The idea of running your business applications in the ‘Cloud’ i.e. on a remote server somewhere in the world wide web is rapidly gaining acceptance. The convenience of handing the technology over to another organisation, the ability to contain costs and the improved reliability of broadband infrastructure are just some of the reasons why cloud computing is looking a more attractive proposition. In fact most business and accounting vendors will claim to offer end users the choice of “on-premises” or hosted applications. As the economy becomes more murky, Gary Simon, FSN’s managing editor examines why cloud computing holds fresh appeal.
According to some mid-market vendors of business software cloud computing is becoming quite significant. Tony Crowter, Managing Director, of Technology Management, a mid-market reseller and consultancy for Microsoft Dynamics and Pegasus has been surprised by the rapid uptake in hosted solutions. He told FSN, “We started investing in hosted solutions capability about 18 months ago but our expectations of the market are very different from what happened in practice.”
For a start Crowter found himself working out most of the solutions for himself. “We were surprised to be pioneering and navigating uncharted waters – nobody else seemed to be offering Microsoft Dynamics (specifically Navision) applications as hosted solutions.” But once Crowter had worked out the ‘nuts and bolts’ of service provision and the pricing model, he was surprised at the uptake and customer reaction.
“We were a traditional on-premises company so we were expecting around 20 percent of new business to be hosted. What we found was that 50 percent of our new projects went into the cloud and customers who have done it absolutely love the results,” he adds.
The notion that that cloud computing is somehow easier to implement – a message often encouraged by a rapidly mushrooming industry of new vendors that offer pre-canned hosted solutions is quite misleading.
“What you are doing in cloud computing is offering a technology choice. It doesn’t change the consulting or implementation approach,” says Crowter.
It’s a view which resonates with Stuart Dawson, MD of the Accounting and Business Solutions Division at the IRIS Group. He told FSN that hosted solutions don’t suit every organisation but depend on the business need which is why IRIS Group, like Crowter’s company Technology Management focus on domain expertise and industry knowledge rather than the technology.
“I don’t see the difference between on-premise and hosted solutions other than the back end,” chimes Crowter. “It makes no difference to the business process and getting the right process takes just as long as it ever did,” he adds.
“The advantage is that that you can build resiliency in the cloud at a level that most companies simply could not afford and you don’t have to tie up valuable IT resources [if you’ve got them] in operating and maintaining business applications.”
Crowter struggles to find a pattern in the types of companies going for hosted solutions. “It’s everybody because most companies are happy to rely on broadband communications. Perhaps there are one or two companies in manufacturing or retail that may still be reluctant to risk even 30 minutes downtime.”
According to Crowter, cloud computing is the biggest shift in IT for 20 years, even bigger that the change from green screens to a GUI (windows style) interface. “It has shaken the market up from both a technology and commercial point of view. Customers don’t have to spend £60,000 to £70,000 upfront on a Navision system but they do have to spend on consultancy and training,” he says, “and this is why the market is not going to become commoditised.”
This may be bad news for the new hosted solutions providers entering the market who want everything to be neatly packaged because that fits their business model. What Crowther is finding is that companies still want customisation. “The idea that SAP with SAP by Design or Microsoft are going to run business applications on huge server farms somewhere in the stratosphere is looking less and less likely.”
But it is not only mid-market companies that are benefiting from the change. Large companies with resource hungry applications are also turning to hosted solutions. David Mitchell, SVP IT research at Ovum, the analyst, sees Cloud computing as an enabler of High Performance Applications (HPC). “HPC is becoming more mainstream”, he says. “HPC was once available only to the scientific community, and the ‘quants’ in the financial services industry. It required specific custom development to be able to take advantage of multiple processors and multiple computers. Facilities cost millions of dollars and were extremely costly and time consuming to create. Nowadays the supercomputer market is much more approachable.”
“HPC is also being driven by the increased volume of data becoming available and desire from business to be able to generate insight from that data. Data is increasingly becoming available from core transactional systems, as well as the huge volumes of sensor-based computing such as satellite imagery, GPS data or RFID. Huge volumes of computing resources and sophisticated analysis tolls are needed to try to extract business insight from these data sources.”
But there are business risks in cloud computing. “There are a lot of cloud computing providers coming on-stream but there are few facilities that allow the cloud computing consumer to quickly change their providers,” adds Mitchell.
John Buyers, Partner, Head of Commercial Outsourcing and Technology at city law firm Stephenson Harwood, has some words of caution. He told FSN, “The distributed nature of cloud computing is where the risk is. You have to be clear that your software licensing agreement allows applications to be transferred to a cloud provider.”
“The other headline concern is around the remoteness of the provider. Is it complying with the Data Protection Act, are there suitable restrictions on the use of confidential data and are there appropriate and tested disaster recovery plans,” he adds.
Reflecting the feeding frenzy of new entrants to the cloud computing market, Buyers urges his clients to do their due diligence carefully. “If the provider is offering a pay-as-you- go model then they are living form hand to mouth and very susceptible to a downturn. You need to have specific provisions around what happens in insolvency, for example what would happen to your intellectual property, how do you get your data and applications back and so on,” he told FSN.
So there is a certain irony in the market. The very economic conditions that make cloud computing attractive could also represent the largest risk. But looking beyond the short term, cloud computing looks as though it is here to stay. Hiving off the technology looks seductive for those companies that want and need to concentrate on their core competencies.
