If someone told you that you could drop your operating costs by 40 percent, would you listen? If that same person said you could you save between $70 and $150 per user per year in energy savings alone if you tried something new, would you try it?
A lot of companies are listening, and those same businesses are trying something new — cloud computing and software as a service (SaaS) — and reaping the many benefits, which start with the aforementioned cost savings.
“From a cost perspective, it’s low-risk,” says Adam Caplan, founder and CEO of Chicago-based Model Metrics, a cloud-computing services firm. “You don’t have to pay monstrous upfront payments. It’s success-base as you go — you pay per user for cloud applications.”
With a model like that, it’s easy to save money, which is one of the biggest appeals of cloud technologies.
“There’s a tremendous amount of money to be saved because if you look at IT budgets, nearly 80 percent of that budget, in many cases, is spent just to keep the lights on, which means the other 20 percent is the only money that’s actually able to be used to implement new technologies into the model,” says Jeff McNaught, chief marketing officer at Wyse Technology.
McNaught’s company builds a device that replaces the PC and connects you to the cloud. The device doesn’t make a lot of noise, but more importantly, it doesn’t cost a lot of money.
“When you look at cloud computing, operating expenses can drop by about 40 percent a year, and that’s real money,” he says. “These devices use one-tenth of the energy of the PCs. Now you’re really talking about saving real money.”
How cloud works
So the idea of saving that much money has caught your attention, and now you may be asking, “What exactly is this whole cloud computing thing anyway?”
Caplan says the biggest idea to grasp is that cloud technology allows you to approach business differently.
“The biggest change is for the first time, businesses can roll out applications and know that they’ll be extremely successful with these applications,” he says. “If you look in the past, the chance of success was so low. Companies spent a lot of money, they spent a lot of time, and now they’re going to be successful.”
The reason for that is the way this technology changes what you’re currently doing.
Dave Hitz is the co-founder and executive vice president of NetApp, a company that sells enormous amounts of storage to people that need it. For example, Yahoo stores all of its e-mail accounts on his equipment, and the special effects for “Avatar” were stored on his equipment, as well. He sees two different definitions of cloud computing.
“Definition No. 1 of cloud computing is you no longer buy a computer,” Hitz says. “You access computing service over the Internet to somebody else’s data centers, and they spend the capital and they hire the people to build them and they do everything, and all you do is pay a monthly bill and access the service over the Internet. Style No. 2 of cloud computing is a completely technical definition (that) has to do with if you’re going to build a data center, what does the architecture look like? And if the architecture has a lot of shared infrastructure, then people tend to call that kind of environment a cloud computing environment.”
His first definition is another benefit to cloud because it eliminates many IT headaches because, being honest, how often do you have an overly positive IT experience?
“I imagine people would say they’re experience with IT has been less than optimum,” says John Dillon, CEO of Engine Yard Inc., a company that delivers an environment for software developers to write programs that run inside the cloud. “The reason is you spend so much money building all this infrastructure, that going the last mile, which is where you write the application that interfaces with the human, the user, doesn’t get the attention, doesn’t get the money and doesn’t get the investment.”
The idea of the cloud is essentially that you plug into the wall, and you get a whole data center.
“It’s IT as a service, just as you get electricity or water,” Dillon says. “In business, you, in most cases, don’t have your own power plant, you didn’t dig your own well, you didn’t build your own building, you don’t have your own fire department or police department. So why on earth do we basically give power to a group to build something that has been built before in-house, and then hope it works?”
Dillon also points out that in the United States, capital expenditures are a huge expense. In fact, about 50 percent of capital expenditures in America are information technology.
“Unbelievable,” Dillon says. “How many people are getting the ROI on this? What’s happening with the cloud is some big companies are saying, ‘Look, I’ll build the data center.’ It’s changing who buys, why it’s bought, and it changes the capacity and the economic decision-making process around IT.”
When you look at how much money most organizations spend on their IT systems, these cost savings are a big driver, but another benefit is cloud makes your IT department more effective in the company.
“The real power that CIOs are finding is that they go from worrying about managing data centers and managing servers and the non-strategic things their teams are focused on, and they love this stuff because after this, they’re focused on strategic initiatives that drive revenue growth,” Caplan says. “They’re actually contributing in a real way to revenue growth and cost reductions and not just focusing on the servers are out.”
A lot of times, your CIO may wonder if this means you’ll need to reduce the IT department staff size, but Caplan says that’s rarely the case.
“Usually, you have the old line, ‘I’m very scared of change,’” Caplan says. “And all my people in IT, their job is to make sure the servers don’t go down, to make sure the e-mail works. Their job is to reset passwords and worry about the lights. There’s sometimes fears if you don’t have to worry about that stuff anymore — that stuff just works, and you don’t have to worry about it — what will happen to my team? Will my team shrink? Almost every time, the answer is no. The team just morphs into a far more strategic team. They can get more active in the business on cool applications that drive the business forward.”
Another benefit is that now have everything that is on your PC in one location that can be accessed from anywhere — not just from the PC itself — and that comes with benefits in and of itself.
“When you take your software and your applications and your data and you move it to the cloud, something’s happened,” McNaught says. “First off, the cloud is the data center of your company and you can always get to it. You’re connected to the Internet, so you can get there from home, from the conference center, from the airport. And guess what? Because it’s not on a PC with a hard drive failing and memory getting filled up, it’s protected. It’s backed up. It’s secure. So the cloud provides this real opportunity to take the things that make up our work life, and within five years our home life, as well, and move them to this one place where we can always find our stuff.”
The evolution of cloud
Experts agree that cloud computing is pretty amazing, but it’s not a new concept.
“Looking at best practices, this stuff isn’t new anymore,” Caplan says. “We’re in year eight now. Salesforce has been around since 1999. Amazon Web Services, Google — whether you’re using their technology, none of them are brand new, so there are a lot of best practices to learn from.”
So if this isn’t new, it’s interesting to look at how cloud has developed and how it’s changing business. Dillon is amazed by cloud computing, and it’s hard to disagree with him.
“This cloud thing is the biggest thing that’s happened in technology since the IBM computer, and that’s pretty big, and at least as big as the Internet in terms of economic disruption, because it changes how and where we do our computing,” Dillon says.
He says to go back a few years and remember how every small and midsized business had a room with computers in it and maybe a server or two.
“As businesspeople, you probably didn’t understand what they were for, but you knew they were important and you wrote checks,” he says. “It was hard to be good at that, because you had a business to run, and presumably you were an expert at that business, and you used technology to be good at that business or best at that business, so it was a necessary evil.”
Over the last 10 to 15 years, a variety of things happened that became game changers. First, we got the Internet.
“Everybody is connected — not just a few people are connected — and we’re connected not just inside our companies but outside our companies,” Dillon says.
Second, access became ubiquitous with the advent of cell phones, BlackBerrys, iPhones and laptops.
Then access got cheap — almost free. It doesn’t cost you anything to go to Google and look up any information that you want.
“You think about that perfect storm that happened — we’re having an explosion,” Dillon says.
McNaught would add another element to that perfect storm — the PC itself. He asks how many people really love their PC with its bulk, weight and the fact that if you drop it, it’s useless. He says the data indicates that PC market share, which is about 94 percent now, will drop over the next decade to about 10 percent.
“It’s not because less PCs will be sold — maybe a few less, but it will lose its role as the core device we use to access our stuff,” he says “You’ll see this huge proliferation has already started with tablets and mobile devices and mobile phones and the mobile Internet exploding now. The question becomes, how do I access my stuff? How do I access it securely? And how do I access it at the lowest cost?”
These are questions that most people would agree are incredibly important. In fact, these questions are reasons why cloud hasn’t been successful in the past.
“This had been tried before and it’s failed, because there were two things we couldn’t get right as an industry,” McNaught says. “Early on, we couldn’t make all the software that was important to your business work reliably. We walked into the hospital and the hospital says, ‘We have 400 applications, we can only make 350 work on the cloud. Where are the other 50 we need to execute?’”
The other factor was user experience.
“If you get, from the cloud, an experience that is the slightest bit less robust than the experience you get at home or the office today, what are you going to do?” McNaught says. “You’re going to go beat the living daylights out of the IT guy who suggested the cloud.”
But now, the technologies have changed, and these two pieces have largely been addressed. On top of that, security is stronger than with a PC, and that’s why companies large and small are now using the cloud.
“There’s an adage in the IT industry that when you introduce a technology that reduces costs, you’re giving up benefits, and if you introduce a technology that gives you big benefits, it costs you a fortune,” McNaught says. “The thing about cloud computing is that it fires on both cylinders — it reduces costs dramatically and delivers incremental benefits that you don’t get with the current model.”
How cloud can affect you
You may read this and think how great it all sounds and see how important cloud is to the future of business. But if you’re not ready to jump on the bandwagon, Caplan would caution you to rethink your position.
“With other companies rapidly implementing these, if you’re not doing it, it’s turning from a competitive advantage to, for those laggards to moving into the cloud, definitely a competitive disadvantage,” he says. “Just to keep up is critical.”
You may wonder why this particular technology is so critical to business. Hitz says this is similar to other major technology game-changers in the past.
“I’ve had the opportunity to ask a lot of CIOs, ‘How is cloud computing affecting your business? How much cloud computing are you using?’” he says. “The most common answer I get is, ‘It doesn’t affect our business at all yet, and we’re not using it at all yet.’ I will tell you that almost all those CIOs are wrong. They’re already using it but not thinking right.”
He say that CIOs need to think differently and compares it to the early days of the transition from the mainframe to the PC. In those days, if you asked a CIO if they had a PC strategy, many said, “Oh no, that’s not part of what we’re doing,” but half the employees had PCs.
“When data started leaking out the door because somebody lost their PC, who do you think the CEO went to beat up?” Hitz says. “The CIO, and the CIO said, ‘Well, PCs aren’t really IT.’ Those are the CIOs that are gone. I predict the exact same thing is going to happen to the CIOs who think that cloud computing isn’t happening in their business. … There’s an enormous amount of work that CIOs need to start thinking about — how do I get my arms around all the cloud contracts that are being found in little places scattered around.
“It’s affecting a lot more than people are realizing, because they’re not defining it broadly enough. If they look at that broader definition, the stuff they’re already sort of doing or in denial about, that stuff is a pretty good road map to where the future is headed, just more.”
Not only is it affecting how your business will run, but it’s also going to change how new companies enter the market. Brian Jacobs is founder and general partner of Emergence Capital Partners, a Silicon Valley-based venture capital firm.
“Silicon Valley is very much a startup culture — there’s always something starting up here, and it’s important to note that cloud computing also changes the economics of a startup,” Jacobs says. “A startup today doesn’t need as much capital to get going because of cloud computing. A developer, who could be an independent contractor, an engineer who’s working at a day job and at night has a new product he wants to develop — he can log in to a platform as a service like Engine Yard, and they can start developing their product without a single dollar of investment. They can work for free developing the product until they’re at the point they can introduce it to the market.”
Aside from all the ways that cloud computing will change business, it’s also changing how employees approach their jobs. While people can work from home in their pajamas, it’s often difficult, and in many cases, employees don’t have access to everything that they could if they were on their PC actually in the office.
“Cloud computing lets you access your work environment, and you’re on your couch — maybe in your pajamas — and you’re doing real e-mail and doing real work, and yeah, maybe your boss is getting a little more work out of you, but you’re doing it, quite honestly, voluntarily because you get to work in your environment, you’re not in the office, you’re not sitting in front of the computer in the office and you probably have better TV shows on,” McNaught says. “The technology that cloud computing provides is about saving cost and delivering additional benefits.”
To give you a real example, Hilton Hotels decided to close their physical reservation centers and send all of their reservationists home with these devices that connected them securely to the Hilton system.
“What Hilton found was they could close all those buildings and save those costs of real estate, and they saved all the energy costs of running the PCs in the buildings, and they found the employees were happier, because they were working from home — maybe in their pajamas but nobody could tell. They were working over secure devices, so Hilton didn’t lose any data, and they were working over a device that didn’t have the complexity of the PC, so they weren’t calling the IT staff out to their homes to fix this,” McNaught says. “Cloud computing allowed Hilton to save money in so many ways that satisfaction increased, and they found that people working at home would take a lower pay. They saved on all sorts of fronts. Cloud computing has a transformative effect on all kinds of business.”
On top of that, Caplan says that cloud has the ability to raise employee morale even if you’re not sending them home to work.
“Put aside the adoption and cost benefits, and I think what you’ll find is your team just loves these applications because they’re used to dealing with consumer-based applications,” Caplan says. “They all know how to use Google, Facebook, Amazon. You’re basically equipping them with applications that are just as easy to use as those, and I think you get a ton of employee loyalty and you make your employees so much more efficient that from a recruiting perspective and a retention perspective and from efficiency, there’s just huge value.”