Fasten Your Seat Belts. Cloud Computing Will Change the Way You Do Business

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Credit card? Check. Browser? Check. Congratulations! You’re now cleared for take-off into the future of cloud computing.

Now you can rent virtually any IT resource as a service, and build custom applications, too. This so-called “cloud computing,” built on the success of the SaaS (Software-as-a-Service) industry, will reshape the software industry over the next decade, giving business leaders new options to build innovative, low-cost and customer-responsive operations.

Cloud computing is a pool of abstracted, highly scalable and managed compute infrastructure, capable of hosting end-user applications and billed by consumption.


—James Staten, Forrester Research

Of course, cloud computing includes SaaS for those organizations that want to “rent” an application via the web. But there’s much more. Another key option is PaaS (Platform-as-a-Service), which enables software developers to write custom code. And those who need the raw computing power or storage can access utility computing via the web, which some call IaaS (Infrastructure-as-a-Service).

Forrester Analyst James Staten says that “there’s momentum and excitement behind cloud computing”—something like what launched SaaS around 10 years ago. Investment firm William Blair & Company, in a July 2008 report, The Next Stage of Computing, says that cloud computing is a “tectonic shift” that will “fundamentally change the way software is developed and delivered, affecting the future of both hardware and software companies.” The analyst firm pegs the current market at about $11 billion, growing to $34 billion by 2012—a 33 percent compound annual growth rate. Furthermore, the report notes that cloud computing should enable IT to be more nimble and efficient so that, once again, IT can “play a more strategic role.”

A case in point is CRC Health Group, which offers a network of behavioral care services, serving about 30,000 people every day in the United States. The firm has used Salesforce.com for several years but had to customize it heavily to meet its unique CRM requirements, according to Jim Thompson, senior director of Internet marketing. But, it didn’t make much sense to pay for sales automation licenses, when what “they really wanted was to use the underlying system,” says Thompson. Now they can. Salesforce.com is leading the PaaS space by offering Force.com, which can be used independently by enterprises to deploy custom applications “in the cloud” and by software makers to get to market faster.

Platform wars ahead

Steve Lucas, the newly minted senior VP of salesforce.com’s PaaS marketing, is predictably bullish about the shift toward on-demand computing. Gartner and other analysts expect SaaS adoption to reach 25 percent or more of the software industry, and that means lots of developers writing lots of applications. They will all need a place to run their code, and few will have the resources to build their own SaaS infrastructure.

Lucas’ appointment, after his short stint at SAP and on-demand experience at Business Objects (acquired by SAP), signals salesforce.com CEO Marc Benioff’s intent to keep and build upon a leadership position in this emerging space. The company claims 80,000 developers, and Lucas wants to grow that into the millions. There’s no cost to sign up and develop software on Force.com; salesforce.com expects to make money by selling user licenses starting at $50 per user per month, or 99 cents per login. (No word yet on whether a free song is included per login.)

In the upcoming months, Lucas will focus on increasing developer awareness and adoption, to attract more partners like Chicago-based
Model Metrics. Founder/President Adam Caplan sees Force.com as a natural evolution that enables his firm to “help customers leverage the platform to build any application on top of salesforce.com.” That helps deepen existing client relationships, to deliver both CRM extensions and completely new applications. And there’s more. Force.com is the platform for Model Metrics’ popular new iPhone application called Expense2GO.

Competitors are already organizing to capitalize on the shift toward cloud computing. Coghead is another PaaS vendor like salesforce.com, but CEO Paul McNamara says its target is a “new class of ISVs who understand customer problems” but who are not necessarily professional developers. With Coghead, you build applications by dragging around “widgets” to create the user interface and logic you need. Apparently Coghead has struck a nerve in the market; it already has 40,000 developers signed up on the service only officially launched in January 2008. Like Force.com, Coghead will make money on user licenses, but it charges a much lower price: $10 per user per month with bundles that can reduce that price further.

Software industry dynamics


Cloud Computing

Oh, and what does Coghead run on? Amazon Web Services, a major player in another layer in the cloud computing industry providing infrastructure or “utility” services. Amazon rents computing power and storage so that Coghead and others tap into Amazon’s robust infrastructure and buy what they need, when they need it. This part of the cloud will get crowded because other mega vendors (like Dell, EMC, HP, IBM, Microsoft, Oracle and Sun) have the massive data centers required to be utility computing players.

Personally, I think Google is the one to watch. After announcing Google Apps as a lightweight alternative to Microsoft Office suite, Google launched Google App Engine to enable developers to use its platform. It wouldn’t surprise me to see Google acquire salesforce.com because the companies share an on-demand computing vision and already partner well. Sooner or later Google will need a robust platform designed for enterprise applications.

Other SaaS leaders aren’t standing still but thus far are not trying to build another platform for generic applications. NetSuite sells a complete e-business solution that includes ERP, CRM and e-commerce. Developers can build on the NetSuite Business Operating System to create vertical applications that incorporate the NetSuite core functions.

Greg Gianforte, founder/CEO of RightNow Technologies says his company would consider tapping utility computing if the cost and reliability offered compelling benefits. Meanwhile, the game plan is to leverage cloud computing to service its target market: consumer-focused enterprises. Coming soon: RightNow will offer an on-demand application platform to enable “customers to clip together components like prefab housing,” and eventually, add custom .NET objects, according to Gianforte.

The future is cloudy

There are plenty of issues to resolve before cloud computing becomes truly mainstream. Vendors need to establish they are as reliable as utilities—and prove their business models to investors. PaaS vendors have some kinks to iron out not only to get ISVs signed up but also to help them market their applications and integrate billing processes, so it will be easy to collect from paying users.

Servers? We don’t need no stinking servers!

In the enterprise, IT professionals will have another “stack” of cloud computing technology to manage. But for CIOs tired of spending 80 percent of their time on IT “plumbing” and maintenance, cloud computing will provide new options to focus more on innovation.

Regardless of these challenges, rest assured cloud computing is not just another hyped tech trend. This shift will eventually remake the IT industry as we know it—and affect any industry that makes heavy use of information technology.

Winners will be able to innovate faster and serve their customers better, at lower cost. And the bonus is that you’ll finally be able to say: “Servers? We don’t need no stinking servers!”

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