Introduction to Cloud Computing

When someone asks you what cloud computing is, it may seem difficult at first to explain it. But by the time you finish reading this, you should be able to explain it to your Facebook friends. First of all, everyone who shops on Amazon or searches on Google or posts on Facebook is using the cloud. These consumer applications are simple examples.

Network Cloud Services

What you may not have thought about is that every one of these consumer application cloud services uses network cloud services. In fact, the word “cloud” comes from the fact that many years ago those of us who built and sold client server applications, software and hardware used to draw a picture with the PC connected to a network and the network connected to a server. Since none of us actually understood how the network worked, we drew a cloud and labeled it “network” and left it at that. In those days companies built their own networks, but today consumers and businesses use network cloud services delivered by companies like AT&T, Verizon, Masergy and Sprint.

Data Center Cloud Services

Since the Network Cloud Service providers had to build buildings that had high-quality power and were physically secure, it made sense for them to begin to offer data center space for these emerging consumer application cloud services. In the early days it made more sense for Google to use Savvis to provide data center space. Today, companies like Twitter, Facebook and OpenTable continue to rely on data center services provided by companies like Savvis, NTT, Terremark, and others. Of course, anyone who becomes a student of the cost of computing comes to realize that the cost of power is a big driver. As a result, anyone who needs space for 100,000+ computers (e.g., Google, Amazon, Microsoft) is building data centers located near low-cost and reliable power.

Application Cloud Services

So far we’ve focused on consumer application cloud services, but for the past ten years the fastest-growing business applications have all been delivered as cloud services. Since 1999, fifteen companies that deliver business application cloud services have become public companies. These fifteen include Concur (1999), Webex (2000), Kintera (2003), Salesforce.com (2004), RightNow Technologies (2004), WebSideStory (2004), Kenexa (2005), Taleo (2005), DealerTrack (2005), Vocus (2005), Omniture (2006), Constant Contact (2007), SuccessFactors (2007), NetSuite (2007), and OpenTable (2009).

Some of these companies have been acquisition targets. Webex was acquired by Cisco in March 2007 for $3.2B. Blackbaud purchased Kintera in 2008. Omniture acquired WebSideStory, and most recently Omniture itself was acquired by Adobe in October 2009 for $1.8B. An informal analysis of forty of the Fortune 100 showed only two companies that did not have at least one of these applications running. Of course today, nearly all traditional application software companies like Oracle and JDA offer to manage their applications as a service.

Compute & Storage Cloud Services

The cover story in Business Week in November 2006 was titled “Jeff Bezos’ Risky Bet” [1]. The article focused on Bezos’ vision of transforming the Internet retail giant into a cloud service provider. While he may have known it would be a success, rumors abound barely four years later as to how big the business is. But it’s clear it’s been a tremendous success. Not only did Amazon’s EC2 and S3 pioneer a simple way to create, launch and terminate server instances and storage objects, but also the transparency (and low price of less than $0.10 per hour) open up numerous use cases. While pioneered by Amazon, compute cloud services are now available from an ever-increasing number of players including Microsoft, EMC, Terremark, Rackspace, GoGrid, Joyent, Layered Technologies and many many others.

Of course compute & storage services have been used by high-growth, newly founded Web-based companies. Examples include Gilt Groupe, which auctions high-end fashions and in a few years grew to a $300M business running all of its computers on the Joyent compute and storage cloud services; or Context Optional, which runs social media marketing campaigns on Facebook and hopes to grow as fast. In a completely different application, Pathwork Diagnostics uses thousands of Amazon compute servers to run machine-learning algorithms for a few months to produce better tumor diagnostics, then turn the servers off. If you thought about doing this the traditional way, the costs and capital outlay would be prohibitive.

We are only at the beginning of what’s possible. In 2010, $3,000 will buy a single computer for more than three years running in a high-quality data center 24x7, which is good. But $3,000 will also buy 1,000 computers for more than a day. No one has ever had that capability before.

Platform Cloud Services

This brings us to the last group of cloud services. Platform cloud services. Platform cloud services are used by software developers to build new applications and by operations managers to manage their application, compute and storage cloud services. Platform cloud servers for software developers range from horizontal services like Microsoft’s Azure or Heroku’s Ruby on Rails platform to the more vertical platforms like NetSuite’s SuiteCloud, Salesforce’s force.com or even Facebook’s platform. Horizontal platforms offer a great deal of flexibility, but if you know you want to leverage NetSuite’s schema to build an MRP application, like Rootstock did, then choosing a particular vertical app can significantly speed the development and reduce the cost to build new applications.

Platform cloud services also provide the operations management specialists with a range of services. This could include spam filtering from Postini all the way to a new generation of software that could be used to develop private compute & storage cloud services. CA’s 3Terra, cloud.com, Nimbula, and Cloudera are just a few of the emerging new platform products.

A Next Wave

The last major wave of business computing was known as client-server computing. It was driven by a major shift in the economics of hardware and software and gave rise to many companies we consider today as the “tech industry” – names like Intel, Oracle, EMC and Microsoft. Names like CDC, Prime, Data General and DEC have all but faded into the past. This next wave of computing, cloud computing, is creating another major shift in the economics of hardware and software. Who will we be talking about ten years from now?