College of Business: University of Illinois at Urbana-Champaign

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Shaw and Subramanyam on Cloud Computing


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[Reprinted from PerspectivesSpring 2011]

When meteorologists forecast increasing clouds, it's time to pull out the umbrella. When information technology professionals predict the same thing, a whole different kind of storm is brewing.

Cloud computing is a booming business, one that you've likely engaged in, even if you've never heard of it. The Internet is the "cloud," and the ability to store, share, and access information and services is the "computing." If you've posted on Facebook, tweeted on Twitter, downloaded videos on YouTube, uploaded photos on Flickr, reviewed books on Amazon, or listened to music on Pandora, you've used the cloud. As the technology and the capabilities of cloud computing continue to gain widespread acceptance, it is raising lots of opportunities and lots of questions. And with the worldwide market for cloud services currently estimated at $160 billion per year, it's raising lots of eyebrows, too.

Cloud Power

For consumers, the cloud represents easy and cheap access to information—and lots of it. For small- and medium-sized businesses, there can be similar benefits. Instead of buying all the computers to process and store their company's data and then paying staff to maintain that technology, businesses can turn to large-scale data centers to do it for them remotely—that is, using the cloud. That means no big investments in information technology, no waiting for the equipment to be delivered, set up, and tested, and no salary expenses for monitoring or maintaining it. Instead, one business contracts with a second to provide the computing storage and services for them on a pay-as-you-go basis. Essentially, that second company has put the infrastructure in place to provide the power, and the first company taps into it to get, and pay for, just the amount they need.

Where people once had to build their own fires to heat their homes or go to the well to get their own water, they now turn up the furnace or turn on the faucet, tapping into the power grid that's been established. The principle behind cloud computing is much the same.

Michael Shaw

"With the cloud, we're moving to an era where computer power is more like using a utility," says Michael Shaw, professor of business administration and the Leonard C. and Mary Lou Hoeft Chair of Information Systems. "You no longer have to put a complete information technology system in place to start a new business. You can connect to an existing system, get access to state-of-the-art technology, and the cost you incur is more proportional to your consumption. For entrepreneurs, that can be the difference between a successful venture and one that never gets off the ground."

Ramanath Subramanyam

Ramanath Subramanyam, assistant professor of business administration, calls cloud computing "a great leveler, because it allows smaller enterprises to get up and running in a very short period of time at a factor that's likely ten times less than if they set up their own system. You get cost effectiveness and time efficiencies and state-of-the-art computing power, which really levels the playing field."

For larger enterprises, cloud computing can provide the same benefits—and, in some cases, it can represent an even greater business opportunity, especially for those who have the vision and make the investment necessary to be the utility that smaller companies plug into. It's an opportunity that many companies are betting on.

Consider Google. Collecting and processing all the information needed to create a reliable, efficient mega search engine is a monumental task that requires massive computing capacity and storage. However, once the infrastructure is in place, that capacity can be used for more than its original intent. In this case, the excess computing power can be offered to others as a service that's paid for depending upon how much you need and use.

"One way of viewing it," says Roy Campbell, professor of computer science at ILLINOIS, "is you can buy a warehouse and fill it up with electronic gear, provide a network, and with few people needed to run it, you can use the same massive parallel processing capabilities in place for your own business to provide a service for others. You can schedule it and provision it very economically, which allows you to run a business where people come to you for their infrastructure at a low cost. Cloud computing has allowed for the commoditization of providing services and economies of scale that can be passed on to users."

It's that aspect of the technology—that is, cloud computing as a service—that provides a company like Intelestream, founded by ILLINOIS alumnus Jason Green, with exceptional opportunities to grow. One aspect of the company's business is intelecrm, a Customer Relationship Management (CRM) tool. Intelestream's cloud edition of this product allows "companies of all sizes to manage their business simply and from anywhere using the company's proprietary cloud offering," says Green, a 2002 business administration graduate. "Cloud computing eliminates complication, saves money, automates upgrades, and let's our customers concentrate on their core business. They have quick deployment, they don't have to worry about an in-house IT department, and they pay only for what they use."

Taking Business by Storm

With cloud computing offering convenience, cost savings, and efficiency, why isn't everyone using it?

For many businesses, it's a question of whether you are compromising the safety of your data for the convenience of the cloud. "When you rely on a third party to store and process your data, you have to be more concerned about security," says Shaw. "Your control becomes indirect instead of direct, and some businesses aren't comfortable with that."

Green believes some of that is changing, especially in ventures like his that are run by young entrepreneurs. "Those who are under 40, and especially those under 30, are accustomed to having their information on email or Facebook. They're used to it being stored somewhere else, like Google Docs. That proliferation and acceptance will continue. It's just a natural evolution."

But that evolution—as natural as it may be—doesn't eliminate the need for caution. According to Subramanyam, the concerns about security, regulation, jurisdiction, and other legal issues are important decision drivers. "If you're going to be in the cloud, you really must be prepared to thoroughly read, understand, and negotiate your service level agreement with the cloud provider. You have to be aware of the issues and craft an agreement that protects your interests."

At the same time, Subramanyam believes that many providers are proactive in addressing these serious, thorny issues and that consumers are less intimidated by the technology. "The free tier is dominating so much of the consumer space in sites like Facebook, LinkedIn, and YouTube that the public is becoming more comfortable with the cloud. The problem is they don't necessarily think about where the information is stored or how it's delivered to them, they just know they have easy access to it. It's important that consumers don't let their comfort level with the technology lull them into assuming that everything is okay. They need to ask lots of questions and feel comfortable with the answers they receive."

While small- and medium-sized businesses are jumping into the cloud, larger companies are just sticking their toes in. Only about 30 percent of companies with more than 1,000 employees have started using cloud computing. Some of the same control, security, and legal issues drive their decisions, as do concerns about maintaining the integrity of highly sensitive data or intellectual property, ensuring the predictability of service and a process for dealing with service failures, and verifying that the costs for the cloud truly would be lower than maintaining on-site IT.

Hey, Hey, You, You, Get Off My Cloud

The growing popularity of mobile devices also contributes to the widespread need for and acceptance of cloud computing technology. "People want ubiquitous access to information," says Shaw. "They want to be able to connect from laptops, smartphones, even TV sets. The technology and the consumer continue to drive the trend toward the cloud and the opportunities to deliver service innovation by using it."

An interesting example of mobile technology, cloud computing, and service innovation coming together is occurring in an unlikely environment. In India, where only 7 percent of the population have access to the Internet and personal computers are an expensive luxury for many, a collaboration between IBM and an organization within India's Department of Labor is focused on helping millions of citizens access employment information. With mobile phones and services becoming increasingly reliable and affordable in India, the new cloud computing platform will allow job seekers and job providers to connect and share information about employment opportunities, searches, training, and trends, which opens the door for citizens to access vital government services from their phones. It's the type of partnership and technology that holds promise and opportunities in emerging economies around the world.

Does the focus on and acceptance of cloud computing and the growing reliance on mobile technology sound a death knell for the personal computer? Pew Research Center's fourth "Future of the Internet" survey of technology experts and stakeholders provides some answers, with 71 percent of respondents believing that by 2020 most people will be working from the cloud and in applications run from smartphones and 27 percent convinced that most innovative work will be run on and will develop from a PC operating system.

According to Shaw, it's likely that both will coexist in a hybrid form, with consumers getting more of their information from mobile devices and companies like Microsoft finding ways to integrate their products into the cloud computing trend. "There is a place for both the PC and the cloud. Rather than the desktop dying out, it's more likely that innovations will occur so that it can be used in new and improved ways together with remote technology of the cloud."

In much the same way, there's also a place for two kinds of clouds—private and public. When does it make sense for a business to get off the public cloud and establish a private one of their own? Campbell says it depends on how much you use it. "Businesses that currently use the cloud for 70 percent of their computing needs may be better off buying their own cloud rather than contracting with Amazon or another cloud provider," he says.

Shaw says private clouds are also appropriate for enterprises that handle proprietary information or that have research and development data that need to remain secure. While it might seem that such information would be better kept on a PC rather than a cloud—even a private one—Shaw explains that the private cloud allows for globalization. "For instance, an R&D unit of a company with offices on one continent can exchange information with offices in another country. The private cloud can facilitate collaboration and therefore innovation."

What Else is in the Forecast?

As legislators, regulators, and cloud providers find solutions that address the concerns of business, the market for cloud services will continue to grow. "The cloud has matured so much in the last five years," says Subramanyam. "It is a robust technology that will only become increasingly viable for more and more businesses."

What does that growth mean? In the United States, which has led the world in cloud computing innovation and adoption, it means opportunity—opportunity in terms of expanded markets, job and business creation, and new product and service innovation.

"Most of the leaders in the cloud computing field are U.S. companies," says Shaw. "We are probably a year ahead of Europe and the rest of the world in development and deployment of the technology."

The 2011 Cloud Dividend Report, released recently by Europe's Centre for Economics and Business Research, reveals that the European economy sees significant upside as cloud computing establishes itself across the continent. The report predicts that in the next five years this innovative technology could be responsible for creating more than 2 million jobs across the European Union and adding 177 billion euros to the economy.

How valid are such predictions? According to Shaw, it all depends on how businesses use the technology. "At the end of the day, whether cloud computing creates new jobs or increased productivity depends on business execution. Business executives need to understand the underlying technological opportunities to execute well, but it's not so much the technology that matters, it's the service that the technology allows you to provide. Blockbuster, or other businesses, could have survived if they had provided the services that their customers prefer. Cloud computing is looming to be one of the ongoing technological developments that provide major opportunities for service innovation."



More Than Rainy Day Savings

While the private sector is often first in implementing innovation, cloud computing is also gaining traction in the public sector. With the federal government spending nearly $76 billion every year on information technology and the number of federal data centers growing from 493 to 1,200 in the last decade, and many of those centers utilizing only 7 percent of their servers, cloud computing has the potential to increase government efficiency and save U.S. taxpayers lots of money. Darrell West of the Brookings Institution recently estimated that the government could realize savings of between 25 and 50 percent on its IT costs by moving to the cloud, which could translate into millions of dollars.

While Vivek Kundra, the nation's first federal chief information officer, isn't predicting specific savings, he is advocating significant adoption of cloud services by the federal government in his recently released "Cloud First" plan, which sets a goal of devoting 25 percent of all IT funding to cloud computing initiatives and establishes an 18-month timeline to evaluate progress toward that goal.

He says the migration to cloud computing holds promise for substantial benefits even beyond the cost savings potential, including increased efficiencies, ease of interface for the public, and more responsible energy usage. At a Brookings policy forum last year, he said the goal is "to create an environment where we can engage with the American people and provide services that are lower cost, help us cut waste, and actually move the government to focus on serving the American people rather than building yet another data center."



Why Are Our Heads in the Clouds?

79% of American adults use the cloud. Here's what they do online:

Activity % of internet users
Send or read e-mail: 94%
Use a search engine to find information: 87%
Check the weather: 81%
Get news: 75%
Buy a product: 72%
Watch a video-sharing site like YouTube or Google Video: 66%
Use an online social networking site like MySpace, Facebook,
or LinkedIn: 61%
Use online classified ads or sites like Craigslist: 53%
Upload photos to a website so you can share them with others online: 46%
Rate a product, service or person using an online rating system: 32%
Download a podcast so you can listen to it or view it later: 21%
Use Twitter or other status-update service: 17%
Download or share files using peer-to-peer file-sharing networks
like BitTorrent or LimeWire: 15%
Use an online dating website: 8%

Here's why that 79% of Americans use the cloud:

It's easy and convenient: 51%
Their data is accessible from any computer: 41%
It allows the flexibility to share information: 39%

Here's what worries them about cloud computing:

Their data being sold, exchanged, or otherwise compromised: 90%
Their photos or data becoming part of a marketing campaign: 80%
Their data being analyzed and used by marketers to target them: 68%

Source: Pew Internet & American Life Project Tracking surveys (May 2008 – May 2010).

UIUC College of Business