Cloudy Tech Forecast: Businesses' migration to the cloud has been very gradual

From the pages of In Business magazine.

The outsourcing of electronic business systems that were previously managed internally (aka cloud computing) is proceeding gradually, according to local information technology vendors, but migration is slow for largely practical reasons, not because the business community is frozen by security concerns related to data breaches.

Cloud computing is basically a distribution method that allows organizations to gain access to computing resources for a fee. Thus far, having your company’s data managed and stored by third parties in remote locations, essentially running on a server at an offsite data center that users can rent or lease, has seemed more appealing in theory than in practice.

This being the financially conservative Midwest, geographic factors come into play as well. Kurt Sippel, president of Applied Tech in Madison, suggested that Midwestern frugality is one reason cloud adoption in the United States has followed a U-shaped curve. “Technology adoption almost always comes from the coasts first,” Sippel noted. “If you look at the U.S. adoption rates, it’s really a big U shape. It starts along the coasts and curves down at the bottom, and up both sides, and the Midwest tends to be the slowest of the adopters. This region has less population, and the bandwidth isn’t quite the same.”

In this look at business adoption of cloud computing, local information technology vendors told us they expect cloud migration to gain traction, but they cited several reasons why area companies aren’t rushing to be part of the transformation. While security is a concern, their reluctance doesn’t necessarily have to do with well-publicized losses from security breaches at the likes of Target, Home Depot, and JP Morgan Chase, all of which have been hit by hackers.

Being practical

Unlike traditional on-premise computing, the cloud — whether it’s a public, private, or hybrid cloud — stores data and makes it accessible anytime and anywhere, from any computing device. The benefits of cloud computing sound too good to be true, or at least too good to wait for: predictable IT infrastructure costs and lower total cost of ownership, speed to deployment (days versus weeks), and scalability to help deal with peaks in demand.

Typically, users pay a monthly or annual service fee, with the size of the fee dependent on the level of service provided by the cloud vendor. Instead of investing in technology hardware and software to support and maintain file storage and upgrade applications, companies can rely on the cloud to automatically update and patch applications. Therefore, cloud services are treated as an operating expense rather than a capital expense.

While these are enticing business advantages that are still likely to attract more businesses to the cloud, gradual migration has been the early experience. Bob Vanden Burgt, a principal with Yahara Software LLC in Madison, says some of the gradual migration can be attributed to security concerns, but he compared running IT operations internally to burying your money in the backyard rather than investing it in the stock market. Given that few small businesses have someone on staff who can handle IT security, he reasoned that such ventures incur a much larger security risk by running operations on the premises.

In some cases, organizations might have legacy applications or other systems that are not well “architected” for the Internet. Todd Streicher, president and CEO of 5Nines LLC in Madison, noted that certain applications are not “cloud ready” or simply require local computing power. As examples, he cited software for 3-D modeling (computer-aided design or CAD), graphical design, and video editing.

In other situations, migration is frustrated because businesses may not be very well connected to the cloud. “It comes down to that last-mile connection,” Vanden Burgt noted. “The redundancy of how your business is connected to the cloud is another consideration.”

(Continued)

Another practical reason for slow migration — and perhaps the most common one — is that businesses haven’t yet received their full return on investment in existing hardware and software. John Baltes, president and principal with SVA Consulting, says organizations should consider migrating to the cloud when their business systems reach the end of their life cycle.

When that happens, the executive suite typically makes the call on cloud migration. Baltes says more than 90% of the calls that come into SVA’s office are from the business side, not information-technology managers, so SVA works almost exclusively with finance people, CEOs, owners, and analysts.

Rarely do business clients try to forklift their whole environment onto the cloud because they think it’s less expensive or otherwise superior. “It’s very situational as to what is going on inside that business,” Baltes explained. “One of the reasons that we see people not jumping to the cloud is that there is no event that pushes them there. There is no system upgrade or new investment in hardware or some other type of transaction that might indicate that now you have the opportunity to do things differently.”

In addition, if a company hasn’t fully depreciated what it’s using today — if it still has an investment in hardware or has invested in licensed software — it may be reluctant to migrate because it has yet to receive the full value of its purchases. “Otherwise, they are basically writing it off to go in a different direction,” Baltes says. “Those kinds of things are what typically will stop the finance people in their tracks and say, ‘Hmm, we need to think this through.’”

Another factor that comes into play, if it’s a single application, is the decision of whether to make it a monthly (operational) expense or a capital expense to be depreciated. “Should we tie up our capital in doing this because capital is a little bit more readily available than it was four or five years ago?” Baltes asked. “So it comes down to capex versus opex.”

Due diligence must be done when it comes to finding a vendor, which is responsible for maintaining the service and usually promises more robust levels of service than can be experienced internally. It’s also vital to determine whether the vendor has reputable partners conducting audits, and to negotiate, with your legal counsel, the necessary contractual protections in the service agreement.

Mass migration

At this point, are there still reasons not to put everything in the cloud? Are there still certain systems or operations that should not be transferred?

“I don’t know any reasons not to, but I do know about the challenges,” Baltes says. “If you put everything today that you have internally out into the cloud, you still are, in many cases, confronted with managing that environment. If you’re not going to manage it, you’re going to pay someone else to manage it, and that’s part of that pricing model.”

According to Baltes, when pondering the cloud, there is a host of factors to consider, not the least of which is business continuity. Do you want data in one data center, or do you want it in geographically dispersed data centers? Do you want support that “follows the sun” (i.e., 24-hour support from coast to coast and overseas)?

For his part, Sippel cited just one reason why data should not be migrated to the cloud: “The only thing I can think of that should not be migrated right now is stuff that’s heavily regulated,” he said. “But I honestly think that unless things change, and it will take some time for that to catch up — the regulations around security and privacy — I don’t think there’s much that shouldn’t be migrated.”

(Continued)

Modeling the Cloud

Of the different cloud models — including software as a service, or SaaS — is one considered superior? Do the infrastructure-as-a-service or platform-as-a-service models necessarily take a back seat to SaaS, or does each fill a unique niche?

Cloud vendors we spoke to are in complete agreement on that one. “It depends on what you’re trying to do,” noted Bob Vanden Burgt (Yahara Software). “None of these models works better than the others, but there are very specific uses for all of them.”

Software as a service

Under this model, applications are hosted by a service provider and made available over the Internet. There isn’t a SaaS-y justification for everything, but more often than not, standard business services like accounting software, time entry, and customer-relationship management are well suited for it. “We’ll see certain applications that would have been internal a decade ago now being used in the cloud,” said John Baltes (SVA Consulting). “There are certain offerings that just make sense.”

Infrastructure as a service

With infrastructure as a service (a highly automated, on-demand service), a third-party vendor hosts virtualized computing resources over the Internet. A good time to use IaaS is when you have what Baltes calls a technology “burst.” Examples include an initiative to develop a piece of software in which testing and quality-control environments are needed. Instead of developing an internal environment, an organization can buy IaaS and use it for that specific initiative. “So we’re developing and we’re testing while using that environment, and we’re doing quality assurance in that environment,” Baltes stated. “When we’re done with this project, we’re going to turn it off and not have to pay for it.”

Platform as a service

Platform as a service, or PaaS, is another service that enables users to develop and run Web apps without having to maintain them. PaaS is not as prevalent as the other two models, and in Baltes’ view, the service is still trying to find its niche, but SVA does use it to help clients transfer information from one cloud application to another. “We might rest that information in platform as a service and then move it to the other,” he explained, “so we’re just resting it there, like we would do internally.”

(Continued)

Five Reasons to Seed the Cloud

Since the onset of cloud computing, more and more benefits have been realized from migrating business operations to the cloud — benefits that complement long-established business advantages. Here are five ways in which business operators can derive value from cloud computing.

1. Ubiquitousness

As the number of mobile devices increases exponentially — Cisco forecasts that 50 billion devices will be connected to the Internet by 2020, doubling today’s total — having all your operations in the cloud enables employees to connect wherever and whenever they want in a secure way, without running on virtual private network software. “We’re seeing more solutions architected that way,” noted Bob Vanden Burgt (Yahara Software).

This explosion in devices is also affecting where businesses place their business systems, including customer relationship-management programs and accounting systems. “As business solutions are architected to work in a global environment, as we use more mobile devices, and as more and more things are connected to the Internet, the harder it will be to run things in your own environment,” Vanden Burgt said. “You never hear in the press when someone’s hard drive dies on an internal server, but that’s the real world. In the cloud, server failure is usually seamless for the user.”  

2. Expediency

John Baltes (SVA) noted that cloud vendors can “turn up an environment” in a day or two. Traditionally, clients were confronted with buying hardware, loading operating systems, and reviewing software, and it took weeks or even months before an environment was up and running. “There is a real-time factor that people are starting to recognize, and that follows the speed of business,” he said.

3. Analytics

Cloud computing also makes it easier to analyze “big data,” noted Todd Streicher (5Nines LLC). Since everything, including mobile devices, is connected to the Internet, this allows businesses to pull together different information that comes from the cloud and process it with advanced analytics. This is particularly beneficial for executive decision-making and, increasingly, for gaining insights into consumer behavior.

“If you go to Google and you do a search on buying slippers, even if you don’t execute a transaction right away, the next time you search or go to a website, there is an advertisement for slippers that comes up because they have identified, through your behavior on the Internet, that you are interested in buying slippers,” Streicher noted.

4. Productivity gains

Streicher also cited productivity gains related to the ability of employees to work from anywhere. As applications are designed, brought to market, and made available through the cloud, they integrate a lot of features. “If you’re doing that individually,” he noted, “there is just not the same kind of productivity that comes outside of the cloud.”

5. Better security

Don’t tell hackers, but security on the cloud is actually superior, at least according to cloud vendors. Streicher says the well-run cloud providers offer higher levels of security than individual businesses can themselves. This is due to a combination of factors that include economies of scale, more specialized staff, and the fact that when data is stored in the cloud, the loss of a laptop or smartphone does not mean lost data.

“We get inundated in the press when this hack occurred or that occurred, and there are definitely reasons to have some concerns,” Streicher said, “but there is really no stopping the movement toward this [cloud] technology. The fact is that these providers take a tremendous amount more care and attention to security than people individually do, and a business is probably more at risk if they have their own computing environments connected to the Internet.”

Click here to sign up for the free IB ezine – your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.