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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?

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Flexibility from the Cloud

A n example from the recent past demonstrates just how


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

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Strategy

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

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Flexibility from the Cloud

as well. Google is one of those placing its bets on this trend. most clearly worthwhile for application cases oriented to the
Google Docs expresses the combination of cloud computing short term. Experience values concerning utilization periods of
(“work online”) and Web 2.0 (“share and collaborate”) directly three to five years are not yet available. A long-term compa-
in its service claim: “create and share your documents and tables rison is also difficult because a broad range of expense items,
online with others – anywhere, anytime”. ranging from the end users’ hardware to the costs for computer
centers, servers, power consumption, IT personnel, and license
The use of cloud computing has advantages in terms of speed and utilization fees for the software, must be included in the
mainly because ready-to-use infrastructures and applications are TCO (total cost of ownership) analysis. IBM offers a “virtual
available at the click of a mouse, more or less. This makes it pos- desktop” as a substitute for the classic PC workplace with claims
sible to carry out one-off or short-notice projects quickly and that companies can save as much as USD 800 a year in overall
outside of the normal and undoubtably necessary IT processes costs in comparison with the use of a normal PC with Windows
within the company. Companies are then in a position to in- Vista and a Microsoft Office suite.
troduce innovations on the market as test balloons, without the
need for high CAPEX investments where the returns are uncer- From the technical-operational standpoint, there are today two
tain. When, for example, the New York Times decided to make accepted primary uses of cloud computing. The first is the use
its archives available to the public, the newspaper was able to use of additional cloud resources to cover peak periods. In this case,
the Amazon services EC2 and S3 to convert 11 million articles the cloud supplements and expands the services offered by the
from the period between 1851 and 1980 into PDF documents company’s own IT. This is adequate to cover one-off demands
within 24 hours. The process required the movement of 5.5 resulting from special projects as well as repetitive needs such
terabytes of data on 100 virtual computers. The project would as the preparation of the annual financial statements or stock-
have become inordinately more expensive and time-consuming taking activities. The second has to do with the use of cloud re-
if the newspaper had set up its own infrastructure. Experimental sources to optimize financing structures with a shift away from
web sites for campaigns or new internet sites can be realized in CAPEX towards OPEX. Independent of the total costs of the
a similar way with little expense. Start-ups and small companies cloud solution, scarce financial resources – common in the case
can also develop their product lines at low cost and very quickly. of start-ups or in the present critical times – can be concentra-
The online photo and video archive “Phanfare” has stored more ted on operating the business and need not be invested in IT.
than 100 terabytes of user data on Amazon S3. According to in- As a rule, the costs of a cloud solution also vary much more in
formation from the firm, this saves more than 50% of the costs line with the business volume – yet another advantage for fast-
that would have been incurred for the setup and operation of its growing start-ups or for companies facing difficult times.
own storage solution.
At the very latest, serious thought should be given to taking this
Cost savings are frequently at the forefront when companies path when the business-oriented advantages of cloud compu-
think about cloud computing from a strictly internal, techni- ting coincide with technical-operational benefits. When a spe-
cal-operational viewpoint. Looking at it from a business per- cial project with an uncertain outcome must be conducted in
spective, cloud computing has many parallels with outsourcing cooperation with partners, the commercial and IT departments
or the utilization of managed services. The company does not should at least weigh up the pros and cons of the new opportu-
have to make investments in its own IT resources, but pays nities provided by cloud computing.
solely for the volume it actually uses. The cost parameters in
these cases are generally oriented to the application level. Ser- A gold mine for ICT companies?
vices of an infrastructure nature like Amazon’s EC2 and S3 are
priced according to technical parameters such as CPU time or The many different ways in which users can benefit from cloud
data volume, while cloud applications like Google’s Apps or computing applications have prompted the appearance of a large
Salesforce.com are billed per application and user. Practical ex- number of providers. Both traditional software and hardware
perience to date shows that cloud computing is above all and manufacturers as well as specialized cloud computing companies

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Strategy

have already entered the market. ICT service providers are also version, the company has already announced that it wants to
pushing their way onto this still young market of web-based, offer a Web version in the near future. The developer program
on-demand services (see Figure 2). But what opportunities does “Windows Azure”, which was presented at the end of 2008,
cloud computing really offer to these different provider types? emphasizes the strategy change at Microsoft.

The most obvious beneficiaries of the increased attention being Hardware manufacturers have very recently begun to take ad-
paid to cloud computing are the specialized providers of cloud vantage of the cloud computing trend. Asus, to take just one
applications. The company Salesforce.com, founded in 1999, example, now offers an online memory with an additional two
is a pioneer in this sector and has been successfully positio- gigabytes for its netbook eeePC. This has a small hard drive of
ning its web-based corporate software such as CRM tools in only a few gigabytes, and the online memory can be seamlessly
competition with the providers of local software solutions for a integrated into the operating system.
number of years now.
Telecommunications service providers can benefit from the
Traditional software manufacturers avoided the development of cloud computing trend in two ways. One is that the impor-
a web-based variant of their applications for a long time. This tance of the Internet for companies will increase, thus offering
was a consequence of their fear of cannibalization effects on the network operators new levers for the sale of broadband Internet
sale of local software. Only recently have software companies connections. The second is that the provision of their own cloud
begun to recognize the new opportunities which the provision computing services will enable network operators to develop
of web-based applications would open up to them. Companies completely new business models.
such as Microsoft or Adobe are now working hard and fast to
develop cloud variants of their applications. Although the soft- The first factor is easily understood: if more and more corporate
ware suite “Microsoft Office” is still only available in a local processes and applications are obtained from the World Wide

Figure 2: Classification of Cloud Computing Providers

Applications
(SaaS)

Cloud
Computing
Infrastructure Platform
(IaaS) (PaaS)

Source: Detecon

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Flexibility from the Cloud

Web, the Internet connection will become increasingly critical. Recommendations for potential users
Even short downtimes can quickly have a negative effect on
business if they cause paralysis in important parts of the com- Users today still tend to be skeptical when it comes to the topic
pany. The objective must be to provide good connection quality of cloud computing. Large companies in particular fear a lack
as well as sufficient speed to absorb utilization peaks. This could of dependability of the services. Before cloud computing can
make it possible to convince companies in industries previously be seen as a fully fledged substitute for established applications
less interested in IT of the necessity of broadband Internet con- relevant to business, the trust in the long-term positioning of
nections. Network operators and ICT service providers should the providers must mature, legal problems regarding the storage
actively support the spread of cloud computing so that this of data across national borders must be clarified, and the un-
effect is intensified. British Telecom (BT), for example, offers restricted availability of the Internet to all market participants
small and medium sized businesses cloud applications such as must be secured.
those from Salesforce.com right along with the plain Internet
access. But interesting utilization potential already exists for applica-
tions outside of the core programs and for young and smaller
A second opportunity for network operators to profit from the companies. Whether the use of cloud computing in the com-
trend towards web-based services would arise from the provision pany will pay for itself depends on certain organizational and
of their own cloud computing solutions. This involves making process prerequisites. The greater the number of locations and
traditional telecommunications products such as telephone business partners a company has, the more the open network
calls, fax services, and voice mails available in virtualized, i.e., opportunities offered by cloud computing can be exploited. The
web-based, form. The advantage for the user is that they then introduction of flexible working hours and workplace regula-
only need Internet access to have access to all means of commu- tions in the company may also make a change to cloud-based
nications. infrastructures and applications worthwhile.

These services can be sold by the network operators themselves. Fast-growing and very young companies can profit from the
However, another variant is far more interesting: making pro- scalability of web-based cloud services. The utilization of cloud
gramming interfaces (APIs) available to third-party providers computing is highly recommended in these cases because the
(independent software vendors = ISVs) so that they can develop solutions can also grow in the event that staff numbers increase
their own cloud applications on the basis of the virtual tele- by leaps and bounds. In the case of larger companies, which
communications product. An online market place serves as a are growing more slowly, the project mentality of the company
sales platform to offer these services to any customer. Part of can be decisive. If large projects are frequently conducted in the
the utilization fees would be retained by the provider as com- company, e.g., during product launches or corporate mergers,
pensation. Any operator who can gather a large community of cloud services can offer the flexibility required to provide infra-
developers on their platform would then have a competitive ad- structures and applications in line with needs.
vantage over other network operators. BT is blazing the trail
here as well: in mid 2008, the company purchased the Silicon One of the most important questions, also from a technical-ope-
Valley startup Ribbit, acquiring a technology which enables the rational perspective, is that of data security. Adequate encryption
seamless integration of voice communications into any Web of the stored data, redundant data storage, and regular backups
site. The “Ribbit Developer Platform” gives developers the tools should be ensured. The question of who is responsible when
they need to establish their own services on the foundations of important data are lost, and how legal problems related to the
the BT infrastructure. storage of data across national borders can be avoided should be
clarified in advance with the provider.

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If cost savings are the main argument for the implementation New target groups such as very small companies and start-ups,
of cloud computing in a company, compatibility aspects play for whom the one-off acquisition costs of a software program or
a major and twofold role. For one, the interaction of the cloud a server infrastructure were previously prohibitive, can now be
service with the company’s existing ICT infrastructure must be won over as new customers with the flexible, demand-oriented
checked. Secondly, the compatibility of the services with one billing methods of cloud computing. From the viewpoint of
another when a number of cloud services from different provi- specialized cloud providers, there is an opportunity to realize
ders are used should be examined. Only a clear understanding scaling effects when providing their services. The business model
of the big picture of the application architecture ensures the becomes especially lucrative, as shown in the example of the
interaction of the individual parts and consequently the cost- Amazon services EC2 and S2, when it involves resources which
efficient implementation. have to be maintained for the company’s own business purposes
anyway. Cloud computing can in this case result in better utili-
As more and more services in the company come from the zation of capacities in one’s own infrastructure.
cloud, its dependency on cloud providers will grow, another
reason why a close look should be taken at the situation in ad- Users of cloud products will, initially, go to the cloud primarily
vance. Many cloud computing providers offer test phases over for applications (software as a service) which do not require
a number of weeks during which the services can be tried free deep integration into their own corporate processes, databases,
of charge. Users should take advantage of this phase to compare and IT environment. Nevertheless, they will expect guaranteed
the operation of the systems as well as their technical compa- service levels and compliance declarations concerning the hand-
tibility: the more similar the local and cloud variants are, the ling of corporate data for these applications as well.
more easily the affected employees will be able to make the tran-
sition between them. Additional evaluation criteria include the During a second phase, the main objective of the cloud provi-
reputation and reliability of the cloud provider. In particular, ders will be to increase their own “share of the wallet”. This will
cloud services bearing the label “beta version” in their title are be possible for those providers who are able to expand their ser-
frequently not yet suitable for professional use in companies. vice portfolio and to realize even complex integration projects in
If, on the other hand, mature cloud services are used, it is most their customers’ corporate architectures. An increasing number
probable that companies will already be able to profit from the of specialized providers will form at the various stages of the
numerous benefits which cloud computing offers. value chain, and they, just as their customers, will be confronted
with the decision to “build, buy, or partner” when creating their
Recommendations for cloud providers services. This means that it will become critical to the success
of the providers of “higher quality” services that they design an
The changes in user requirements such as greater dynamism, attractive product portfolio and achieve an optimal cost struc-
rising cost pressure and, above all, the new technological possi- ture. Successful partner management is certainly one of the key
bilities in the form of increasing virtualization which can result qualifications.
from cloud computing make it possible for cloud providers
to address new target groups and to serve their existing target The patterns which were described previously primarily for IT
groups better. services also have direct relevance for the operators of communi-

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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

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