IT Sourcing from the Cloud

What can I say about sourcing from the cloud that has not been said already? Cloud Computing appears to need no introduction. But appearances, as they say, can be deceptive. This over-the-top video of Oracle CEO Larry Ellison lamenting about the amount of “vapor ware” surrounding “cloud”, pretty much sums up the designer confusion that looms large over the enterprise IT horizon. (Caveat: unless you are overly charmed by Larry’s style, you’ll get the idea about halfway through)

I do not know why Mr. Ellison goes cloud-bashing but NO, cloud computing is not old wine in a new bottle just because centralized mainframe computing and then computers hooked to the internet have been around for ever (well almost). Yes, it borrows from all of those core technologies but the business model has not been in existience in this shape and form before as Mr. Ellison seems to suggest. In fact, it is amazing that supposedly the next big thing in commercial computing  is at once the most talked about and least understood.

So what is it really and what does have to do with an IT sourcing person looking to gain cost and strategic advantage?

Cloud computing is a form of remote computing served over (usually) the internet where the heavy lifting of computational work and/or data strorage is done on a “cloud” of usually commodity computers as opposed to a single or few powerful local (usually in-house) servers. Why is it called the “cloud”? I have two theories, one is that it sounds less arcane than “Grid Computing” or “Utility computing” (which have come to mean the same things) and second, is probably due to the way the service is being offered today by current cloud based providers. A subscribed B2B customer is not expected to know where the service is coming from. It could be coming seamlessley from a set of different physical locations (whether a server, data center, or geographic region) at a given point in time.

The cost advantages as explained in the video stem from two economic factors which also set cloud computing apart from just any form of remote computer services :

1) multi-tenancy which leads to economies of scale at hardware level and near-zero marginal cost for software and

2) the ability to offset demand spikes of some customers against troughs of others given a critical mass.

To the individual business customer, these translate to financial benefits of zero startup costs, pay-as-you-use operations cost, and reduced opportunity cost lost to unused capacity. Operationally the cloud establishes a level playing field for smaller businesses making zero lead time for provisioning possible and providing the abiity to externalize a lot of overheads such as logistics and manpower. More importantly, it offers strategic business functionality that was available only to the big player before, on-demand and with continuous flexibility to adapt to change.

That said, there is no free lunch, and the cloud too has its consequences, financial, operational and strategic. I hope to be able to do a smackdown in a later post. But first, to understand the full range of sourcing possibilities that cloud computing brings about let us take a deeper dive to understand the nuances of the three basic flavors of cloud computing:  

1. Software as a Service (SaaS),

2. Platform as a Servce (PaaS) and

3. Infrastructure as a Service (IaaS)

I will discuss these and more in my next post.