Cloud set to change business ecosystem

Technology is often a savior during the downward economic cycles as it enables the creation of efficient business models and ecosystems. The cloud is one such phenomenon that has stirred up interests and investments in many parts of the world. Research has indicated that the worldwide cloud services revenue is forecasted to reach $68.3 bn in 2010 and projected to touch $148.8 bn by 2014. A report released by KPMG titled The Cloud - Changing the Business Ecosystem provides a comprehensive coverage of the phenomenon called the cloud, its impact on the industry, and its role in the transformation of business ecosystems.

Service and Deployment Models for the Cloud

The cloud definition given by the National Institute of Standards and Technology (NIST), US, is the most widely accepted one. It defines the cloud as having 3 service and 4 deployment models which areInfrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).

According to the KPMG report, 68% of the initial respondents indicated that they largely plan to
adopt either the SaaS or PaaS service models. Significantly more number of SMEs ie, nearly 80%, planned to adopt SaaS, as compared to the larger organizations.

Cloud Deployment Models

The 4 models are: Public cloud; private cloud; hybrid cloud; and community cloud. Over 50% of the respondents to the survey have indicated that they use/intend to use private clouds. Large organizations indicated that they plan to implement private clouds due to the issues related to data security and performance. Smaller companies indicated reluctance towards the deployment of private clouds probably due to cost concerns.

Drivers of the Cloud

Pay-As-You-Go Model: The cloud reduces the significant upfront capital expenditure which is needed to purchase and maintain IT infrastructure like hardware and software systems. Pricing in the cloud is done on a usage or subscription based model which converts fixed into variable costs.

Multi-tenancy: The cloud resources run in multi-tenancy mode which means multiple users can access the infrastructure simultaneously from different organizations.

Elasticity of Resources: Services of the cloud are available on-demand which allows customers to upscale/downscale capacity without incurring any capital expenditure. Service providers of the cloud are able to juggle between servers and data centers to shift resource utilization as per the demand patterns and user specific SLAs.

Ease of Implementation: Using the cloud based applications are much easier than building new applications and data centers.

On-demand Self-service: The most important feature of the cloud is that users can use computing capabilities as and when they require the same without requiring any human intervention from the service provider of the cloud.

Reduces Carbon Footprint: Technological advancements and financial limitations are indirectly contributing to a decrease in the number of servers and energy consumption.

Challenges in the
Implementation of the Cloud

The key challenges for the adoption of the cloud are as given below:

Assurance of Privacy and Security: The cloud users are wary of security and privacy of their data. The multi-tenant environment of the cloud is causing concerns amongst the enterprises.

Reliability and Availability: Instances of outages at the facilities of the cloud service providers have raised concerns over the reliability of the cloud solutions. Enterprises are recognizing that they would have to deal with some level of failures while using commodity based solutions. The cloud service providers may guarantee 99.9% uptime (approximately 1 hour of downtime in a year), however companies could still worry about the loss of control when an outage occurs.

Transition and Execution Risk: It is important to undertake a thorough risk assessment before migrating any application on to the cloud. The criticality of the application, availability of the cloud services, loss due to outages, security/privacy breach, etc, need to be assessed.

Cultural Resistance: Cloud users may face organizational inertia as shifting to a cloud environment may change the role of IT departments in the organization. Organizations may not be prepared for this transition with many of them deciding to wait and watch.

Regulatory Ambiguity, Especially Internationally: Cloud vendors choose a center for operations which is cost-effective and can support their operations (availability of bandwidth, power, etc). However these locations may not be suitable from a customers point of view due to security and regulatory compliance restrictions. For example IT projects in Canada are not allowed to use US based hosting environments because the US has access to all such projects under its Patriot Act which could lead to a breach of privacy.

Costs Associated with Migration from Legacy Infrastructure to the Cloud: Large companies may find it difficult to move from legacy infrastructure to the cloud due to high level of complexity of legacy systems and limited interoperability. Moreover, existing investments in such infrastructure may not provide short to medium term cost benefits. Legacy architecture may not be compatible with virtualized cloud environments and may involve a time and cost consuming upgrade. Migration challenges are covered in detail in chapter 4 of this document.

Issues of Taxation: The cloud processes need to be monitored continuously to minimize tax exposures and risks. Revenues accrued using the cloud services may trigger taxation issues in the cloud service providers country as well as in the cloud users country. For example the cloud allows service providers to provision services over the internet to users in multiple countries. In such a case, the cloud services offered to a user in another country may be subject to local withholding tax and value added tax in the users country. Another tax angle can be with respect to the location of vendors server, as tax authorities in the same country can say that profits related to that permanent establishment of servers are taxable in their country.

Changing IT Ecosystem

Further the report underlines that the cloud is the emergence of a new way of delivering computing services and as such it will impact nearly all facets of the IT ecosystem. Most importantly IT solutions and services vendors will now need to adapt their infrastructure, people, and processes.

People: The chief information officers (CIOs) role has undergone a few changes since the beginning of the 21st century. With the advent of the cloud, CIOs would now be expected to play the part of a strategic executive who would work towards bringing about business transformation through innovation in the way modern technology is adopted by the organization. The CIO would also be expected to aptly guide the leadership on the development and the execution of a cloud strategy. The in-house IT team would need to focus more on using the cloud to quickly meet the business needs rather than configuration and implementation of application on in-house hardware.

Processes: The survey also says that the ability to quickly provision computing resources would enable organizations to leverage the cloud to quickly meet business needs. Businesses could easily scale up and down, responding to market needs in a nimble manner. This could lead to the development of new business models and enable organizations to serve their clients more effectively. SaaS offerings would also have a significant impact on the business processes and would lead to large scale standardization.

Infrastructure on-premise/co-located data centers could be substituted through the use of IaaS service model of the cloud. Similarly developing and hosting applications through the PaaS service model would be a cost-effective and time-saving approach to application development. Delivery and the use of software over the internet based on the cloud service model of SaaS makes it easier for the users to source and manage software in a dynamic environment. This would necessitate to use a high-capacity and reliable network connectivity to access the cloud.

Impact of the Cloud

Furthermore the KPMG also tries to identify the role cloud will have on diferent industry verticals.

Government: The study says that governments can leverage the cloud to bridge the communication divide, especially with those citizens that reside in remote parts of the country. The cloud could also be used to increase interoperability between various government agencies, reduce redundancy, track/monitor the effectiveness of government schemes. Computing resources shared between central and state governments would result in reducing costs by leveraging the existing infrastructure.

Healthcare: The cloud, claims the study, is a paradigm shift in the use of Healthcare Information Technology (HIT), which enables stakeholders to focus more on their core competencies. In the case of the healthcare industry, it would provide for the seamless management and access to Electronic Health Records (EHRs) of patients. This would facilitate the provisioning of healthcare products and services to patients located in remote areas and those that have limited access to quality medical services.

The use of the cloud could possibly result in a change in business models, automation of processes, streamlining of workflows, and a consolidation of IT assets for healthcare service providers. The creation of an integrated healthcare ecosystem would help the providers of healthcare services to make available the best of services to patients.

Education: The education sector which has already embraced the use of the cloud for email services could now consider moving critical applications such as Virtual Learning Environment (VLE), Learning Management Systems (LMS), and Student Information System (SIS) into the cloud. The cloud promises to make the education system more collaborative and innovative with unique resources readily available to all students.

Embracing the Cloud

Before venturing to embrace the cloud, organizations would need to evaluate a number of concerns. These concerns can be grouped into 2 partsbusiness factors and technical factors.

To attain the maximum benefit from migration to the cloud, it is essential that organizations develop a cloud strategy, which takes into consideration commercial and technical concerns. This strategy should not only define how a move to the cloud would be made but also identify various factors, which include the type/combination of cloud service and deployment models to be used, how services of the cloud would be governed, the process of identifying the requirement for, and deployment of new cloud services, the level of interoperability between cloud services, etc.

In a gist, to get the maximum out of the cloud it is important that organizations should carefully plan their move taking into consideration the commercial and technical concerns.

Excerpts from KPMG report titled The Cloud - Changing the Business Ecosystem