Amazon’s chief technology officer Dr Werner Vogels believes that cloud computing is the great corporate leveller. He claims that the cloud – remote online data storage – will allow small businesses to use information and data so well that they will be able to act as effectively as much larger corporations.
“Today, with an idea, a credit card and some cloud skills, anyone – from a student to an employee at a FTSE 100 enterprise – can create the next Dropbox, Playfish or Spotify,” he says, citing a list of entrepreneurial businesses that rely on large amounts of online data.
The cloud computing market will grow sixfold from its current global volume of $40bn (£26bn) to more than $240bn (£153bn) in 2020, according to research consultancy Forrester.
“The cloud is enabling continued innovation because entrepreneurs and big companies alike are able to gain the resources they need to put their ideas to work,” says Vogels.
“Enterprises and marketing departments know this and are gearing up to take advantage of resources previously unavailable without a trip to the procurement department.”
The reason for Vogels’ evangelism is clear: he is the man guiding Amazon to provide cloud services for businesses. But Grant Smith, operations director at social gaming firm Playfish – now owned by Electronic Arts – says the company has been designed from its inception to make use of the cloud.
50% – the amount by which cloud computing can reduce IT labour costs, IBM chief technology officer claims
“Playfish was always imagined that way,” he says. “The founders’ philosophy was ‘software as a service’. It has not been about buying or taking on equipment.”
The company began creating social games in 2007, building itself up in just four years to reach millions of online players. Vogels claims it initially projected having between 100,000 and 250,000 players for its game Restaurant City and discovered that visitors grew to more than 4 million players worldwide in just the first eight weeks.
Smith explains: “Take Restaurant City. At the height of its success, there were only two full-time Playfish staff and 5 million people playing it daily.”
Smith previously worked at AOL and he claims that his time at Playfish means he has been won over by using cloud services. “AOL was much more traditional, because cloud options weren’t available when it started,” he says. “But I would never choose to go back to that way of working.
“Previously, I would have to spend three months going through a procurement process, negotiating terms, and none of that would be supporting the people trying to build an awesome game,” he adds. “With clouds, maybe I don’t have the same choice I would have had if I had handled the procurement myself, but I can focus on the business. And if I discover I need twice [as much data] I have ordered, the cloud means I can have that capacity in 20 minutes.”
Another convert is Neil Campbell, head of product and marketing at digital publisher BrightSolid, which is owned by DC Thomson. “Over the past four to five years, we have seen the cloud is ideal for someone setting up and looking for something quick and cheap to get them to where they want to be,” he says.
BrightSolid owns social networks FriendsReunited and GenesReunited, among other brands, but also provides cloud systems to brands including Lloyds Banking Group and Standard Life.
“The two sides of the business complement each other,” says Campbell. “We can take the expertise we have from running these large-scale systems internally for our publishing business and take that out to offer to clients.”
It is not just small businesses that see the potential of the cloud – 60% of organisations are preparing to embrace cloud computing over the next five years to achieve competitive advantage, claimed an IBM study of more than 3,000 chief information officers in May 2011. This figure has doubled since 2009.
BrightSolid’s Campbell says: “We are seeing large enterprises saying that there is the reliability and security necessary to get involved in the cloud. They are saying: ‘Do we really need to service this particular area internally? Could this not be hosted in the cloud?’”
One larger brand using the cloud is media brand The Guardian for its iPhone applications. Breaking news stories can cause demand for media apps to spike, with a rapid increase in readers wishing to access its interactive services.
58% agree that being on the cloud has givrn them better control of their data (source: Netmetix)
It employs Amazon cloud resources to ensure it can scale up its services when they are needed and quickly drop back when demand is no longer so urgent.
Vogels claims it takes The Guardian less than 10 minutes to “provision”, or order new technology resources or data capacity and another 20 minutes to connect to its existing technology infrastructure, meaning a total lead time of half an hour, compared to a possible three weeks with a traditional IT model.
So, for example, if the website runs an article, a related box offering “more on this story” is automatically generated for readers. If a popular story runs and demand spikes, the company can order extra data server capacity in the cloud.
Chris Lawson, content sales and marketing director at The Guardian, says that using the cloud is part of the media brand’s plan to help readers access its content on whatever device they are using. Currently, The Guardian can be accessed through apps on Apple iPads, iPhones and Amazon Kindles.
“Our audience’s needs and how they want to access news is changing, so it is very much about going where the audience is and providing what they want on the devices they want,” says Lawson.
The use of the cloud to scale various services up and down according to need is all part of the media brand’s plan to develop what Lawson calls “continuous” relationships with consumers. Rather than people reading a newspaper once a day on the train, they may also access the online service at their work desk, the Kindle service on the London Underground and the mobile service while walking between meetings.
While around 300,000 people have downloaded the iPad app during its free period, as many as 4 million people have installed The Guardian app within Facebook, driving up daily page impressions by almost a million within its first few weeks. The data required to manage this process is ever increasing.
“It’s making sure we’re bedding in a continuous relationship and dialogue across the devices where they want to interact with us,” says Lawson.
$40bn (£26bn) – the global value of the current cloud computing market
It is not just businesses that are seeing the potential in the cloud. Public sector organisations often need to collect, process and analyse vast amounts of data in order to provide consumers with essential services. The Chancellor George Osborne announced an additional £15bn a year in spending cuts in November’s Autumn Statement, so the pressure is on local government to prune back their outlay.
Sunderland City Council has turned to cloud computing to help address this issue, with the aim of cutting £1.4m annually over the next five years (see case study, page 38). The council is developing a city-wide cloud system with IBM for not only its own use but also for local businesses to access.
This will not only help Sunderland keep its costs down but aims to stimulate small business growth. Amazon’s Vogels calls this “the lowering of the barrier to innovation”.
A sign of the potential value of cloud computing can perhaps be seen in the current acquisitions environment. Technology giant SAP bought SuccessFactors last month for $3.4bn (£2.2bn), in a deal that was seen as a way for the larger firm to bolster its cloud offerings. It is believed to have paid a 52% premium over share price for the privilege. Meanwhile, Oracle snapped up RightNow Technologies for $1.5bn (£960m), paying a 20% premium in October 2011.
There are two obstacles that cloud computing must overcome to become a mainstream service for brands. First, the European Union is updating its data laws after EU justice commissioner Viviane Reding claimed there was need for reform given all the developments in areas such as the cloud.
In a speech to the GSMA Mobilising the Cloud conference, she said: “We will make sure that we have one single set of instruments and rules for transfers of personal data to third countries, with no national extra conditions any more. Unnecessary administrative cycles and obstacles will be eliminated.”
Reding added that while the cloud could help small businesses compete with larger ones, the technology needed to establish trust. This is the second issue for the cloud, which must overcome fears about the security of holding so much data outside corporate servers. Last year saw several large data breaches, including one at Sony, where a hack of its online entertainment and PlayStation network resulted in almost 100 million customers having details compromised.
$240bn (£153bn) – the projected value of the global cloud market in 2020 (Source: Forrester)
Many companies believe security fears will be allayed by so many established brand names moving into the cloud computing area. Amazon and IBM are already trusted in the data processing and online fields, so businesses are likely to be reassured by their involvement.
BrightSolid works with IBM as one of its technology partners. Campbell says it needed the highest levels of security when it created a private cloud for the 2011 Scottish census data.
He adds that the security checks to run the private census cloud included the customer making visits to BrightSolid’s data centre and checking out its processes.
Amazon’s Vogels is more concerned that as increasing numbers of businesses discover that cloud computing can give them scale and data processing power well beyond their physical size, his challenge in future will be fulfilling that need before someone else does.
“Keeping up with customer demand for new services and features while continuing to expand geographically is our biggest challenge and what drives our rapid pace of innovation,” he says. “Customers want us to continue to turn out new services and features quickly and that’s what we’re going to do.”
He claims that the arrival of cloud services is also part of a bigger future movement where data is so important to businesses that processing it requires far more help from external sources than ever before. He says that a new breed of data processing businesses will use the cloud to help brands run their operations.
He gives the example of Kaggle, an organisation with more than 11,500 members who are largely analysts, PhDs and specialists. It provides statistical and analytical outsourcing via global data modelling competitions to enterprises, researchers and government agencies.
90% – the amount that small businesses can save through cloud computing (Source: Netmetix)
Vogels claims more businesses like Kaggle are likely to spring up, offering out data processing via competitions to the world’s top analysts.
While cloud services are not likely to suit every business or organisation, for many smaller companies, they can offer the chance to compete without the need for enormous investment in data processing. The ability to scale up at speed means that companies can find out if their creative ideas appeal before laying out large sums of money.
“One of the core concepts of ‘big data’ is being able to evolve analytics over time,” says Vogels. “For that, a company cannot be constrained by any resource. As such, cloud computing and big data are closely linked because for a company to be able to collect, store, organise, analyse and share data, they need access to infinite resources.”
Case Study: Sunderland City Council
Sunderland City Council is hoping to boost its local economy by adopting cloud computing on a city-wide basis. It predicts that it can save £7m in total – or £1.4m annually over the next five years – through a reduction in hardware, software, maintenance and improved IT management.
IBM estimated in January 2011 that Sunderland had to make £48m of cuts by 2014/15 – 5.5% of the total welfare bill, or £172 per person. Its cloud computing project costs £5.7m, with the claim that it will pay for itself within five years.
But the council is taking its cloud plans far beyond merely overhauling its own operations. It is creating, in partnership with IBM, a city-wide cloud that local businesses can tap into, reducing their reliance on providing their own IT and data analysis technology.
Tom Baker, head of ICT at Sunderland City Council says/ “When we scrutinised everything, we looked at what opportunities that scrutiny might also give us. We are trying to stimulate the private sector to go above and beyond.”
He notes that as well as the IBM deal, the council has organised with BT to roll out super-fast broadband across the city.
The council hopes its move to the cloud will encourage more start-up businesses to take the risk of setting up shop at a time when the economy desperately needs growth. It claims that Sunderland has more technology start-ups than any other British city apart from London.
Councillor Paul Watson, leader of Sunderland City Council, says that he believes the project will “ensure the city is internationally recognised as a model for its operations and a prime location for inward investment.”
The council says that businesses operating within the cloud could operate initiatives such as “bring your own computer”, where employees use their own equipment to tap into shared networks. This would allow more staff flexibility and would keep IT costs down for companies where the majority of employees own a laptop.
Sunderland’s project fits under the auspices of IBM’s Smarter Cities initiative, which explores how new technologies can boost the fortunes of urban centres around the globe.
The company predicts that by 2050, as much as 70% of the world’s population will live in cities, so massive infrastructure change will be necessary to deal with this set-up.
Back in the UK’s north east, the council is convinced that moving to the cloud will put the city on the global stage as what Watson calls a “Smarter Sunderland”. Using the cloud not only frees up the council to make cost savings, but gives it an extra service to help boost its local economy.
Baker adds that the council intends to try and find innovative business models over the next year, whether technology-based or not. He mentions a partnership for events management with the city’s university and football club.
“It’s very exciting to combine and share resources, but many of these things are very much in their infancy,” he says. “We need to provide them with support to start functioning, as well as transparency and granularity regarding costs. What better way to do that than through cloud technologies?”