Are You Looking at the Cloud through OpEx-Colored Glasses?

We repeatedly see stories attaching Cloud Computing to what is often cited as a single clear cut accounting advantage. "Cloud Computing enables companies to move the cost of computing from capital investments (CapEx) to operating expenditures (OpEx)."  This phrase is cited so often as a benefit to moving to the Cloud that it almost has become an automatic part of the litany. 

In simplest terms, the discussion comes down to one we all face at various times in our personal lives: is it more advantageous to lease (OpEx) or own (CapEx) something?  In business, it is more common -- and usually more advantageous -- to lease (office space, company cars, etc.). So, it is easy to draw the conclusion that the advantage of leasing computer capacity via Cloud Computing's managed services is a clear benefit. A data center requires up front purchases of servers, software licenses, networking equipment, etc., so the commitment of capital when compared to cloud computing's usage-based payment model can seem like an excessive burden. But is this really a CapEx vs. OpEx issue?

Geva Perry, author of the blog, "Thinking Out Cloud"  suggests we look closer. Perry cites three problems with the oft-cited accounting issue:
1.  First, it's not about OpEx or CapEx at all. Those who make the argument are really talking about cash flow -- do we spend now or over time?
2.  Perry states emphatically that there is absolutely no benefit in moving an expense from CapEx to OpEx, and
3.  The blog adds that the long term cost of renting anything -- hardware, software, server, networking equipment, Volkswagen or condo --  is going to cost more over time than purchasing the same item.

Perry goes on to say that there are many inherent benefits to Cloud Computing that should be considered, but warns us to avoid the automatic accounting assumption because the language describing it is misleading. When looked at as an issue of cash flow, the decision is far less automatic for a business and requires a more careful analysis of the specific needs and situation of an organization.

What do you think?

Cloud Computing Security Risks

Last week I spent a full day at the CloudConnect conference in Santa Clara, CA where I heard speaker after speaker both extol the benefits of cloud computing – particularly in the area of managing overall IT costs – and warn about the security dangers that moving to the cloud presents.

In my post last week I talked about Conficker, the largest array of cloud computing resources on the planet with the sole purpose of disrupting normal business operations. The dark side of cloud computing, if you will.

With such a destructive forces lurking in the cloud, businesses must make sure that they ask their cloud-computing vendor a series of security related questions – and get answers that address these concerns – before they deploy their company data to the cloud.

1) Privileged User Access: If your company data is going to be processed outside the safety of your company firewall – i.e., processed in the cloud – you need to get as much information as possible about the people who will have access to your data. Gartner Group suggests that companies, "ask providers to supply specific information on the hiring and oversight of privileged administrators, and the controls over their access."

2) Regulatory Compliance: According to the SEC and other government regulators, each company is responsible for the security and integrity of its data even when it’s held by a service provide in the cloud. Cloud computing providers are subject to external audits and security certifications. Those service providers that balk at this type of scrutiny are probably best used for housing only the most trivial company data.

3) Data Location: When you store your data in the cloud, you have no idea where your company’s information is located, or even what country it might be in. Ask your service provider if they will commit to storing and processing your data in specific locations, and if they comply with local privacy laws. Government regulations may require it.

4) Data Segregation: If you store your company’s data in the cloud, it could be stored along side, or even co-mingled with, data from other companies. Gartner Group advises that you find out how your service provider keeps data separate. Encryption can be an effective way to segregate data, but it’s not flawless; and even normal encryption can complicate data availability.

5) Recovery: You may not know where your data is once you’ve moved it to the cloud, but your service provider should be able to tell you how your valuable data would be recovered in case of a disaster. Ask your provider if the data and application infrastructure is replicated across multiple sites, and if they have the ability to provide full restoration in case of an accident; and how long that restoration will take. You don’t want your company's data inaccessible for more than a few hours (and even that may be too long).

6) Investigative Support: Gartner Group warns that investigating inappropriate or illegal activity may be impossible once your data moves to the cloud. "Cloud services are especially difficult to investigate, because logging and data for multiple customers may be co-located and may also be spread across an ever-changing set of hosts and data centers,” Gartner says. “If you cannot get a contractual commitment to support specific forms of investigation, along with evidence that the vendor has already successfully supported such activities, then your only safe assumption is that investigation and discovery requests will be impossible."

7) Long-term Viability: When we bought our house we went through a local bank to get the loan. Within a month, our mortgage had been sold twice, and within a year we were working with a fifth different bank. The same thing can occur when you move your company’s data to the cloud. Do your due diligence. Will the service provider you’ve selected be acquired soon? What if they are? Will your data be accessible? Can you move it to another provider or are you locked in with the new cloud services company? Make sure you can get your data back if your service provider is sold.

These are but seven general questions you should consider getting good answers to before you migrate your company’s data to any provider of cloud computing services. There are likely to be many more questions you will want to ask regarding your company's specific computing needs.

Cloud Computing is Just in Time for SMBs

Small and medium-sized businesses, affectionately known as SMBs and historically relied on to help lead economies out of recessions or worse, are still smarting from the sting of this mother of global recessions. In fact, market research firm International Data Corp., affectionately known as IDC, issued a report this week revising its earlier forecast of a speedier recovery for SMBs.

"The downturn had a devastating impact on SMBs worldwide," said Ray Boggs, vp, Small/Medium Business and Home Office Research at IDC. "Moving forward, small businesses will not follow the past pattern and return to prerecession's spending levels more quickly than midsize firms. Instead, SMBs of all sizes will remain cautious with their IT spending over the next several years."

Ouch. Did Boggs just say "over the next several years"?

Since the full 25-page IDC report retails for $4,500, most of us will have to be satisfied with the report summary from the IDC press release announcing the report. Here are a few stats:
- SMB IT spending levels will not return to 2008 levels until 2011
- Spending on PCs and peripherals will see the biggest growth.
- Central and Eastern Europe, the Middle East and Africa will see the strongest spending growth.
- Together, North America, Western Europe and Japan account for 70% of worldwide IT spending by SMBs.

"To succeed, technology providers need to develop separate strategies that address the distinct needs of companies in each of these settings," Boggs added.

Almost on cue and on the heels of this report, enterprise IT providers -- who by their own admission have underserved the SMB IT market -- are courting SMBs with renewed urgency and tailor-made IT solutions, including the cloud-based variety.

In fact, cloud computing is strutting its stuff just in time for many SMBs who want to leverage the latest technology has to offer but without the big price tag. "For small businesses, cloud computing hits a particular sweet spot," Ziff Davis Media Networking & Small Business Analyst Samara Lynn reports. "With cloud services, small businesses reap the benefits of not having to deploy physical infrastructure ... a lot of today's small business needs can be fulfilled almost completely with cloud-based offerings."

Take 3Point Communications for example. We fit the small business profile and exploit the advantages of low-cost "anywhere, anytime" cloud-based solutions including: Gmail, Dimdim for live collaborative meetings and shared white boarding, Basecamp for project management, Ning for our corporate Intranet, Yammer as a our private Twitter-like platform and ooVoo for video conferencing.

SMBs are turning to cloud applications like these, and also to new office productivity cloud offerings, like the Business Productivity Online Suite from Microsoft. With BPOS, SMBs get access to email and calendering, file sharing, virtual meeting and messaging tools starting at $10 per user per month.

"There will be a cloud component to every product we offer," said Birger Steen, Microsofts VP for SMB.

SMBs aren't getting all of their IT challenges solved through the cloud. IBM and Microsoft, for example, will continue to offer in house IT solutions for small businesses and branch offices. And a number of SMBs will elect the hybrid approach, running some services online and others in house.

But with the IDC SMB IT spending report as a caution that the global recession still has its talons in the backs of many SMBs, it's a relief to this critical market segment that new IT pricing models that help keep costs down are here and are only going to improve.