative costs of owning on-premise versus cloud-based IT can be complex. For example, global IT research analyst Gartner estimates the annual cost of owning and managing software applications can be four times the cost of the initial purchase. However, the Total Cost of Ownership (TCO) of cloud-based Software as a Service (SaaS) looks beyond the initial investment in SaaS licenses to include costs of customization, scalability, integration with existing applications, training and support, making comparisons virtually impossible.

Renting hardware on the cloud tends to be more straightforward, about one-third the cost of purchasing and maintaining the equipment in-house, according to global management consulting firm McKinsey Global Institute (MGI). No wonder the Cisco Global Cloud Index estimates that global cloud traffic will grow by a factor of six by 2019


The concept of cloud computing has been around for nearly two decades. was founded on the cloud 15 years ago. Workday, a human resources cloud service company, was established in 2005, and Amazon Web Services opened for business in 2006. But technological improvements, including greatly increased network speeds and bandwidth, are helping cloud computing achieve critical mass. According to an MGI report published in 2013, most IT and web applications and services could be cloud-delivered by 2025, with an economic impact of as much as US$6.2 trillion.

The challenge for CIOs begins with deciding when and how to invest in the cloud. From there, executives must manage the transition of company operations out to the cloud, which means transforming processes and redefining the roles and responsibilities of IT personnel.
“As IT departments have grown with growing companies, they have found there’s not enough staff to do everything in-house,” said Stephane Maarek, vice president of Business Development at Outscale, a cloud services company based in France. “It’s difficult to find the talent. The cloud frees up talent because you can stop building in-house stuff you don’t need to build in-house. You can instead use your staff to do strategic planning.”

Jeanne Ross, director and principal research scientist of the Center for Information Systems Research at the Massachusetts Institute of Technology (MIT) Sloan School of Management, sees other advantages in the cloud. “One great thing about cloud is it forces discipline on you because you can’t customize the software,” Ross said. “You can configure, but not customize. It’s amazing how much faster it goes when you can’t change it. It’s too bad that so many people are afraid of cloud for security reasons. Most companies that have moved fairly aggressively have found cloud security is much better than their own security was, because cloud providers update it all the time.”

According to a 2013 global survey conducted by Cisco in partnership with Intel, titled “Impact of Cloud on IT Consumption Models,” data security is the Number One concern about cloud, but also one of the top three business drivers for cloud adoption, indicating that respondents are cautiously optimistic that cloud providers can do a better job at securing their data than any single corporation can. The results of the survey of 4,226 IT leaders in 18 industries and nine major economies also indicate that robust security and data-protection capabilities are the most critical factors for cloud-service providers to succeed in winning the respondents’ business, creating a major incentive for cloud providers to deliver on the executives’ optimism.


Some industry watchers have described cloud computing as really more like sky computing, where lots of clouds float around in the form of distinct outsourced IT service categories that can be tapped as needed. These include:
• NaaS (Network as a Service): Users get access to connectivity services, including flexible and extended virtual private networks (VPN) and bandwidth on demand.
• IaaS (Infrastructure as a Service): IaaS provides computers and other resources, including data storage, software, firewalls, and IP addresses, from large physical data centers connected by the Internet or VPNs.
• SaaS (Software as a Service): Users buy access to application software and databases. SaaS is usually priced on a pay-per-use basis with a subscription fee.
• PaaS (Platform as a Service): With access to operating systems, databases and web servers, users can work without the cost and hassle of buying and managing their own hardware and software.

Clouds also come in public, community and private versions: Public when cloud services are accessed over a public network such as the Internet; community when a group of organizations shares cloud infrastructure; and private when the cloud architecture is devoted to a single organization. Hybrid clouds combine two or more private, community or public clouds.

“Ten years ago, people were still trying to wrap their minds around the idea of the cloud,” Outscale’s Maarek said. “Today, most companies understand the cloud has revolutionized IT. Beyond all the cost savings, the other thing that is revolutionary about it is that the cloud opens doors to new scenarios. It helps companies invest in projects they otherwise couldn’t invest in. It helps companies fail faster and succeed faster. It just accelerates everything.”

While Maarek acknowledges that many companies remain cautious about how best to approach cloud services, the overall trend toward adoption is unmistakable. "Once people start going into the water, everyone follows."

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