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(originally published by Booz & Company)


Why Cloud Computing Is Gaining Strength in the IT Marketplace

Web-based computing services are already saving money for many large enterprises. It’s time to jump on the bandwagon.

Let the pundits, the hipsters, and the gurus continue to debate the virtues of cloud computing. While they do, more and more companies are quietly making the transition, and they are finding that Web-based computing services can provide the power, low costs, functionality, flexibility, and mobility that has long eluded traditional enterprise computing.

Cloud computing is nothing more than the collection of computing software and services that can be accessed via the Internet rather than residing on a desktop or internal servers. Such services include applications as simple as e-mail — Yahoo Mail and Google’s Gmail, for example — or as complex as, which helps manage customer relations and sales leads. They also include utility computing services that allow companies to add computing power when needed, as well as platforms for developing and testing new proprietary applications.

The signal virtue of cloud computing is its pay-as-you-go model, which lets companies pay for only the amount of services they actually use. Because cloud computing services are “always on,” they can help cure the problem of intermittent availability of applications, a frequent complaint of companies. And because cloud computing services do not require software that sits on a PC or laptop, other than an Internet connection and a Web browser, workers can access their applications and data from multiple locations, such as offices, home computers, client sites, airports, and smartphones.

For John Kalka, the vice president of IT deployment at Ingersoll-Rand Company, a US$17 billion manufacturer of diversified products, taking advantage of cloud computing was primarily a business decision. His company had long used IBM’s Lotus Notes as its e-mail and collaboration platform, in part because the cost of switching to Microsoft Exchange was just too high. But when the choice came up again two years ago, the terms of the deal were very different. “Microsoft was launching a new cloud computing service for Exchange,” says Kalka. “That changed the cost structure entirely, from a fixed cost to a variable cost, and IBM could not match that.”

Why did variable costs matter so much to Ingersoll-Rand? The company is structured around shared services, Kalka notes, and its IT department doesn’t simply sell its services directly back to the business units. So IT is always trying to make its costs both variable and transparent. “The goal is to give the businesses the levers to control their own costs,” he notes. “That’s always good business.”

The savings have been impressive. Since moving to the online version of Microsoft’s Outlook e-mail, Kalka estimates, his company has reduced its IT costs by 25 percent, with the option of saving even more depending on the features used. “Not only do I now have a variable cost, but I’ve created a menu of options,” says Kalka. “I’ve given the business units the ability to reduce costs even more — and with the current economic environment, many are willing to do that.” Ingersoll-Rand has since signed on for several other Microsoft products based on cloud computing, including Live Meeting and Forefront antivirus software. Future plans include moving the company’s SharePoint collaboration and social networking environment onto Microsoft’s servers.

Kalka has found that moving to Web-based versions of Exchange has been a fairly straightforward process. But he has yet to move more complex, business-critical applications, such as warehouse management, to the Internet. Two factors have limited Ingersoll-Rand’s willingness to begin a more widespread cloud computing transformation, he notes. The first is economic: Despite the attractive long-term savings, moving more complex applications to the Web requires a significant initial investment, one that will have to wait for better times. The second involves security, and specifically the organization’s willingness to accept the risk of lost data, the potential for the commingling of data with that of other companies, and concerns about sharing infrastructure with other companies. Kalka likens the security issues surrounding cloud computing to those surrounding standard infrastructure outsourcing, but with less control over the details.

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  1. Michael Armbrust et al., “Above the Clouds: A Berkeley View of Cloud Computing,” University of California at Berkeley, Department of Electrical Engineering and Computer Sciences, Technical Report No. UCB/EECS-2009-28 (February 2009): An informative, in-depth (if sometimes technical) look at the nature and promise of cloud computing.
  2. Rodrigo Fontecilla and Steve Wardell, “Web-Based Apps: A Strategic View,” s+b, Winter 2007: The argument for why applications hosted on the Web make sense for enterprises of all sizes.
  3. Stefan Stroh, Olaf Acker, and Aneesh Kumar, “The Cloud Is Ready for You: Are You Ready for the Cloud?” Booz & Company white paper, May 2009: A more detailed examination of how cloud computing is gaining traction with users and vendors alike.
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