Impact of Cloud Computing Technologies in small scale enterprises & the strategic and technological benefits it derive out of it.
Cloud computing has been a disruptive innovation in recent years and has taken the headlines to displace many of the established traditional computational methodologies in a short period of time. The utility model of computing which makes the information technology services similar to electricity and water has invoked the focus and attention of the researchers and practitioners. This article will investigate the technical aspects of cloud computing and the strategic and competitive advantage that it brings to a firm in startup and small/medium scale enterprise. Although many have criticized this techno-business model due to the concerns on security, privacy and governance, recent events prove that more entrants, including the existing corporate leaders in the industry, are getting into the cloud and making their presence felt to the end customers. Cloud computing has proved to be a disruptive innovation on its own in recent years, it is yet to clear the test of time of it being a sustaining technology. It is up to the scholars and practitioners to determine and put into test of time and make use of this technology in the growth of other disciplines.
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Cloud computing is the mode of executing the IT services in an elastic manner to the end users and providing a metered service at multiple granularities for a specified quality of service. Gartner defines cloud computing as “a style of computing where massively scalable IT-related capabilities are provided ‘as a service’ using Internet technologies to multiple external customers”. While Forrester says “Cloud computing is a new IT outsourcing model that doesn’t yet meet the criteria of enterprise IT and isn’t supported by most of the key corporate vendors. It’s wildly popular with startups, exactly fits the way small businesses like to buy things, and has the potential to completely upend IT as we know it.”
From 1984 to 2008 the number of internet connected devices went from one thousand to one billion. Can the data deluge which the digital world is facing in this exponential time be effectively managed using cloudThe redundant data which resides on multiple devices might get consolidated and a single point of data source somewhere in cloud could be a solution (The Economist, 2009).
On the one hand, cloud looks into exploiting existing technology; there is nothing new as it uses the established processes, concepts and approaches. On the other hand it is new because it has revolutionised the way we host and cater the service to the customer. The famous Gartner hype curve has been hailing Cloud Computing as the most hyped technology in their last two years projections.
Disillusionment and frustration towards the technology has been increasing, especially with the theories on productivity paradox from Solow (1987). Disruptive Innovation is a term coined by Proffessor Clayton Christensen, and according to him it is “the process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors.”
A disruptive technology can come to dominate an existing market by either filling a role in a new market that the older technology could not fill (this is similar to the what the cheaper, lower capacity but smaller-sized flash memory is doing for personal data storage in the 2000s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has largely replaced film photography) (Christensen 1997).
In the following sections I will go through the potential strategic benefits that firms have derived out of cloud computing and later on the typical challenges and problems involved in the implementation. I will also cite the role of cloud computing technology in the emerging markets and start-ups especially in the small and medium scale enterprises in giving a competitive advantage over the traditional methods.
Technologies used within Cloud computing
The general classification of the cloud computing forms are IAAS (Infrastructure as a Service), PAAS(Platform as a Service), and SAAS(Software as a Service).
‘Cloud Infrastructure as a Service,’ which is also called Resource Clouds, provides the infrastructure resources as services to the end user. Virtualization of the server is the main technology used in this service by the providers. Cloud providers in this domain cater access to storage and data of various size and quality adhering to certain service level agreement.
Examples: Amazon S3, SQL Azure
‘Cloud Platform as a Service’ (PAAS) provide computational resources via a platform upon which applications and services can be developed and hosted. PAAS makes use of application platform interfaces to control and manage the virtual server which would be allocated to the user.
Examples: Force.com, Google App Engine, Windows Azure (Platform).
(Clouds) Software as a Service (SAAS), also known as Service or Application Clouds offers the implementation of specific business functions and business processes which are provided with specific cloud capabilities, i.e. they provide applications/services using a cloud infrastructure or platform, rather than providing them with cloud features. These applications generally reside over other cloud technologies like IAAS and PAAS.
Examples: Google Docs, Salesforce CRM, SAP Business by Design.
National Institute of Standards and Technology, the authority towards getting technical guidance and promoting standards onto cloud computing, proposes four types of deployment methods. These are: Public cloud, Private cloud, Community Cloud and Hybrid cloud (NIST). Public clouds or external clouds are the traditional web based services given over internet and billed as per the usage and metered for the services consumed. These sorts of clouds are the favorite amongst the start-ups and small/medium scale enterprises since it require minimum investment in the infrastructure.
Private clouds or internal clouds are designed and implemented internally to some organization with limited or no access to the external web. These clouds are supposed to be focused on data security, reliability and governance. Usually only the big corporations can afford to build and maintain such private clouds. The small/medium scale enterprises generally will not be able to bear the cost of technology and recourses to build them. Hybrid clouds, as the term describes, is made up of internal and external cloud components where in limited access to the external users are given while the data security and corporate governance features of private clouds are retained.
According to Willcocks (2004) maintenance budget crosses 40% of the total IT budget and it is usually overlooked during the initial phases of the development of IT system. Since the maintenance and providing the regular backup of the data are wholly the responsibilities of the cloud provider, the client firms can focus on their core capabilities and business area.
Cloud based applications can be considered to be centralised within organizational structure due to the consolidated servers and data, but it can also be viewed as a highly decentralised system because of its agility and flexibility on the location and usability (Mintzberg, 1983).
The degree of collaboration has grown considerably among the developers and users with the advent of cloud applications which are mainly web based. The developers can deploy and configure the virtual infrastructure platforms for their applications with a few mouse clicks, which displays the transformation from encounter to a relationship through constant interaction.
The idea of running the applications anywhere in the ‘cloud’ not knowing or care to know where they are is not a concern to the web application users since the concept of website does exactly the same. But the big difference is for the application developers and IT operations team. Since these processes have been simplified and more middle layers have been introduced, even they can develop, run applications and grow the capacity instantly without being concerned about the location underlying infrastructure.
Impact of Cloud computing on the SMBs and Start ups
Cloud computing has turned to be an enabler to the start-ups and small/medium scale enterprises. This new paradigm in information technology has helped entrepreneurs to set up the business and enterprises in a faster manner and grow quickly. The level of collaboration between the enterprises has also increased considerably when compared to the traditional methods.
The level of transparency in the utilization of the information technology resources in the cloud computing paradigm is comparatively higher than other models. The ‘charge back’ and ‘show back’ concepts are effective in comparing the outputs to the resources consumed. From an end-user perspective, there are two main features which creates substantial impact on the cloud provider and user:
Self provisioning and usage
Metered and control over usage
As mentioned above in IAAS and PAAS, users can plug and play with the resources as in the requirement arises and release the unwanted resources to be used by others when the demand goes down. At the same time users have the ability to monitor and meter the amount of resources consumed at point of time and plan for future based on the business outcomes. The idle time of the resources can be significantly reduced with this information being available to the user at a click away distance any time.
I will be describing the competitive advantage that a small start up got by adopting cloud based technology and how they were able to grow to be the market leaders in short time. The collective buying market was very immature around one year back in theUKand new entrants were struggling to establish themselves in this competitive environment. Mycitydeal was competing with a bunch of new start ups and those who had already established in certain locations. The online presence of Mycitydeal was primarily the website, which used to advertise the daily deals that they get from their sales team and the online ecommerce portal which would take orders and subscriptions. The firm did not invest much on the infrastructure for setting up the servers, databases and related services.
I had the opportunity to interview the Salesforce manager at the firm. Also numerous stories of competitive advantage derived due to the adoption of cloud based CRM are listed in Salesforce case study on startups (2010).
The customer relationships were handled through Salesforce.com. Salesforce.com is a cloud based service provider which falls under the category of Software as a Service. The company had to pay only for the user’s licenses they purchased and used. Usually 40% of the software products purchased in the traditional companies are kept unused and termed as shelf-wares. The firm could be certain that they have not invested in any information technology product or services that they are not using at that moment of time, and thereby saving on the capital cost.
The fluctuating users and customers were an obstacle for the management to tackle initially until they got their servers from Rackspace.com. The cloud service provider Rackspace.com caters servers to the customers and server space based on demand. This service falls under the cloud portfolio of Platform as a Service. Through this service provider, server space can be scaled to terabytes of data space within short period of time, which would have taken a big project to install and maintain such servers in the traditional way.
The elasticity of these services is pivotal in the successful adoption within a firm. As the demand goes down during the off-peak season, servers can be cut down and freed back to the pool of the service provider. This gives more control over the operational expenditure of the clients. Procurement of the new hardware and computational power is no-longer the responsibility of the client; the metered services from the vendor would take care of them.
All these cloud service providers give the ability to monitor the services we consume and, thereby, enable us to plan for the future projections. The statistics that can be derived out the usage patterns from the historical usage data is another added value from the cloud which the traditional method would cost extra. Business strategies can be derived out of these statistical reports which would directly reflect market response and acceptance of the product/service by the end user.
All these features of the cloud services helped Mycitydeal to concentrate on their core capability of collective buying business knowledge. The whole of the IT infrastructure could be managed by an average information technology literate employee and did not have to recruit many technically skilled costly employees. From the vendor perspective, they need to reserve very few resources since they will be servicing multiple clients being catered from the same server database.
These advantages paid off Mycitydeal eventually by growing into theUK’s leading collective buying firm, having a customer base of one million within six months of their launch. The quick reactive decision making capability which is given by cloud technology makes it unique unlike the traditional decision making methodologies which are of proactive nature
While industry has been in all praise to this new technology paradigm, there have been criticisms from different corners on the data protection, security and performance predictability. Even though transparency is assured in every minute detail, cloud demands a considerable trust between the service providers and end users. While it has become obvious that the cloud computing technology is a disruptive innovation in nature, it has to pass the test of time to prove it is a sustaining technology.
Discussions and Recommendations
According to Nicholas Carr, IT has started to become less prominent and mattered less to the competitive edge. History reveals that IT needs to become ordinary:“[it] needs to lose its strategic importance as a differentiator among the companies so as to fulfill its potential” (Carr 2004). From the vendors perspective, cloud computing has proved to be disruptive in nature and a substitute for the own-hosted hardware infrastructure. This has posed a serious threat to the established firms who were market leaders in the traditional server business. These players are increasingly getting into cloud domain and have started to provide cloud services to the customers. The entry of Amazon, Rackspace, IBM, HP and the latest Oracle announcing its incoming into cloud domain depicts the relevance of cloud and the business opportunities it is offering to the service providers (CIO.com, 2009). IDC forecast for cloud related market is estimated to be $11 Billion by 2014 which shows the focus and resources the cloud service providers have invested.
The concept of application being run anywhere in the cloud and not concerned about the infrastructure is not new to many of the application developers and software engineers. But for the entrepreneurs, the cloud computing paradigm has given the same opportunity and capability so that they can concentrate on their core capabilities and use information technology as an enabler to achieve their business goal. It is time which will prove the sustainability of the cloud computing and related services. Also, it has been proved beyond debate that this disruptive innovation is capable of giving the startup and small/medium scale enterprises a competitive advantage in the business against the traditional methodologies. However, it is up to the researchers and practitioners to find and decide if cloud computing can be used as an innovate medium in other disciplines and practices.
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Forrester, (2008), “Is Cloud Computing Ready For The Enterprise?” http://www.forrester.com/rb/Research/is_cloud_computing_ready_for_enterprise/q/id/44229/t/2.
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NIST (2010) http://www.nist.gov/itl/csd/cloud_060910.cfm
Gartner (2009) Press Release: http://www.gartner.com/it/page.jsp?id=920712
Sales force case study on startups https://www.salesforce.com/au/smallbusinesscenter/?d=70130000000Fop0&internal=true
Willcocks, L. P., (2004), “Offshore, onshore: are you sure?” Information economics journal 1(3)
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