Cloud Computing: Risk and Value are Two Sides of the Same Coin

For every report that comes out with research pointing to cloud computing as the new IT panacea for enterprises, is a report with an opposing point of view.

The "he said, she said" nature of some of these reports is reminiscent of the early days of "SNL" and the "Point-Counterpoint" parody made famous by Danny Akyroyd and Jane Curtin. "Jane, you ignorant, misguided ...." .."Dan, you pompous ...."

Ok, perhaps the landscape isn't that contentious -- at least, not yet.

The latest report highlighting the unease many senior IT execs have with cloud computing comes out of ISACA, a U.S.-based organization for information governance, control, security and audit pros. It boasts 86,000 members in 160 countries, so its influence is far and wide. The ISACA tackles the cloud computing question in its first annual ISACA IT Risk/Reward Barometer survey and examines the results in a white paper it collaborated on with the Cloud Security Alliance. Of the 1,809 U.S.-based IT survey pros who took part in the survey, many work for Fortune 500 companies across engineering, financial services, education and health care. And most, apparently, are far from ready to take the cloud computing plunge.

Two key findings:

• only 10% of respondents' organizations plan to use cloud computing solutions for mission-critical IT services, and


• one in four respondents said their organizations have no plans to use cloud computing for any IT services at all.

So even during this extended period of lean IT budgets, a period when CIOs are stretching their IT imaginations and IT staffs, a solution that is battled-tested in many areas is still in the proving phase for many organizations.

In the view of so many IT pros, cloud computing "just ain't there yet." On the other hand, market research firm IDC is saying that spending on cloud computing services will represent more than $44B in IT spending within three years and will outpace spending on traditional IT solutions through 2015.

"The bottom line is people are scared. Companies have failed spectacularly at this model," said Brian Barnier, a member of the ISACA risk IT development team.

Although nearly half of the IT pros participating in the survey are not sold on cloud computing for mission critical data, Robert Stroud, who doubles as international VP at ISACA and head of the service management business unit at CA, Inc., says IT pros need to remember that "risk and value are two sides of the same coin.

"If cloud computing is treated as a major governance initiative involving a broad set of stakeholders, it has the potential to yield benefits that can equal or outweigh the risks," added Stroud.

In a related side note, many of the IT pros said employees put their company at risk levels that exceed the risk of using cloud computing services. Fifty percent of the respondents said their organization's employees do not protect confidential data appropriately, for example.

I think the cloud could do better than that.

Apple v. Google: Battle in the Cloud

I watched with amazement, and some amusement, as more than 300,000 people bought the new Apple iPad on the first day it was available -- and it isn’t even 3G enabled! I find it fascinating to watch people rush to buy the latest and greatest tech gadget the day it comes out knowing full well that it will have glitches and bugs, and will fall far short of versions 2.0 and 3.0 in terms of performance.

I talked with a geeky engineer friend of mine last night who had purchased his iPad last weekend and he gave it a less than glowing review of “it’s OK.” “Wait’ll the next rev,” he suggested.

But who am I to talk. I did the same thing last November when the Motorola Droid, running the Google Android OS on the Verizon network was introduced. I actually contacted Verizon in advance of the Droid launch to place my order. That ensured that my Droid arrived in the mail the first day the new smartphone was available. And guess what? It did have glitches and bugs, and it did fall short of my very high expectations.

Then on December 11 of last year the next rev of the Android OS automatically installed on my Droid and all of the problems I had experienced disappeared. Wait’ll the next rev, I thought to myself.

So I found it a bit ironic that on Tuesday of this week, just 4 days after the launch of the iPad, my Droid once again prompted me to download a new version of the “system software.” Was Google responding to the iPad launch with some vital fixes to the OS, or was it packing new features into it to maintain its lead over the iPhone? I wasn’t sure, but the timing of the operating system upgrade sure was interesting.

It is becoming clear that the future of mobile communications will be a battle in which both Google and Apple will be featured prominently. The iPhone came first, but the Google-driven Droid has proved to be a worthy opponent. And while the iPad hit the market first, there are several similar tablets in the works, including the WePad from Germany-based Neofonie, that will use the Android operating system and access the tens of thousands of apps available in Android Market.

A source no less than Gartner Group is predicting that the Android operating system will surge to 14% of the smartphone market by 2012, putting it ahead of the iPhone, Windows Mobile and the Blackberry; second only to the Symbian OS used in Nokia’s devices which are popular in Europe and many countries outside the US.

And why is Gartner so bullish on the Android OS? The Cloud. Gartner gives Android such an enormous surge in popularity because of a variety of factors, but chiefly because of Google's backing of Android and the range of cloud computing functions and related applications that Google will make available in coming years.

Smartphone applications live in the cloud. Therefore, the smartphone with an operating system designed for cloud computing is likely to perform better, and work more intuitively, than an OS that wasn’t built with the cloud in mind.

To quote Ken Dulaney from that Gartner Group report, “…because Android and Google operate in an integrative and open environment, [they] could easily top ... the singular Apple.”

Yes, Google and Apple will continue to slug it out in both the tablet and smartphone markets. Both companies will make great products and both will market the heck out of them. But the winner may be decided by which of them better understands how to work within a cloud-computing environment. So far, that appears to be Google.

A Brief Investment Perspective of the Cloud

We've written extensively here at Beyond the Arc about the confusion surrounding cloud computing. Like anything with enormous potential, cloud computing is fueled by marketing hype, uninformed dialogue, informed dialogue and overstated expectations.  We only need to look back at last weekend's launch of the iPad to see how this scenario builds to a volume so loud that fact no longer is easily discernible from fiction and product or service delivery becomes the only control a vendor has on the hype cycle.

Who, I wondered recently, cuts to the chase in an objective and measurable way?  Then it struck me that investment analysts might be as much a realist as anyone in the dialogue because, depending on how you look at it, the cloud is either just an evolution of computing as we know it or a sea change in the history of technology and of business. Either way, the implications for investors will be notable. 

One of the more informed articles I found was published recently by Morningstar, the global investment research company.  The article by Sonit Gogia, breaks the market into three commonly known segments:  infrastructure, platform and software as services and then tries to forecast value around each. Imprecise at this early stage, but worthy of consideration, Gogia's analysis suggests the following:

SaaS: Open Competition, Reduced Profitability
SaaS is the most mature of these segments and has proven its appeal, particularly with small and medium enterprises. It already is easy to foresee how changes in the economics of computing driven by the cloud can diminish the impact of enterprise software leaders like Microsoft, IBM, HP, SAP, Oracle and a few others in the same way that the shift from mainframe systems to client server computing in the 1990s threatened the business models of the mainframe market.  With Microsoft Office Web Apps scheduled for release in May, Microsoft already is playing catch up to Google Docs, which was used in 20% of the offices surveyed last year by IDC. While these same vendors are aggressively restructuring their business models toward the cloud, they are joined by many others in offering IT services simultaneously to many customers over the from remote data centers. While creating more choice for customers and weakening the lock-in model that ties some customers to costly, less-than-optimal solutions, SaaS isn't designed to be sticky in the same way long-term licenses and maintenance contracts are currently structured. Until a customer hits a critical mass of users, changing vendors is relatively cheap and easy.  As a result, however, Gongia believes SaaS will limit profitability and returns on capital compared to the levels investors are used to with traditional enterprise software vendors.

PaaS: Less Competition,Greater ROCI
PaaS vendors offer IT departments the ability to develop and deploy software applications in the cloud.  PaaS vendors offer software, servers, storage, networking equipment and management services. Unlike SaaS, the cost of entry is high to providers and the cost of changing vendors can be high to customers.  This is a young, emerging market, but Gogia believes the ultimate number of competitors will be few. IBM and Oracle will be entrants to a market already populated by Google's AppEngine, Microsoft Azure and Salesforce.com's Force.com.  Gongia believes these vendors will deepen the barriers to entry, and he forecasts high returns on invested capital for PaaS vendors.

IaaS: Fast Growth, Becoming Commoditized
IaaS vendors rent out processing power, storage, and bandwidth on-demand. This where Amazon Amazon Elastic Compute Cloud (Amazon EC2) and a few other companies have focused their offering to small businesses, medium businesses and departments of Fortune 500 companies. The appeal of IaaS is that customers can access and pay for computing capacity only when it is needed.  But, Gogia contends, it is destined to become a commodity -- hard to differentiate with low switching costs and, like most commodities, it eventually will migrate to price competition.

If the past repeats itself, as it is often does, computing after the cloud may not be all that different.  But the opportunity for established vendors to reposition themselves, for new companies to enter markets and for customers to gain greater control and flexibility at reduced costs may become  a reality.  Certainly, the opening act has been captivating, and it is exciting to anticipate what happens next.

Not All Created Equal

In the early days of the Internet, say circa 1996, any company that was involved with the “net” was lumped together into the same generic market with every other company during this modern day gold rush.

It wasn’t unusual to see a Newsweek article about the Internet that included profiles of an infrastructure company such as Cisco, a service-based company such as Ariba and a pure-play web-based company such as eBay, as if they all were pursuing similar business strategies.

And the media wasn’t the only entity that failed to discern the significant differences between these new-breed companies. The big Wall St. investment banks were all too happy to guide any company that had a web site through an IPO. Sand Hill venture capitalists were actually advertising on billboards along Silicon Valley highways that they were offering money to any company with a “good idea.” And millions of small-time investors poured so much money into these unknown brands that many of them had billion dollar valuations based on no revenue at all! Then came the dotcom bust, the market settled down, and natural market segmentation finally became the order of the day.

We are seeing a similar phenomenon taking place today around cloud computing, albeit somewhat less frenzied than the "irrational exuberance" of the dotcom era. You are, however, just as likely to read a Wall Street Journal article today that lumps together radically diverse cloud computing companies just as the example above regarding the Internet.

There are some cloud computing companies pursuing an infrastructure-as-a-service business model while others are taking either a platform-as-a-service or a software-as-a-service approach. Some companies are building private clouds. Some are building public clouds. Some are building hybrid clouds. Some companies are building all three varieties for their customers. Yet all of these companies are currently being tagged with one generic label – cloud computing.

Just as there were numerous strategies for using the Internet to conduct and drive business, there are a plethora of ways the cloud is influencing how businesses, especially in IT, are run today.

At 3Point we realize all cloud computing companies are not cut from the same cloth. We know that each company competes in smaller, segmented markets that address specific customer needs. We realize that the way Microsoft is pursuing the cloud with Azure is dramatically different then the way CA is approaching the market, and that VMWare is coming at cloud computing from a different direction than either of them.

Today, cloud computing is at the height of the Gartner Group “hype cycle.” But cloud computing, just as the Internet before it, is here to stay. Cloud computing will, and in many cases already is, changing the way ALL companies do business, including consumer-brand companies.

Understanding the way the cloud influences your business is key to long-term success as this market evolves. We’d love to hear your story on how the cloud is changing the way you look at your business; and the similarities, or differences, you see between the cloud today and the Internet 15 years ago.

IBM Gets the Cloud Opportunity, and Cloud Marketing

IBM wants to team with entrepreneurs to build a smarter planet.

Recently, I've read a number of articles asking if the world's biggest tech companies are still capable of innovation. Included in these discussions are companies such as HP, Dell, Microsoft, Cisco, Intel and Motorola, among others. And, of course, Apple -- which almost never ceases to amaze. It appears that Apple is poised to turn another industry on its head with its iPad, but that's another discussion for another day.

Also included in the discussion of the ability of giant tech companies to innovate is none other than IBM, the granddaddy of them all. In my view, this is another company that never ceases to amaze, that continues to generate shareholder value even during the darkest economic times, that is so self-aware to know almost instinctively what it is great at and what it should shed and moves more quickly than many companies one-fifth its size.

This week IBM announced a brilliant program that fosters the birth of new companies, the growth of emerging companies and the fortification of its Smarter Planet focus areas. To me, that's a win-win-win.

Under the "IBM Global Entrepreneur" program, IBM will support entrepreneurs and their early stage startups, free of charge, with access to industry-specific technologies (smarter water, smarter building, smarter healthcare) in a cloud computing environment. The participating companies must be privately held, have been in business for less than three years and must be building tech solutions that map to IBM's Smarter Planet.

In the early stages of the initiative, the company said it will provide cloud computing resources to the startups by way of Amazon's EC2 Platform but will move some of the applications to an IBM-managed cloud computing platform.

And typical to IBM, the company is covering all the bases by working with a bunch of VCs on this venture so that IBM gets connected to the most promising prospects.

"...it's clear that the company is making a concerted effort to bring unique IT solutions to market," said Mike Vizard, writing for CTOEdge.

Who said a company founded in 1896 and with a $166B market cap can't dance? The cloud is bringing out the best in tech innovation, and IBM is a leader in the pack.

Brilliant.

Using the Cloud to Get Out of Your Own Way

In the late 1990s, an incredible wave of change took place when increased global competition collided with widespread adoption of the Internet. Staid business architectures were capsized in the swell, and the only lifeboats to be found were being manned by IT.

A triage mentality ensued with one common refrain: "How fast can you have something that works available to us?"  The mandate was straightforward: Give us more functionality faster!

Of course, the business side saw themselves as IT's internal customer, disregarding the fact that IT had carefully constructed processes and were trained to follow a methodology of testing and refining creations that were not released until they were deemed perfect. This meant little to business teams in the new environment.  The response from IT was usually, "we can deliver, if we hire more engineers."  But this usually had the exact opposite effect. Projects got bloated and bogged down as more engineers came on board, and both the business side and the IT side were left in chaos.

The economic decline during the first decade of this century took care of some of the problem.  Meltdowns and budget cuts wiped out bloat and shortened the list of projects to be funded.  But it didn't change the need for speed + results.  In fact, it got worse.

Companies rediscovered their customers and flattened out development cycles by defining IT projects from the outside in. This raised the bar for quality and delivery time. The pace of change accelerated, and there was enormous pressure on IT to implement new solutions on legacy systems while not losing a step in maintaining those same systems.

That is about where many organizations are today.  But the bar has been raised again. Social media has fostered a need for transparency to customers (and everyone else). Every aspect of the business is more technology dependent, the pace of change continues to escalate and IT has to work faster and smarter with fewer resources with new software systems and tools on increasingly outdated systems.

The Enemy is Us
The cartoonist, Walt Kelly, who created Pogo, once penned the line, "We have met the enemy and it us."  That is the primary realization driving businesses to the Cloud. There are many compelling advantages to moving to the Cloud.  We have read them so often, we can recite them in our sleep:  increased flexibility, higher ROI, decreased complexity, and the ability to leap tall buildings in a single bound.  But none matter as much as Speed + Results in the Information Economy. Business schools like to call it Time-to-Value.

But how does an organization continue at this pace, when the problem can't be improved by throwing more resources at it?

A new approach is required and the Cloud seems to be the best answer. Yes, there are questions. But, the minute an organization comes to the realization that it can not keep pace with competition because of limitations in its approach to IT, the word "Cloud" sounds forth like a heavenly intonation.

I recently read a white paper from a leading Cloud vendor that put it this way: "Many CIOs struggle to explain to their CEO why implementing ERP took years and cost ten times more than the Cloud-based CRM application that went live within six months, with a comparable number of users, and a much more significant impact on the business."

If a company can implement software as a service in a fraction of the time required for traditional itnernal applications, SaaS becomes the obvious choice -- especially when aggregating internal resources can take months.  The idea of "renting" capacity temporarily for a large, long-term temporary project leads to the same conclusion for infrastructure needs.

Yes, these examples carry with them the inherent, oft-quoted benefits of the Cloud, but the one that matters most is delivering speed and results by letting an organization get out of its own way.

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.

The Dark Side of Cloud Computing

The old axiom in real estate is location, location, location. I just spent a full day at the CloudConnect Conference in Santa Clara, CA and the manta repeated by every one of the presenters on the future of cloud computing was security, security, security!

One presenter after another quoted data from Gartner Group, McKinsey & Company, or privately-funded research to show that 9 out of every 10 potential customers listed security issues as the number one barrier to implementing a cloud computing strategy at their company.

And the concern about cloud computing security is well founded.

One of the presenters asked conference participants if they knew what enterprise had the largest cloud computing presence in the world. Among the guesses were IBM, Microsoft, HP, Facebook, Amazon, and of course Google. The answer, however, was an outfit, if you can call it that, with which many in the audience were not even aware – Conficker .

A New York Times article from last year describes Conficker as program that “uses flaws in Windows software to co-opt machines and link them into a virtual computer that can be commanded remotely by its authors. With more than five million of these zombies now under its control – government, business and home computers in more than 200 countries – this shadowy computer has power that dwarfs that of the world’s largest data centers.”

Indeed, Conficker’s “cloud” is larger that the cloud computing efforts of Amazon, Google and IBM combined! And its sole purpose for existing is to disrupt normal business operations inside of companies, organizations and governments. With that monster looming in millions of “cloud computing resources” around the world it’s no wonder 9 out 10 customers considering implementing cloud computing strategies are nervous about security breeches.

But all is not doom and gloom. Despite the security issues that must be taken seriously, the benefits of moving resources to the cloud far outweigh the risk, and many organizations, including the US Government, are doing just that in a big way.

Much of the same research that showed security as the biggest impediment to cloud computing adoption also showed cloud computing revenue growing by more than 20 percent in the next three years. Of course with that much money in the balance, Conficker, and other ne’er-do-well’s won’t be far behind. That’s why security will remain front and center in any discussion about cloud computing.

In my follow up post next week, I’ll address Gartner Group’s “Seven Deadly Sins” of cloud computing security and what questions companies should ask of their cloud computing vendor before taking the plunge.

Creating a Perception of Relevance is Critical for Companies Vying for Cloud Computing Success

Every company wants to be known as having the answers. Every business wants to be heard. Every brand wants to be relevant.

But the truth is, relevance is a commodity that is rented, not owned.

Creating a perception of relevance is critical to business success.

And it is as simple, and as difficult, as defining a clear, concise message and constantly reinventing dramatic ways to convey this message to your markets.

At 3Point, we have done just this. From helping disruptive technologies find relevance, to helping major companies re-establish relevance to positioning acquisitions as relevant accelerators to acquirers.

As noted previously in the 3Point blog and in blogs all over the web and in tech news everyday of the week all over the globe, the future of enterprise IT is closely tied to cloud computing.

And nearly every enterprise IT company is shouting. Shouting so their flavor of cloud computing will be heard over the cloud computing hype and earn them, what else --relevance.

But to the dismay of customers, the conversation is confused.

At this week's Cloud Connect event in Silicon Valley, Microsoft CEO Steve Ballmer said that within a year the work of nearly all Microsoft employees will have something to do with the company's cloud computing mission, built around Microsoft's flavor of the cloud -- the Azure platform.

And Google is working feverishly to insert itself into as many clouds as it can. "If you don't use the cloud you will fail," said Google CEO Eric Schmidt.

Oracle is in the middle of its own multi-continent cloud computing forum, telling organizations how they "can break through with cloud computing" using, of course, Oracle's cloud computing solutions.

Also, and as you might imagine, cloud computing expos and conferences are popping up everywhere so that customers can "better understand" how to put cloud computing to "work" for them.

But in many cases, so many choices are leaving customers more confused than ever.

There's Cloud Expo, Enterprise Cloud Summit, Cloud Computing Conference 2010, and IEEE Cloud 2010. To name just a few.

Here's a thought: perhaps from these conferences and global cloud computing tours an industry realist will emerge. A realist who is also a visionary leader and an advocate for the seamless world cloud computing can make possible.

But most importantly, a leader who's an advocate for the customer. Someone who is asking customers what they want and need for a safe transition to the cloud.

Leadership like that is hard to come by, but certainly not impossible.

Using NIST Definitions to Clarify the Cloud

The other day, I heard a new term used for cloud computing, "cloud washing."  Apparently this was coined by an analyst at Forrester Research to describe the practice of repackaging existing cloud concepts as something new or unique to a vendor.

This kind of marketing adds to the confusion surrounding the cloud.  In the zeal to be different, companies "repackage" information that is not different at all.  When this happens, companies often unwittingly put up a big caution flag for customers.  When an entire sector of companies employ the same marketing practice, customers simply stop in their tracks.

Fortunately, there is a standard set of definitions for various types of cloud computing. If you are confused by the hype, it might be helpful to rely on definitions put forth last year by the National Institute of Standards and Technlogy (NIST), part of the U.S. Department of Commerce. Fortunately, there seems to be a growing consensus around these definitions. Here is a summary of the NIST definitions for Cloud Computing:

Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. This cloud model promotes availability and is composed of five essential characteristics, three service models, and four deployment models.

Service Models:
Cloud Software as a Service (SaaS). The capability provided to the consumer is to use the provider's applications running on a cloud infrastructure. The applications are accessible from various client devices through a thin client interface such as a web browser (e.g., web-based email). The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems, storage, or even individual application capabilities, with the possible exception of limited user-specific application configuration settings.

Cloud Platform as a Service (PaaS). The capability provided to the consumer is to deploy onto the cloud infrastructure consumer-created or acquired applications created using programming languages and tools supported by the provider. The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems, or storage, but has control over the deployed applications and possibly application hosting environment configurations.

Cloud Infrastructure as a Service (IaaS). The capability provided to the consumer is to provision processing, storage, networks, and other fundamental computing resources where the consumer is able to deploy and run arbitrary software, which can include operating systems and applications. The consumer does not manage or control the underlying cloud infrastructure but has control over operating systems, storage, deployed applications, and possibly limited control of select networking components (e.g., host firewalls).

Deployment Models:
Private cloud. The cloud infrastructure is operated solely for an organization. It may be managed by the organization or a third party and may exist on premise or off premise.

Community cloud. The cloud infrastructure is shared by several organizations and supports a specific community that has shared concerns (e.g., mission, security requirements, policy, and compliance considerations). It may be managed by the organizations or a third party and may exist on premise or off premise.

Public cloud. The cloud infrastructure is made available to the general public or a large industry group and is owned by an organization selling cloud services.

Hybrid cloud. The cloud infrastructure is a composition of two or more clouds (private, community, or public) that remain unique entities but are bound together by standardized or proprietary technology that enables data and application portability (e.g., cloud bursting for load-balancing between clouds).

We're interested in collecting examples of cloud washing,  If you have one, please post it here.

Shining Light on Dark Clouds

At 3Point we are of the opinion that cloud computing is rapidly evolving to the point that eventually nearly every corner of business will be impacted. We see nearly all segments of technology, from semiconductors to enterprise software to mobility, becoming significant elements of the cloud.

However, as we have mentioned in this space before, cloud computing hype is beginning to peak which could lead to confusion and delayed market acceptance. As an undercurrent to the hype, there is also a steady drumbeat of cloud naysayers, populating the blogosphere with the opinion that cloud computing is nothing but fog and will fall short of its ideal.

A quick Google search finds articles such as Money magazine’s “Cloud Computing is for the Birds” and AdAge’s “This Cloud (Computing) Has No Silver Lining,” which present arguments and opinion that cloud computing is not all as promised. Even respected McKinsey & Company released a study last year that painted the cloud in shades of dark gray saying that while the cloud provided some benefits for smaller companies, large companies could lose money through cloud adoption. And industry luminaries such as Larry Ellison continue to rant against the cloud as old news, nonsense and water vapor.

There is even a Facebook page devoted to debunking the cloud suggesting “Join if you think that cloud computing is a horrible idea” and posted commentary like “It's a funny word for "web services". It's been around forever, and it still kinda sucks. Calling it "cloud computing" doesn't make it any more practical.”

This skeptical opinion also appears to permeate some large corporations, like P&G, as reported by VentureBlog. “What is interesting, however, is that one thing they aren't trying are cloud services. It was made clear that P&G runs everything behind their own firewall. And they have no intention of moving any part of their infrastructure into the cloud. P&G's view of the enterprise is pretty old school.”

This presents a challenge for companies bringing cloud-related products and services to market. Not only must they present a compelling case for their individual success, they must present a solid argument for cloud computing.

We welcome your comments and opinion on this topic:

Is the skepticism of the cloud well-founded?
How might companies rise above this fog of negativity?
What companies are doing a good job with the cloud?
Is any company other than Saleforce.com doing a good job of marketing cloud computing?

For Enterprise IT Companies, the Value of the Cloud Goes Beyond Technology

If you’re a PR pro, securing coverage for your technology company, or client, in the top business publications has always been a crowning achievement. It’s the type of coverage that puts wind in the sails of a PR professional, not to mention what it does for the company itself. Of course, I’m talking about positive business press coverage. When it happens, the company CEO might walk the halls of his or her company with the coverage under one arm, showing off the story in good old fashioned black and white to anyone who glances in their general vicinity. It might be a thoughtful quote from a top company executive or a quote from a financial or market analyst that included mention of your company’s name. Perhaps the business article merely states the name of your company along with the competition. It’s all good.

When The Wall Street Journal, The New York Times, BusinessWeek and other top business publications call, a company’s communications department typically puts the brakes on whatever else it is working on to focus on the great opportunity at hand. Historically, the bigger the company, the greater and more frequent the interest from the business press. In the past, IBM or HP or Motorola had a better chance than smaller companies did of having their story heard by the big business books.

That was then. This is now.

A recent report by ITDatabase reveals that the behemoths of the tech world aren’t getting their proportionate share of business press coverage. And companies several rungs below the largest tech companies, but still generating several billions of dollars in revenue each year, are rarely if ever mentioned by the business press – at least looking back at the last six months.

Take for example BMC Software, a $2B company which received only a half dozen business press mentions in the last six months, according to the report. Or CA (aka Computer Associates) with only 10 business press mentions to show for its $4.2B in revenue, says the report.

The Wall Street Journal, The New York Times, Forbes, Fortune, BusinessWeek, The Economist, The Financial Times and USA Today were included in the survey. Company print and online mentions and blogs run by the participating publications all were taken into consideration.

“Enterprise IT is woefully underrepresented, despite being the cash-cow in the industry,” notes Dave Rosenberg, who blogs on disrupting the software market and is an adviser to ITDatabase.

While it’s not so surprising to learn through the report that Google and Apple are very well represented in the eight business publications, the delta in coverage between companies like Twitter and Facebook (the shiny new toys) vs. the icons of the tech world -- IBM, HP, Dell and Intel, Oracle and Cisco – is significant.

Rosenberg asks if it’s “reasonable to expect that tech categories (no matter how dry they might be) receive attention proportionate to the revenue they are driving? Or is biz press tech coverage about entertainment?” He said readers gravitate to stories about their favorite brands and are interested in the “latest and greatest” technology trends.

For enterprise IT, the latest and greatest trend today, and anytime in recent memory, is cloud computing. A simple Google News search on “cloud computing” this morning displayed 15,368 results and includes coverage in the big business books as well as second tier business publications, like The Chicago Tribune.

Just today, The Wall Street Journal ran a story about CA’s purchase of Nimsoft, another cloud computing company.

Enterprise IT is jumping big time on the cloud computing band wagon. And thanks to cloud computing, the business media is beginning to have a harder time staying away from enterprise IT companies.

Real Men Have CAD

“Real men have fabs.” That famous quote from the early 1990s, is usually attributed to Jerry Sanders, Chairman of Advanced Micro Devices, and was used to underscore the belief that owning a semiconductor manufacturing facility, or fab, was the only way a semiconductor company could be successful.

Many innovative chip companies saw things differently, however, and by the mid-1990s there were many successful “fabless” semiconductor companies. These pioneers realized that the $1-2B it cost for the construction of a new fab every couple of years was not only prohibitive from a cost perspective, but also not necessary at all.

These chip makers turned to TSMC, UMC, Seiko-Epson and even IBM for the manufacturing of the wafers and chips, while focusing their efforts on design innovation, testing and marketing.

By the mid-1990s, many of these fabless chip makers were among the most profitable companies in the semiconductor industry.

Fast forward to today.

The continuing economic downturn has forced all companies to take a hard look at cutting, or at least managing, costs. The semiconductor industry is no different from other markets, and every chip maker is looking for a way to turn fixed costs into variable costs.

In his post on Xuropa last year James Colgan said that one way semiconductor companies plan to turn fixed costs into variable costs is by moving parts of the EDA (electronic design automation) flow to a SaaS model, where components of the semiconductor design software reside in the cloud.

Clearly there is a trend in the semiconductor industry to take advantage of cloud computing as a way to reduce costs. The chart below shows the adoption curve for many of the EDA modules migrating to the cloud.

This will have ramifications for how EDA companies such as Cadence, Synopsys and Mentor Graphics market their products to customers. No longer will customers want to purchase costly software design tools, or even licenses to those tools, if they can use them via the cloud on a pay-per-use model. This trend is just now in its infancy, as is the way EDA companies talk about their relationship to cloud computing.

But as rapid as other software applications have moved the cloud, we're probably not too far away from hearing some stubborn semiconductor executive stand up and proclaim that "real men have CAD."

Can Too Much Hype Detour the Year of the Cloud?

One of the interesting things about working in the communications arena is observing time and again how rapidly fundamental ideas with great potential move from inspiring to confusing as they climb the hype cycle. Often, the result of accelerated hype is that customers tend to wait and do nothing.  While there are legitimate technical hurdles -- particularly in security -- that need to be crossed before enterprises migrate to the Cloud, I wonder how much the real benefits of Cloud Computing have been obfuscated by the seemingly endless discussion of a technology at the peak of the Gartner Hype Cycle.  

When you strip away communication excesses, we believe there are four major advantages Cloud Computing offers the enterprise customer:

• Greater economies of scale from maximum server utilization
• Greater control derived when users regulate how much additional service they need and can provision on demand 
• Greater operational efficiency from simplified management systems, and
• Favorable total cost of ownership.

For those enterprises that do not invest heavily in information capital as a core competency, we might also add greater IT expertise to the list of benefits.

The Cloud discussion is also confused by various approaches to Cloud Computing.  So, let's try to simplify that:

• An Internal Cloud resides in the enterprise's data center, where the enterprise owns the IT assets.  
• External Clouds require customers to pay fees, as the infrastructure is located at the premises of an external service provider.
• Organizations who want their own dedicated Cloud environment, use a Private Cloud model. 
• The more commonly understood Public Cloud is shared anonymously by many companies.

For large enterprises, four key issues restrict their willingness to fully embrace the external Cloud. We simply refer to this quartet of concerns as “SECREG” -- security, compliance, reliability and governance.

Security issues remain unresolved -- at least to the satisfaction of many large enterprises.  For many, compliance and governance -- particularly in Europe -- are also major issues.  These issues make Private Clouds the most likely first choice of many enterprises.

But some feel Private Clouds will migrate quickly toward a Hybrid Cloud model.  Hybrid Cloud models enable enterprises to protect core data in secure internal systems, while taking advantage of some of the benefits of an external Cloud. This might be driven by the need to offload non-core information during peak activity periods or the need to access some specialty cloud-based service, like threat-intelligence networks compiled by security companies.

Hybrid hype is coming soon and offers a reasonable value proposition that enables enterprises to justify a secure migration rather than a wholesale change. Hopefully, the added hype won’t add to customer confusion. The clarity of communication might help determine whether 2010 becomes, as some predict, the Year of the Cloud.

What Cloud Computing Means For Marketers

Cloud Computing has become one of the top trends in technology, with the business world buzzing about the potential and leading innovators like Microsoft to dedicate significant resources to be at the forefront of this trend.

The IT and operational benefits of the cloud are becoming well-known – increased efficiencies, lower barrier to entry for smaller companies, increased flexibility, etc. Even we at 3Point have embraced cloud computing operationally, leading to some nice efficiencies. However, what is the value the Cloud offers marketers? Often marketers turn a deaf ear to technology talk but this is a topic that has the potential to be hugely liberating for marketers, enabling great digital experiences for customers and enhanced revenues for companies.

What is cloud computing? Simply, all the computing infrastructure and intelligence (software, data and servers) is owned and managed remotely by a third party, and accessed via the internet using a web browser. Within cloud computing is software as a service (SaaS). Many of the innovative CRM, marketing automation and social software vendors operate via a SaaS model of delivery. But why is this important to a marketer focused on sales, brand value and customer experience, not how technology is delivered?

It matters because this approach can be hugely liberating for marketers, particularly in enterprises where the IT function is frustratingly slow for marketers trying to keep up with the breakneck speed of changing customer expectations online, and where putting together a business case in new areas of digital may be challenging. Among the primary benefits:

Cost. Cloud services are drastically less expensive than tradition hosting options, so marketers can do more and innovate more with their money. Cloud services enable some basic things such as faster time-to-market as solutions can be built in less time.

Faster scalability to better keep up with the variables of marketing campaigns and user traffic. In the past companies would have to prepare for an ad, email, keyword, or offline-online campaign and get resources ready on standby and have difficulties implementing mid-campaign course corrections. With cloud services campaigns can scale on demand with a lower cost and faster timeline.

Strategically, social services are enabled through cloud computing. New offerings like Facebook Connect, Twitter/delicious/reddit/digg/etc. apis, or even YouTube embed capabilities are all cloud services that enable you to drive traffic to your site without having to build your own social network. Facebook Connect is a cloud service that enables the portable social graph bringing users to your property. One user post back to a user’s Facebook wall results in three more users accessing the site. Customers tried to build social networks on sites like flip.com and other properties, now they can tie into the cloud service and get the same functionality in a fraction of time .

Most importantly, Cloud services allow us to think less in terms of technology architecture and more in terms of the marketing processes and workflow supporting the desired end-result. The Cloud smoothes a lot of technical complexity and assumes everything can be easily and integrated in real-time allowing marketers to focus on marketing and creativity. Blogger Adam Needles captures this idea well in this post and the situation has continued to evolve. We anticipate more and more company marketing departments will adopt the Cloud as a model and this will lead to new innovation in the design and implementation of campaigns.

If technology is becoming increasingly integrated into how you sell, manage relationships and build your brand's reputation, take a closer look at the Cloud. There are opportunities to increase simplicity, enhance control while at the same time lowering costs and increasing flexibility. And most important, providing marketers the opportunity to focus on marketing not IT.

Cloud Chips

It seems as if every technology company in the industry has announced a cloud computing strategy. IBM and HP. Oracle and Microsoft. CA and Saleforce.com. Amazon.com and Google. All major software and computing companies are moving to market with cloud computing solutions. It’s no wonder that a report from McKinsey & Company claimed that there are 22 different definitions of cloud computing in the marketplace.

So I guess I shouldn’t have been too surprised when I spoke to a friend of mine at Nvidia Inc. recently and he told me his company was “bullish” on cloud computing. For those of you unfamiliar with Nvidia, they are, in their own words, “the world leader in visual computing technologies and the inventor of the GPU, a high-performance processor that generates breathtaking, interactive graphics on workstations, personal computers, game consoles, and mobile devices.”

In short, Nvidia makes really powerful semiconductors for graphic applications. But why would a chip company be so bullish about cloud computing?

Let’s start with one of those 22 definitions of cloud computing. At it’s simplest, it is a way of computing, via the Internet, which broadly shares computer resources instead of using software or storage on a local PC.

Now some of those “computer resources” that live in the cloud are graphically intensive, 3D-modeling software applications that are used for everything from designing jet aircraft to modeling photo-realistic images of a patient’s heart for a doctor to view before surgery.

If you’re an aeronautical engineer working for Boeing, for instance, you might use a cloud computing application to run some 3D models for wind resistance over one of the plane’s wings. That type of graphically intensive application isn’t going to run on just any old computer server in the cloud. No, complex 3D modeling requires a server that is run by powerful GPUs, the type made by Nvidia.

Make no mistake, Nvidia and other semiconductor companies aren’t going to start building server farms and begin hosting cloud-computing applications. But companies such as IBM, HP, and others do. And those companies either buy or build specialized servers to run these graphically intensive applications.

In turn, the firms providing cloud-computing resources need to offer a variety of applications to meet the widely diverse needs of their customers. As a result, the demand for servers that can handle the enormous processing load placed on them by complex 3D graphic software is going to increase.

This interconnected food chain of cloud computing is creating opportunities for technology companies across the spectrum – from enterprise software to semiconductors. That’s why Nvidia, and any other forward-looking chip company, is bullish on the cloud computing opportunity.

The Battle for Cloud Computing Dollars in the Enterprise Has Only Just Begun

It seems like only yesterday when cloud computing was considered a dark magic – fringe technology that only a handful of the brightest technologists claimed to understand. Its business benefits not quite clear but its business risks all too clear. Earlier on, only the most aggressive large enterprises demonstrated an interest in cloud computing although caution flags dotted their path. Those brave enough to put a toe in the cloud computing waters did so with some courage but with much trepidation.

Fast forward to today and the cloud hype is deafening http://www.gartner.com/it/page.jsp?id=1124212.

Everyone is shouting, from Oracle – just one of several enterprise software companies currently expounding the virtues of cloud computing – to Microsoft, HP, IBM, VMware, among many others. While a number of these companies are promoting their unique definition of cloud computing (in part, to leverage their technology “differentiators”), the one thing they do have in common is the conviction that the cloud isn’t going away.

Recently, two enterprise software vendors in particular staked a leadership claim in cloud computing: Salesforce.com (www.salesforce.com) and CA, Inc., the company formerly known as Computer Associates (www.ca.com).

Officially, Salesforce.com is the first and only $1B cloud computing software vendor. Billing itself as the “enterprise cloud computing company” in its press releases, Salesforce.com announced last week fiscal year revenue of $1.3B. Company CEO Marc Benioff credits cloud computing with driving 21% revenue growth over the prior year http://bit.ly/cCjndT. Salesforce.com is reaping the benefits – as are its customers – of its early foot hold in the cloud computing mega trend.

A resurgent CA, Inc. is following in Salesforce.com’s footsteps in terms of making a very aggressive cloud computing push. CA’s recent acquisition of 3Tera, an established cloud computing company (www.3tera.com) – when combined with the recent flurry of CA’s cloud-related M&A activity -- sends a signal to the rest of the industry that the company’s transformation toward relevance and also toward cloud computing leadership is real. “It looks like CA paid well over 30 times 3Tera’s revenue. Such multiples are fairly atypical in tech (mergers and acquisitions) today, and very atypical for CA,” said a 451 group analyst http://bit.ly/bKu0Yf.

The battle for cloud computing dollars in the enterprise is officially underway, and if Saleforce.com’s recent earnings and CA’s acquisition spree are any indication of a trend, the price to play will keep going up.

Of Health Care Bills and Hybrid Clouds...

The debate of whether cloud computing will happen resembles the current debate over health care here in Washington -- everyone agrees it is needed, everyone has a different theory of who the customer is and what the customer needs, nobody likes the other guy's approach and yet nobody can agree how the issue will be resolved. So we should expect the hype and industry debate will continue to rage.

Wholesale conversion of massive data centers laden with legacy systems -- including highly efficient mainframes -- seems impractical and unlikely. Certainly, it is easy to overlook this somewhat pedestrian issue. The lure of getting up and running faster with new products and services is as compelling as the ability to scale on-demand to handle unexpected loads. A compelling argument could be made that these safeguards alone justify the change, if for no other reason than to prevent lost business due to decreased performance or downtime. But cloud management issues, particularly security and compliance, are not sufficiently resolved yet to enable CEOs, CIOs and boards of directors to endorse a wholesale move to the cloud.

What seems most logical is an evolutionary process through stages of the hybrid model. This likely starts with a shift of internal virtualized data centers to deploying external clouds for peak demands to meet the needs of internal users.

As an enterprise gets familiar and comfortable with an external cloud model, it will more readily evolve from peak demand to on-going hybrid, where IT departments rely on external cloud providers for continuing support of non-core functions.

This evolution holds endless possibilities, but we wonder how quickly it can happen. Looming large in the decision process is the "S" word. It is reasonable to expect customers will require the same level of management and security (policies, systems and processes) in a hybrid cloud that they have with internal data centers or private clouds. Today, customers perceive risk -- what happens if my data is co-mingled with others when I go off-premise? Vendors have not addressed this perception to the extent that customers are ready to move.

At this point, it isn’t clear whether the health care bill or full-scale cloud adoption will evolve first. They both hold enormous promise for change, but both seem to be progressing in fits and starts with non-negotiable issues still unresolved. In a world in which success seems to be increasingly measured by wholesale change rather than incremental development, we're not yet ready to bet the farm on which gets resolved first.