Strategy

Flexibility from the Cloud

Cloud Computing – The Future Form of ICT

Erwin Weber, Dr Volker Rieger, Christoph Eikmeier

Something is brewing on the Internet. More and more companies are closing down their own
ICT service operations and are instead turning to the Web for online resources. Whether it is
a customer database, computing power, or CRM software that is wanted – Internet access is
all that is required to obtain it. Moreover, online services can be scaled flexibly and costs are
incurred only for those capacities which are actually used by the business. Companies can now
shift nearly their entire corporate IT application portfolio onto the Web. Will everything come
from the “digital cloud” in the future?

28 Detecon Management Report s 1 / 2009


A n example from the recent past demonstrates just how
much can come from the cloud today. Billions of people wanted
to participate when the new American president Barack Obama
was inaugurated into office in January. The ceremony was
streamed live onto the Internet and watched by hundreds of
thousands. A great number of hobby journalists used mobile
devices to write their experiences in their Facebook and Twitter
blogs, a kind of “voter-generated content”, so to speak. Count-
less cell phone users reported on the event to their families and
friends.
Events of such a large scale represent an enormous challenge for
those responsible for ICT operations. For example, in prepa-
ration for this historic occasion, AT&T had to invest millions
of dollars to increase the capacity of its mobile network in the
Washington area by 80%. Would it not be wonderful if the peak
loads caused by such large events or, taking another example,
widespread advertising campaigns could be absorbed by hiring
the ICT resources when and where needed – and naturally with
payment according to actual use? This is where cloud compu-
ting comes in. Cloud computing makes it possible to hire ICT
infrastructures and applications temporarily and to pay for them
according to how much they are actually used. Whenever there
is a surge of users – as during Obama’s inauguration – more re-
sources are provided automatically, and then closed down again
when the storm has passed.
Lifting the cloud cover – an attempt at a definition
But just what is the term “cloud computing” supposed to mean?
A number of vague buzzwords related to the idea are making the
rounds, but their precise meaning and their relationships to one
another are not always clear. So let us attempt to lift the heavy
cloud cover and come up with a definition of the term.
Cloud computing is frequently equated with grid computing.
The latter refers to the breaking down of tasks requiring enor-
mous computing power into smaller units which are then car-
ried out by a network (grid) of computers in parallel. But cloud
computing is more than this; it stands for a paradigm shift. An
extremely diverse range of services previously handled by a lo-
cal computer – enterprise software, data, memory, etc. – moves
Flexibility from the Cloud
into the Internet “cloud”. The Internet connection serves as the
interface between the client and the cloud servers on which the
data are stored.
The idea is not all that new. Similar models appeared a number
of years ago, at that time known as “application service provi-
ding” (ASP) or “software on demand”. But because technologi-
cal development and the users were not ready for such a step at
that time, the concept was never accepted. Today, thanks to new
web technologies such as AJAX and faster Internet service, the
same ideas are experiencing a renaissance, albeit under a new
name.
Cloud computing services can step in at various stages along the
value chain of ICT service providers. Currently, three models
are predominant (see Figure 1, Page 30): “infrastructure as a
service” (IAAS), “software as a service” (SAAS), and “platform
as a service” (PAAS).
Services which provide the flexible use of computing power or
storage capacity via the Internet are called “infrastructure as a
service”. Examples of this are the web services Simple Storage
Service (S3) and Elastic Compute Cloud (EC2) from Amazon.
“Software as a service” is frequently equated with cloud compu-
ting, but it is in reality only one part of it. The concept of software
as a service stands for the operation and maintenance of com-
puter applications as a service via the Internet. The applications
are hosted and updated on the operator’s servers. For example,
Google’s Web service “Google Docs” offers a cloud-based alter-
native to Microsoft Office, and GMail is a web-based e-mail
service which can also be used offline.
The model “platform as a service” is aimed at the developers
of Web applications rather than users. In the PAAS model, a
provider makes application programming interfaces (APIs) and
developer tools (software development kits, SDKs) available.
Any developer can use them to program, test, and operate their
own web applications based on the platform provider’s infra-
structure. The SAAS pioneer Salesforce has been offering a plat-
form of this type for some time now with its Web site Force.
com.
29 Detecon Management Report s 1 / 2009
Strategy

Using cloud computing in the company
As is the case with so many ICT-related decisions, users must
consider the topic of cloud computing from two perspectives:
the business side and the technical-operational side. The first
covers all of the market-oriented opportunities which result
from the new way of utilizing ICT. The latter focuses on inter-
nal improvements, especially cost savings, which come from the
changed provisioning of ICT services.
The dominant drivers for new business opportunities are the
relative speed and above all the openness with which business
requirements can be implemented through the use of cloud
computing – both seen in comparison with internal ICT so-
lutions. Applications and platforms which are provided on the
network can be used very easily and very quickly and can also
be made available to partners. This makes them ideal for col-
laboration across corporate boundaries. CRM solutions from
Salesforce.com, for example, are frequently utilized by compa-
nies with franchise networks or partner distribution. All any of
the partners need to utilize the common CRM application is an
Internet connection.
Thanks to its open networking possibilities, cloud computing
is ideally suited to exploiting the potential of modern work
and organizational forms ranging from the creation of added
value networks to the virtualization of companies and coopera-
tion in partnerships across company boundaries and locations,
the scheduling of temporary and mobile employees, and the
flexibilization of the working world through the convergence
of private and business life. In these application areas, cloud
computing often has a content overlap with unified communi-
cations* and Web 2.0 applications. Communication and team-
work in diversified networks are increasing in both business and
private contexts. More and more people want to use the things
that support their private productivity in a professional context

* See “The End of Babel” in DMR 4/2008

Figure 1: Various Models of Cloud Computing

Infrastructure- Platform- Software-

Cloud as-a-Service as-a-Service as-a-Service
Computing- (IaaS) (PaaS) (SaaS)
models:

Value chain Developer

Infrastructure Connectivity Application Application Process
of platform
provisioning provisioning provisioning integration integration
ICT providers: provisioning

Hardware resources Data transport via SDK and APIs Development of Integration of Workflow
(storage, server/- communication for third party single web-based cloud applications integration,
Services: CPU capacity etc.) networks developers software applica- according to orchestration
tions customer needs

Source: T-Systems (modified)

30 Detecon Management Report s 1 / 2009


as well. Google is one of those placing its bets on this trend.
Google Docs expresses the combination of cloud computing
(“work online”) and Web 2.0 (“share and collaborate”) directly
in its service claim: “create and share your documents and tables
online with others – anywhere, anytime”.
The use of cloud computing has advantages in terms of speed
mainly because ready-to-use infrastructures and applications are
available at the click of a mouse, more or less. This makes it pos-
sible to carry out one-off or short-notice projects quickly and
outside of the normal and undoubtably necessary IT processes
within the company. Companies are then in a position to in-
troduce innovations on the market as test balloons, without the
need for high CAPEX investments where the returns are uncer-
tain. When, for example, the New York Times decided to make
its archives available to the public, the newspaper was able to use
the Amazon services EC2 and S3 to convert 11 million articles
from the period between 1851 and 1980 into PDF documents
within 24 hours. The process required the movement of 5.5
terabytes of data on 100 virtual computers. The project would
have become inordinately more expensive and time-consuming
if the newspaper had set up its own infrastructure. Experimental
web sites for campaigns or new internet sites can be realized in
a similar way with little expense. Start-ups and small companies
can also develop their product lines at low cost and very quickly.
The online photo and video archive “Phanfare” has stored more
than 100 terabytes of user data on Amazon S3. According to in-
formation from the firm, this saves more than 50% of the costs
that would have been incurred for the setup and operation of its
own storage solution.
Cost savings are frequently at the forefront when companies
think about cloud computing from a strictly internal, techni-
cal-operational viewpoint. Looking at it from a business per-
spective, cloud computing has many parallels with outsourcing
or the utilization of managed services. The company does not
have to make investments in its own IT resources, but pays
solely for the volume it actually uses. The cost parameters in
these cases are generally oriented to the application level. Ser-
vices of an infrastructure nature like Amazon’s EC2 and S3 are
priced according to technical parameters such as CPU time or
data volume, while cloud applications like Google’s Apps or
Salesforce.com are billed per application and user. Practical ex-
perience to date shows that cloud computing is above all and
Flexibility from the Cloud
most clearly worthwhile for application cases oriented to the
short term. Experience values concerning utilization periods of
three to five years are not yet available. A long-term compa-
rison is also difficult because a broad range of expense items,
ranging from the end users’ hardware to the costs for computer
centers, servers, power consumption, IT personnel, and license
and utilization fees for the software, must be included in the
TCO (total cost of ownership) analysis. IBM offers a “virtual
desktop” as a substitute for the classic PC workplace with claims
that companies can save as much as USD 800 a year in overall
costs in comparison with the use of a normal PC with Windows
Vista and a Microsoft Office suite.
From the technical-operational standpoint, there are today two
accepted primary uses of cloud computing. The first is the use
of additional cloud resources to cover peak periods. In this case,
the cloud supplements and expands the services offered by the
company’s own IT. This is adequate to cover one-off demands
resulting from special projects as well as repetitive needs such
as the preparation of the annual financial statements or stock-
taking activities. The second has to do with the use of cloud re-
sources to optimize financing structures with a shift away from
CAPEX towards OPEX. Independent of the total costs of the
cloud solution, scarce financial resources – common in the case
of start-ups or in the present critical times – can be concentra-
ted on operating the business and need not be invested in IT.
As a rule, the costs of a cloud solution also vary much more in
line with the business volume – yet another advantage for fast-
growing start-ups or for companies facing difficult times.
At the very latest, serious thought should be given to taking this
path when the business-oriented advantages of cloud compu-
ting coincide with technical-operational benefits. When a spe-
cial project with an uncertain outcome must be conducted in
cooperation with partners, the commercial and IT departments
should at least weigh up the pros and cons of the new opportu-
nities provided by cloud computing.
A gold mine for ICT companies?
The many different ways in which users can benefit from cloud
computing applications have prompted the appearance of a large
number of providers. Both traditional software and hardware
manufacturers as well as specialized cloud computing companies
31 Detecon Management Report s 1 / 2009
Strategy
have already entered the market. ICT service providers are also
pushing their way onto this still young market of web-based,
on-demand services (see Figure 2). But what opportunities does
cloud computing really offer to these different provider types?
The most obvious beneficiaries of the increased attention being
paid to cloud computing are the specialized providers of cloud
applications. The company Salesforce.com, founded in 1999,
is a pioneer in this sector and has been successfully positio-
ning its web-based corporate software such as CRM tools in
competition with the providers of local software solutions for a
number of years now.
Traditional software manufacturers avoided the development of
a web-based variant of their applications for a long time. This
was a consequence of their fear of cannibalization effects on the
sale of local software. Only recently have software companies
begun to recognize the new opportunities which the provision
of web-based applications would open up to them. Companies
such as Microsoft or Adobe are now working hard and fast to
develop cloud variants of their applications. Although the soft-
ware suite “Microsoft Office” is still only available in a local
Figure 2: Classification of Cloud Computing Providers
Applications
(SaaS)
Cloud
Computing
Infrastructure
(IaaS)
Source: Detecon
32 Detecon Management Report s 1 / 2009
version, the company has already announced that it wants to
offer a Web version in the near future. The developer program
“Windows Azure”, which was presented at the end of 2008,
emphasizes the strategy change at Microsoft.
Hardware manufacturers have very recently begun to take ad-
vantage of the cloud computing trend. Asus, to take just one
example, now offers an online memory with an additional two
gigabytes for its netbook eeePC. This has a small hard drive of
only a few gigabytes, and the online memory can be seamlessly
integrated into the operating system.
Telecommunications service providers can benefit from the
cloud computing trend in two ways. One is that the impor-
tance of the Internet for companies will increase, thus offering
network operators new levers for the sale of broadband Internet
connections. The second is that the provision of their own cloud
computing services will enable network operators to develop
completely new business models.
The first factor is easily understood: if more and more corporate
processes and applications are obtained from the World Wide
Platform
(PaaS)

Web, the Internet connection will become increasingly critical.
Even short downtimes can quickly have a negative effect on
business if they cause paralysis in important parts of the com-
pany. The objective must be to provide good connection quality
as well as sufficient speed to absorb utilization peaks. This could
make it possible to convince companies in industries previously
less interested in IT of the necessity of broadband Internet con-
nections. Network operators and ICT service providers should
actively support the spread of cloud computing so that this
effect is intensified. British Telecom (BT), for example, offers
small and medium sized businesses cloud applications such as
those from Salesforce.com right along with the plain Internet
access.
A second opportunity for network operators to profit from the
trend towards web-based services would arise from the provision
of their own cloud computing solutions. This involves making
traditional telecommunications products such as telephone
calls, fax services, and voice mails available in virtualized, i.e.,
web-based, form. The advantage for the user is that they then
only need Internet access to have access to all means of commu-
nications.
These services can be sold by the network operators themselves.
However, another variant is far more interesting: making pro-
gramming interfaces (APIs) available to third-party providers
(independent software vendors = ISVs) so that they can develop
their own cloud applications on the basis of the virtual tele-
communications product. An online market place serves as a
sales platform to offer these services to any customer. Part of
the utilization fees would be retained by the provider as com-
pensation. Any operator who can gather a large community of
developers on their platform would then have a competitive ad-
vantage over other network operators. BT is blazing the trail
here as well: in mid 2008, the company purchased the Silicon
Valley startup Ribbit, acquiring a technology which enables the
seamless integration of voice communications into any Web
site. The “Ribbit Developer Platform” gives developers the tools
they need to establish their own services on the foundations of
the BT infrastructure.
Flexibility from the Cloud
Recommendations for potential users
Users today still tend to be skeptical when it comes to the topic
of cloud computing. Large companies in particular fear a lack
of dependability of the services. Before cloud computing can
be seen as a fully fledged substitute for established applications
relevant to business, the trust in the long-term positioning of
the providers must mature, legal problems regarding the storage
of data across national borders must be clarified, and the un-
restricted availability of the Internet to all market participants
must be secured.
But interesting utilization potential already exists for applica-
tions outside of the core programs and for young and smaller
companies. Whether the use of cloud computing in the com-
pany will pay for itself depends on certain organizational and
process prerequisites. The greater the number of locations and
business partners a company has, the more the open network
opportunities offered by cloud computing can be exploited. The
introduction of flexible working hours and workplace regula-
tions in the company may also make a change to cloud-based
infrastructures and applications worthwhile.
Fast-growing and very young companies can profit from the
scalability of web-based cloud services. The utilization of cloud
computing is highly recommended in these cases because the
solutions can also grow in the event that staff numbers increase
by leaps and bounds. In the case of larger companies, which
are growing more slowly, the project mentality of the company
can be decisive. If large projects are frequently conducted in the
company, e.g., during product launches or corporate mergers,
cloud services can offer the flexibility required to provide infra-
structures and applications in line with needs.
One of the most important questions, also from a technical-ope-
rational perspective, is that of data security. Adequate encryption
of the stored data, redundant data storage, and regular backups
should be ensured. The question of who is responsible when
important data are lost, and how legal problems related to the
storage of data across national borders can be avoided should be
clarified in advance with the provider.
33 Detecon Management Report s 1 / 2009
Strategy
If cost savings are the main argument for the implementation
of cloud computing in a company, compatibility aspects play
a major and twofold role. For one, the interaction of the cloud
service with the company’s existing ICT infrastructure must be
checked. Secondly, the compatibility of the services with one
another when a number of cloud services from different provi-
ders are used should be examined. Only a clear understanding
of the big picture of the application architecture ensures the
interaction of the individual parts and consequently the cost-
efficient implementation.
As more and more services in the company come from the
cloud, its dependency on cloud providers will grow, another
reason why a close look should be taken at the situation in ad-
vance. Many cloud computing providers offer test phases over
a number of weeks during which the services can be tried free
of charge. Users should take advantage of this phase to compare
the operation of the systems as well as their technical compa-
tibility: the more similar the local and cloud variants are, the
more easily the affected employees will be able to make the tran-
sition between them. Additional evaluation criteria include the
reputation and reliability of the cloud provider. In particular,
cloud services bearing the label “beta version” in their title are
frequently not yet suitable for professional use in companies.
If, on the other hand, mature cloud services are used, it is most
probable that companies will already be able to profit from the
numerous benefits which cloud computing offers.
Recommendations for cloud providers
The changes in user requirements such as greater dynamism,
rising cost pressure and, above all, the new technological possi-
bilities in the form of increasing virtualization which can result
from cloud computing make it possible for cloud providers
to address new target groups and to serve their existing target
groups better.
34 Detecon Management Report s 1 / 2009
New target groups such as very small companies and start-ups,
for whom the one-off acquisition costs of a software program or
a server infrastructure were previously prohibitive, can now be
won over as new customers with the flexible, demand-oriented
billing methods of cloud computing. From the viewpoint of
specialized cloud providers, there is an opportunity to realize
scaling effects when providing their services. The business model
becomes especially lucrative, as shown in the example of the
Amazon services EC2 and S2, when it involves resources which
have to be maintained for the company’s own business purposes
anyway. Cloud computing can in this case result in better utili-
zation of capacities in one’s own infrastructure.
Users of cloud products will, initially, go to the cloud primarily
for applications (software as a service) which do not require
deep integration into their own corporate processes, databases,
and IT environment. Nevertheless, they will expect guaranteed
service levels and compliance declarations concerning the hand-
ling of corporate data for these applications as well.
During a second phase, the main objective of the cloud provi-
ders will be to increase their own “share of the wallet”. This will
be possible for those providers who are able to expand their ser-
vice portfolio and to realize even complex integration projects in
their customers’ corporate architectures. An increasing number
of specialized providers will form at the various stages of the
value chain, and they, just as their customers, will be confronted
with the decision to “build, buy, or partner” when creating their
services. This means that it will become critical to the success
of the providers of “higher quality” services that they design an
attractive product portfolio and achieve an optimal cost struc-
ture. Successful partner management is certainly one of the key
qualifications.
The patterns which were described previously primarily for IT
services also have direct relevance for the operators of communi-
 Flexibility from the Cloud

cation networks. From the viewpoint of the network operators,

the challenge is to enhance their product line by adding cloud-
based services. Moreover, a trend in the direction of increasing
convergence and virtualization of telecommunications services
can also be discerned.

By the time of the next American presidential election (2012

at the latest) cloud computing solutions will presumably have
become established on the market as alternatives on a par with
ICT services within the company. So the answer to the question
as to whether everything will come out of the digital cloud in
the future is: “No, not everything, but perhaps a lot more than
we can imagine today.”

Erwin Weber is a specialist in innovations management for ICT Communica-

tion Services and Value Added Services. He leads the ICT Product Innovation
Group and provides national and international clients with consulting services
concerning the selection and market entry of new services. Here an emphasis is
on the interface between market requirements and technology.

Erwin.Weber@detecon.com

Dr Volker Rieger is Partner and in charge of both the Technology Portfolio

Strategy Group and the Detecon Center of Excellence on Global Technology
Intelligence. With more than ten years experience in ICT markets, Dr Rieger’s
consulting work concentrates on innovative business and technology strategies.
Before joining Detecon he was a product manager in the Mobile Communica-
tions area for Bosch.

Volker.Rieger@detecon.com

Christoph Eikmeier is a Business Analyst in the ICT Product Innovation Group.

Here he advises national and international clients on the strategic structuring of
their service portfolios, and the conception of innovative business models. He
has a number of years of experience in IT and media.

Christoph.Eikmeier@detecon.com

35 Detecon Management Report s 1 / 2009