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FEATURE // SaaS

The Hitchhikers Guide To THE CLOUD

Many pundits agree that 2011 is set to become the year of

The Cloud and that IT professionals need to prepare themselves. While everyone

seems to be talking about “The Cloud” in excited tones, do we really understand what it’s all about?

iStart helps demystify what it all means and navigates a clear path through all the hype. What are the implications of ‘going public’

and staying private? By Chris Bell

Quarter One 2011 55 Start – technology in business

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The word “cloud computing” is being indis-criminately bandied about. Even the US National Institute of Standards and Technology’s Information Technology Laboratory (which offers a definition of cloud computing that’s about as

exclusive as it’s currently possible to get) point outs cloud computing is still evolving and so its meaning will change over time. “Its definitions, use cases, underlying technolo-gies, issues, risks and benefits will be refined in a spirited debate by the public and private sectors,” runs NIST’s dis-claimer.

To paraphrase, cloud computing is a model for enabling on-demand access to a shared pool of computing resources, such that can be rapidly provisioned with minimal manage-ment effort or service provider interaction.

For most people, it means that applications are accessed through a browser.

The dollars and sense of itThere are two basic cloud payment models: the utility

model, similar to the way electricity is retailed, where cus-tomers pay for what they use. The other is a subscription model where customers pay a flat monthly fee based on the number of their users.

If you’re ‘capex-poor’, cloud computing may make compelling economic sense, especially should you decide to focus on your core competency, which probably isn’t run-ning and maintaining servers.

Because cloud providers can aggregate many custom-ers into shared infrastructure they can reduce costs — or so their standard sales pitch goes. But that isn’t necessar-ily the case; especially for customers who select a local provider.

Aaron Kumove is the Wellington-based managing director of Horizon Consulting. He’s also a former chief information officer of New Zealand Post and self-confessed cloud computing sceptic. He warns that while moving to the cloud can help to cut your capital expenditure, depend-ing on your choice of provider, your operating expenditure might increase.

“This is where New Zealand cloud providers may be at a disadvantage because we’re a small country. A public cloud provider in the US or Europe has a lot more custom-ers than one serving the local market will have — they’re in a lower volume, higher margin business.”

Not all are equalJames Maniscalco is senior director, product manage-

ment cloud computing at Infor, based in Boston, US. Infor currently offers a subscription-based model for its cloud-based offerings. However, he says the market will soon demand utility pricing. “Given the richness of our cloud applications, we welcome a utility pricing model,” he says. “We believe consumers of software applications understand that not all software applications are created equal and some will demand higher cost per computing hour than others, based on the inherent value it delivers.”

Cameron McNaught, executive general manager solu-tions, Fujitsu Australia and New Zealand, says it began looking at cloud platforms between 12 and 18 months ago, and it has since deployed a cloud service in some of

CLOUD COMPUTING

DEFINING CLOUDIn order for computing to accurately be described as taking place in the cloud, NIST says it’s essential for it to display each of the following characteristics:• on-demand self-service (the provisioning of computing

capabilities without the interaction of the provider)• broad network access (capabilities are network-available

and can be accessed through thin or thick clients, mobile phones, laptops or PDAs)

• resource pooling (a multi-tenanted model with physical and virtual resources dynamically assigned and reassigned based on demand)

• rapid elasticity (unlimited, fast up- and downscaling); and measured service (automatic, metered resource use).

In addition, cloud computing should operate according to one of three service models: • cloud software as a service (SaaS)• cloud platform as a service (PaaS)• or cloud infrastructure as a service (IaaS).

It should also be delivered via one of four deployment models:• private cloud (internal, corporate data centres)• community cloud (shared by several organisations)• public cloud (cloud providers) • hybrid cloud (a combination of traditional desktop and

online access).

Source: US National Institute of Standards and Technology IT Laboratory

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its Australian data centres. It’s now looking at the New Zealand market to assess the viability of a local data centre and cloud platform next year, subject to customer demand.

Fujitsu charges for infrastructure on its platform accord-ing to a true pay-per-use model. “We offer a 30-day term for the consumption of storage and computing,” McNaught says. “At any period in that 30 days, the customer has the ability to turn the server off and while the server is off they’re not charged for the compute component. That’s a 30-day term and a 90-day termination for convenience, so there’s no lock-in for this type of enterprise service, which we think is unique in the market.”

SaaS vendors also offer a variety of payment models. New Zealand general manager of accounting software spe-cialist MYOB, Julian Smith, says MYOB takes a “pure devel-opment view” of what a cloud application is: “The cloud is stuff you do online — that’s the way we position it for our clients. Cloud or net-based solutions are based on a monthly subscription model, which is quite good for cashflow, no upfront cost, but you keep paying forever and businesses might want to factor into their thinking the total cost of ownership of the service. Whereas, for as little as $250 you can buy quite robust accounting software from us, and that’s all you have to pay.”

Local MYOB competitor Xero’s early adoption of a SaaS model for the delivery of accounting applications helped to add currency to the term ‘cloud services’. The company has been in the news again with the announcement it will benefit from $4 million investment boost by PayPal founder Peter Thiel. Xero CEO Rod Drury says it would be prudent for organisations seeking a cloud provider to be concerned about sustainability when comparing pricing models.

“We’ve seen a lot of ‘freemium’ [online applications avail-able at no fee, but with a premium charged for advanced features] companies that have packed up and gone home. Trying to provide things for free is a really hard business model to build a sustainable business on. It can be a pain moving things if the business doesn’t exist in the future and there’s a lot of very, very small companies getting into this space.”

Best or worst of both worlds?MYOB uses the hybrid delivery model, which Smith

describes as “the best of both worlds” for its business customers. “We create demand for our solutions by really knowing what pain points businesses have and then show-ing them how our solutions will meet them,” he says.

But Xero’s Drury dubs MYOB’s hybrid delivery model “the worst of both worlds”. He says pure cloud vendors provide real innovation, which scares traditional vendors

whose cloud investments have been too little, too late. “MYOB is really struggling because they haven’t released a credible online offering yet. It might take them three or four years to rebuild for the cloud.”

Of course, MYOB would disagree with that point of view. Smith says when cloud offerings require customers to make a complete leap from the desktop to the online world it acts as a barrier to adoption. “And we’ve got quite a lot of research to back that up.”

MYOB is working with research analyst McKinsey to help it evaluate and provide feedback on the ways business-es would like to work. The vendor asked 956 New Zealand businesses how appealing the cloud was compared with both maintaining the status quo and a combination of the two. Smith says 59 percent of its respondent businesses said they want the richness of a desktop client and the speed of running their own application, along with all the features of being online.

MYOB remains altogether cautious about use of the term cloud. “We talk about the cloud to our developer partners or technologists, but when we’re speaking to end users or clients we just talk about being online — we don’t use the word cloud by choice,” says Smith. “Over time, that term will become more mainstream but it’s not that mean-ingful.”

Even Xero’s Drury agrees that the term ‘cloud’ acts as a turn-off to consumers. “When we talk to customers we never talk about cloud computing. We talk about the online benefits.”

Smith says MYOB will use Microsoft’s Azure platform to deliver its next generation of accounting applications, and that this will eventually replace all of its existing desktop software. The new offerings are scheduled to be released in the first quarter of 2011. “It’s taken us a very long time to feel comfortable that online technologies can work in such a way that we don’t have to ask our clients to compromise the way they do things,” says Smith.

Mix and matchSteve Matheson, chief operating officer at Datacom

New Zealand, says a mix-and-match approach should pre-vail when organisations are evaluating whether they would suit working in the cloud. “Businesses should look at the applications they require on a case-by-case basis and con-sider cloud offerings alongside the other options available.”

Infor’s Maniscalco says many CIOs are currently mus-ing whether they’re suitable candidates for the cloud, which will largely be determined by their intellectual property and security concerns. “One thing most agree on, the cloud is a natural fit where the application is deemed a commodity

The cloud is stuff you do online. That’s the way we position it for our clients. Julian Smith New Zealand general manager, MYOB

FEATURE // SaaS

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Phil Sheehan, IBM NZ’s Cloud Specialist, is also an expert of try-ing to demystify the cloud for IBM’s many clients. He said busi-

nesses should think of cloud in terms of the services it will provide, and not simply in terms of a compute/storage network.

“While there is always risk in transforming IT, cloud can offer a high quality user experience, enabled by dynamic infrastructure, leading to significantly improved supply economics. While virtualisation is a component in any cloud story, it's not the end game.”

So what does Sheehan put down to being the key to achieving an optimal and effective cloud computing experience for the end user, thus maximising value to the business? He replied: “Consolidating assets, increasing utilisation, and standardising and automating to improve service delivery and lower operational labour costs.”

Get outstanding resultsCloud computing offered businesses a real chance to innovate with the potential for outstanding results, said Sheehan.

“Innovation has been described as brand new ideas and methods that change the game and give you an advantage over the competi-tion - at least for a while - and the never ending search for improved productivity and efficiency i.e. doing more with less, and better than before.

” From both of these perspectives, cloud computing offers busi-nesses a real chance to innovate with the potential for outstanding results,” said Sheehan.

IBM: Cloud gives businesses a chance to innovateIBM: Cloud gives businesses

CLOUD COMPUTING

and has a requirement of continuous availability — email, CRM, expense management and budgeting all maintain the characteristics to be a natural fit.”

A few companies may already feel that they could be operating all or most of their business applications in the cloud. Maniscalco predicts almost all businesses will eventually operate this way. “The IT cost reduction and the mere fact that the company can focus on its core business, rather than managing an IT infrastructure are just too compelling to ignore. At the present, those best suited to work-ing in the cloud are those organisations that want to reduce their operating costs and manage their business, not IT.”

Many column inches are given over — and, it has to be said, largely for the benefit of local cloud providers promoting their own offerings — to the effect of unsched-uled downtime on your customers, uncertain data jurisdic-tion and the service level constraints of moving your data to an offshore cloud provider.

Privacy an issueDaniel Roberts, managed hosting team leader at local

cloud infrastructure provider ICONZ, says the prevailing data privacy laws are a crucial consideration for prospec-tive cloud customers. “You need to know the laws in the countries you’re buying these products from, how they relate to New Zealand laws and what your options are. If that’s a concern to you, you need to take that into consid-eration. Because you can’t guarantee this physically, ask what country the provider’s data centres are in, look at the stability of the governments, do they have data privacy laws and what are they like? Or have they put their data centre in a particular country because it’s cheap?”

While choosing a local provider gives you the protec-tion of New Zealand’s relatively robust privacy legislation, it doesn’t automatically protect your data or your custom-ers against unplanned downtime. Datacom recently expe-rienced an unscheduled outage that briefly affected some of its New Zealand customers. The outage occurred shortly after the company installed its enterprise cloud platform in its Auckland, Wellington and Christchurch data centres.

Datacom’s Christchurch data centre opened shortly before the September earthquake and survived it undam-aged. Matheson says the enterprise quality cloud ser-vices it offers from its data centres are accompanied by high-speed, relatively low-cost fibre connectivity options. Investment is underway to extend the cloud platform to its Australian data centres.

Just under 100 customers are currently using Datacom

When we talk to customers we never talk about cloud computing. We talk about the online benefits. Rod Drury Xero CEO

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cloud services, says Matheson. “We’re finding that most new customers are looking for both the traditional and cloud approaches — mix and matching to their require-ments — and we expect this trend to continue.”

SLAs: nice on paperSo how can organisations ensure they receive the service

levels they demand of a cloud provider? “The way you do that is by ensuring you have a detailed and well-thought-out service level agreement with appropriate penalty clauses in it for non-compliance to ensure that the vendor is motivated to respond accordingly,” says Horizon Consulting’s Kumove.

Local cloud providers place their responsiveness to sup-port and provisioning requests near the top of their lists of reasons to choose them. However, the same providers rarely mention that the major overseas players are running global 24x7 operations, have the economies of scale and the reputa-tion to insure against unscheduled downtime.

If you’re paying for top-of-the-range service from a large European or US provider, you’re also likely to benefit from chat room and forum-based assistance, as well as phone and email support. On the flipside, however well written your service level agreement with an overseas cloud provider may be, it’s likely to be unenforceable — unless you belong to a government agency or a large multinational.

Ben Kepes, analyst and blogger also sits on the boards of a number of commercial and not-for-profit organisations, and is regional organiser for CloudCamp, a non-profit cloud computing event. His view: “An SLA is a fantastic thing but you don’t really ever want to have to use it.”

Pure play, pure cloud, private cloud…So-called pure play cloud is generally taken to mean

no on-premise hardware, with computing delivered com-pletely via the internet to a browser in an automated, self-

provisioning model. But Datacom’s Matheson says a pure play cloud offering is difficult to achieve unless applications have been specifically designed to work in the online envi-ronment.

“Applications that meet these requirements are begin-ning to arrive, but the technical difficulty and cost of build-ing sophisticated applications is hindering progress. That said, pure cloud applications are appearing and some have successfully navigated the technical challenges to produce great outcomes, despite variable internet performance.”

Matheson says Datacom’s NetPay payroll service is an example of a pure cloud service. It was developed 10 years ago and its latest release interfaces with Xero. “This inter-net-based payroll software is designed for smaller organisa-tions and was intentionally built less functional than our other offerings so it could be user-provisioned without our assistance. Customers are charged on a monthly subscrip-tion basis, upgrades are managed centrally by Datacom — removing any complexity for the end user — and the appli-cation is accessible from any internet-connected browser.”

NIST defines private cloud as an on- or off-premise cloud infrastructure operated solely for an organisation and either self-managed or managed by a third party. Critics of private cloud say it isn’t really cloud computing at all, mere-ly a way for big server vendors to greedily hold onto market share, which would suggest a symptom that cloud hype is as rife among traditional hardware companies as it is among software vendors. ‘Cloudwashing’ is the attempt to ride the cloud-related hype wave, with offerings described as cloud-enabled even when that may only be partially true.

“Everyone’s talking about private cloud and that’s a reaction from the traditional vendors,” says Dr Michael Snowden, director of local cloud provider OneNet. “What do you think their negotiating strength is when they’re sell-ing servers to Microsoft, to Amazon and Google? They’ve got no strength as opposed to selling to a distribution chan-nel and individual buyers. Their market is not only being commoditised, it’s getting smaller and smaller. So they say to the CEO, ‘Don’t worry, we’ll build your cloud inside, you’ll get the same benefits!’ But the truth is you just can-not get the benefits.”

Nevertheless, private clouds may remain attractive to larger companies. “At the turn of the twentieth century, most manufacturers generated their own power. The eco-nomics didn’t make sense once the power networks were put in place,” Infor’s Maniscalco points out. “There are still manufacturers who generate their own power, but most buy their power off of the grid without any expertise around generating power. The internet is having the same effect on computing.”

This industry runs on hype. It’s a matter of stepping back and applying some basic common sense — don’t get blinded by the hype. Aaron Kumovemanaging director, Horizon Consulting

FEATURE // SaaS

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Trouble in the engine roomYou don’t have to think for long before you start delib-

erating about cloud computing’s potential for disruption in the industry as a whole. Customers must continue to chal-lenge vendors who claim to be cloud-ready, until they’re satisfied they’re not just buying something cloudwashed by a rebadged hosting or application service provider. Fujitsu’s McNaught says cloudwashing is a disappointing side-effect of the increased interest in cloud and cloud services. “We’ve spent 18 months investing to deliver a true cloud service and we’re not sure a lot of the market has done that.”

There’s little doubt a global movement to working in the cloud would change the economics of the IT industry forever. Even some sceptics concede that if cloud adoption approximated industry predictions it would change employ-ment dynamics, with fewer hands-on operational staff needed to run and maintain inhouse hardware. “You’ll prob-ably still need the strategists, the analysts, the business archi-tects,” Horizon Consulting’s Kumove acknowledges, “but the hands-on operational folk you probably won’t need.”

Smith of MYOB foresees only a kind of migration rather than an extinction of skills. “I don’t see it eliminating lots of IT jobs. Businesses are still going to need telephones and mobile phones and laptops that access the internet, and they all need servicing and managing.”

McNaught of Fujitsu is also unconvinced by sugges-tions the industry will experience a loss of operational jobs. “Cloud will finally drive standardisation in an industry that’s struggled with standards. There’ll be less systems integration and customisation. We’ll see a simplification of IT skills in some areas.”

But Infor’s Maniscalco agrees with Kumove that a shift to the cloud would foreshadow a shrinking in the size of IT departments. “When the computing resources are con-sumed as a service there’s less and less need to employ server administrators and application experts to manage the install, patching and testing process for upgrades and fixes.”

It’s a mistake, then, to view cloud computing as an all-or-nothing business model. While it may be appropriate for highly commoditised aspects of your operations, prospective cloud converts should think carefully before placing applica-tions that provide competitive advantage in the cloud.

“This industry runs on hype,” Horizon Consulting’s Kumove cautions. “It’s a matter of stepping back and apply-ing some basic common sense — don’t get blinded by the hype.”

In an old Punch cartoon a curate is breakfasting with a bishop. The bishop says, "I'm afraid you've got a bad egg." Afraid of offending him, the curate replies, "Oh, no, I assure you that parts of it are excellent." It might pay to treat cloud computing the way that curate rated his egg.

CLOUD COMPUTING

This week I had a conversation with an Australian chief information officer which

I considered both profoundly interesting — but also extremely disturbing.

I was speaking to Komatsu general manager of IT Ian Harvison about his company’s recent decision to stop operating its own datacentre and server environment and shift its servers into an infrastructure as a service offering pro-vided by Telstra. At one point, I asked Harvison about the underlying server platform which Telstra was operating.

His answer was nothing short of revolutionary.

“We’re not interested in the technology at all … from our perspectivewe don’t care what the hardware is at all,” he said. And the execu-tive went even further. “We’ve negotiated quite robust service level agreements with Telstra,” he said. “As long as Telstra delivers the SLAs, who they partner with, and what they’re running on, is a Telstra-driven initiative.”

Shocked, I laughed and pointed out to Harvison that server vendors — companies like Dell, Sun Microsystems, HP and IBM — would be appalled at the statement that he had just made. After all, these companies have been selling servers in the dozens and even hundreds to companies like Komatsu for decades now.

But Harvison didn’t blink.

“At the end of the day, their relationship needs to be more with the cloud partners, as op-posed to the end customer,” he said.

Now, to some degree Harvison and his team will maintain an interest in what kind of hardware platform which Telstra is providing. For example, the executive mentioned that he had been interested in what storage systems Telstra was running.

In addition, Komatsu has negotiated what it calls ‘technology refresh windows’ with the telco, where it will meet with Telstra and dis-cuss the incoming wave of new technologies, with the aim of ensuring there is a common understanding about the future development of Telstra’s platform and the governance of it.

Harvison said the last thing his company would want is to get stuck on old technology being used by its supplier. And the converse also applies — his company wouldn’t want things to advance so fast that its applica-tions wouldn’t be supported by underlying infrastructure — such as Telstra’s virtualisation platform, for example.

However, the fact remains, that Komatsu is now a concrete example of a major Australian end user which does not give a flying $%^& about what server infrastructure is powering its more than a hundred virtual machines. This is a CIO of a major Australian organisation who simply does not buy servers. You’re wasting your time calling him, if you’re a server vendor.

And that fact must give any vendor who sells into the datacentre pause.

The reality is that in future, there are going to be much fewer discrete datacentres operated by major Australian organisations. Things are consolidating fast. Harvison’s comments represent a sharp warning to enterprise IT vendors: You had better start considering what your strategy is for selling your solutions to large service providers.

Right now, the list of service providers selling the sort of infrastructure as a service or private cloud solution which Komatsu is buying is small — some of the names on the list include Telstra, Optus, Fujitsu, CSC and so on.

OPINION

Server vendors’ days are numbered By Renai LeMay