What smart businesses know about cloud adoption: the future's bright

The cloud is rapidly becoming the destination for small and medium-sized businesses to source their IT. What is driving this set of cloud adopters? Where and why are they making investments?

“Cloud computing” ranks near the top of the most floated buzz phrases in the world of IT and telecommunication. While the concept has certainly taken the entire industry by storm, it is set to have a uniquely profound effect on the way small and medium-sized businesses consume IT.

Techaisle's research indicates that small to medium-sized businesses (SMBs) in the US will be spending $7 Billion on Managed Services in 2011 and will continue to grow in double digits for the next several years. They also predict SMBs globally will be spending $11 Billion on cloud computing in 2011, and grow annually at a rate of 12 percent till 2015.

The rate of adoption is believed to be directly related to the low-costs and minimal investment risk involved for smaller businesses--key factors in being able to build new companies quickly. It is also estimated that around 138 million SMB employees will have adopted some form of cloud by the start of 2012, with mature markets, such as the US, adopting at a rate of 1 in 4. Among the various cloud computing categories, IaaS/PaaS (Infrastructure As A Service/Platform As A Service) show the fastest growth rate of over 26 percent, followed by Business Productivity at 24 percent.   

SMBs have proven to be the most dynamic segment in this context and their adoption rate is currently tracking at a rate nearly double that of large organizations. It amounts to a two-thirds share of the total public cloud market and is growing at 25 to 35 percent per year, outpacing the growth of large enterprises in this arena. McKinsey's research states that by 2014, SMB cloud computing is expected to represent a global market of USD 30 to 40 billion.

Pain Points Drive SMB Motivation

• Lack of scale in operations, which prevents SMBs from becoming cost-competitive and from having access to enterprise-class functions and features
• Need for flexibility in deployment and scaling up or down as business evolves
• Limited financing capacity and flexibility
• Low level of internal IT capabilities to integrate and maintain IT systems and applications

Make no mistake--enterprise companies are adopting cloud solutions as well, but established IT structures increase the complexity of cloud adoption, contributing to slower adoption. Then there are the questions: Which applications should we move to the cloud? What data do we need to keep in-house? How will existing performance be affected? Enterprise companies benefit most by bringing in expertise to help them make the right cloud technology decisions. Software Consortium is seeing many of its larger enterprise clients, who are known to be on the forefront of cost-savings and first-to-market benefits, using our help to integrate and deploy cloud solutions with great success and cost-savings. Others are already using cloud technologies such as SalesForce.com, a Software As A Service with years in the marketplace.

One Software Consortium architect, Dave Clausen, explains, “We are seeing companies benefit from moving their operational servers to the cloud. In doing so, savings are achievable on many levels. They no longer need all of the expensive things that go into a server room – or the expertise to maintain it.  Further, the cloud is driving advancements in virtualization, and what companies are finding is that their cloud solutions are more scalable, available (e.g. thanks to redundancy), and performant than their self-hosted solutions were.” Clausen adds, “In many cases, Cloud applications are more intuitive than installed software—and I’ve seen many users benefit from this.”

Drivers for Adoption of Cloud Computing

Scalability	Users have access to a large amount of resources that scale based on user demand.
Elasticity	The environment transparently manages a user’s resource utilization based on dynamically changing needs.
Virtualization	Each user has a single view of the available resources, independently of how they are arranged in terms of physical devices.
Cost	The pay-per-usage model allows an organization to only pay for the resources they need with basically no investment in the physical resources available in the cloud. There are no infrastructure maintenance or upgrade costs.
Mobility	Users have the ability for the user to access data and applications from around the globe.
Collaboration	Users are starting to see the cloud as a way to work simultaneously on common data and information.
Risk Reduction	Users can use the cloud to test ideas and concepts before making major investments in technology.
Feedback	The ability for the user to obtain the statistics on usage levels
Usability	The ease with which the user is able to configure and operate virtual resources

 

A survey by McKinsey & Company shows that two-thirds of the cloud purchases made by SMBs are meant to replace an existing application or solution. This positions the cloud as an alternative to “on-premise” IT solutions in place. The remaining one-third is geared toward market expansion, reflecting SMBs’ desire to access applications they could not afford in-house.

When asked in which application areas they could see these solutions being used within their organizations, survey respondents expressed the greatest need for storage space and data backup/resiliency. Strong uptake can also be seen in cloud-based server capacity, information and database management, security, system management, enterprise resource management, data access, and collaboration.

Overall, respondents claim willingness to consider purchasing cloud solutions for a broad range of IT infrastructure and business application needs, however, actual consideration levels remain just over 50 percent.

Another Software Consortium architect, Warren Miller has this advice for decision-makers, “SMB's stand to benefit most by identifying and aligning their needs with areas where cloud-based offerings hold a substantial advantage to transitional approaches. For example, where computing resource needs can vary drastically from one day to another—say, during the development and testing lifecycle of a new system—and the elasticity intrinsic to many cloud offers provides an economical means of buying only as much compute power as needed, when it is needed. Software Consortium has helped clients identify areas where procured systems are under-utilized as the result of elastic demand, and transitioned them to cloud-based solutions. Reducing operating costs is a major driver for many businesses; a pay-as-you-use model in the cloud has the potential to do just that, relative to acquiring depreciable assets.”

Savings

Cloud financials make a lot of sense when you consider what cloud computing replicates and seeks to make redundant. Quite simply, the company no longer needs to worry about hardware complexities, human capital, or pure operating capital. Companies can now more easily match their IT infrastructure with the demand, decreasing extra costs associated with over-building or lost revenue when not enough IT resources were secured.

Cloud computing, by definition, has data that is stored, managed, and distributed across an infinitely scalable hardware resource network. The reality of cloud financials is such that an organization can cut its costs in these areas by, in some cases, as much as 80% or more.

If an organization is reliant on self-hosted, managed, and purchased IT solutions and hardware, it must realize that the sheer logistical issues associated with the procurement, installation, commissioning, and subsequent operation of these assets is hard to justify against the cloud benefits. Cloud computing allows an organization to gain access to the power of these assets within minutes and, of course, saves the significant capital costs associated.

Cost Realities

"Because savings expectations don't always materialize, SMB's would be wise to take measured steps into the cloud, adjusting deployments (and expectations) as needed to reap maximum benefit to the business,” said Miller. “Ensuring that system architecture, tools and platforms remain as industry-standard and generic as possible enables SMB's to shop around between cloud providers in search of the best deal."

• Both providers and users need to work harder on managing integration and customization costs.
• Usage-based pricing arrangements should be revisited after deployment to adjust for unpredictable changes in transaction volumes.
• Providers need to work closely with users to more accurately estimate post-deployment costs and avoid disappointment.
• Users must be especially realistic about attainable savings on internal labor costs.

Big Players

McKinsey's research also finds that SMBs from all segments prefer working with large incumbent independent software vendors (ISVs) the most when rolling out new cloud deployments -- 19 percent selected ISVs such as Microsoft, Oracle, or SAP as either the most or second-most preferred cloud solution providers, while 15 percent chose large integrated software businesses such as EMC or IBM. Web-based service providers such as Google and Amazon came in at 12 percent.

"In 2011," Google VP of Enterprise Amit Singh said, "Google Apps added no fewer than 175 new features while still delivering 99.9 percent availability for Gmail. Similarly, Google App Engine now hosts more than 400,000 active applications, which is a 70 percent boost over this time last year." Like many of the big players, Google says it will be redoubling its cloud efforts in 2012.

Some examples of SMBs who are using Amazon’s cloud offerings:

• Yelp is a popular consumer review website that uses Amazon S3 to store log files growing at 100GB per day and Amazon Elastic MapReduce to power key website features.
• 6 Waves Limited, a leading international publisher and developer of gaming applications on the Facebook platform, uses Amazon EC2 and Amazon S3 to host its social games with an audience of more than 50 million players per month.
• Active Interview is a video-enabled candidate screening web application conducting virtual interviews in more than 50 countries. Written using the Ruby on Rails framework, Active Interview’s application is fully deployed through Amazon Web Services (AWS) with web servers running on Amazon EC2 instances and video content served from Amazon S3.
• directthought utilizes a scalable document processing solution that leveraged the cost effective storage of Amazon S3 and the scalable compute resources of Amazon EC2.
• Hotelogix is a web-based hotel management system that allows hospitality venues to conduct all of their daily activities, such as reservations and front desk operations, from a unified system that does not require any additional hardware or software expenses. Hotelogix's infrastructure was created using Amazon Elastic Compute Cloud (Amazon EC2), Amazon Elastic Block Store (Amazon EBS), and Amazon Simple Storage Service (Amazon S3).

Tech Trend for SMBs in 2012: Cloud Becomes Business As Usual

Expect to see some version of this quite a bit: 2012 will be year that SMBs see cloud technologies as normal rather than cutting edge. When it comes time to acquire and deploy technology projects, cloud platforms will be the instinctive first choice--rather than the alternative to on-premises options. While security and other concerns may linger, that's not stopping the mainstream phase.

Call 410-740-1910 or email Austin Bachmann (x 103) in the DC Area and Brian Zernhelt (x 104) in the Baltimore region if you would like to discuss how to leverage our solutions to empower your business.

 

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