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(originally published by Booz & Company)


Why Cloud Computing Is Gaining Strength in the IT Marketplace

Despite these concerns, Kalka is planning to move more services to the Internet, and he is readying the company for the transition. Moving to the Web-based version of Exchange would never have been possible back when Ingersoll-Rand was running five or more different e-mail systems across the enterprise; only because it had already standardized on Lotus Notes could it then make the switch to Outlook. Kalka’s future investment plans center on creating similar environments for other, more strategic applications. “We will look at moving applications to the cloud that, first, are compartmentalized so that we can easily understand them, and second, have already been standardized across the company,” he says.

Over the long term, as cloud computing becomes more sophisticated, companies like Ingersoll-Rand will likely move more strategic applications to the Web, including portals, personal productivity suites, and core packaged business applications such as customer relationship management, as well as significant portions of their IT infrastructure. Ultimately, by moving such applications as product life-cycle management and supply chain management to the Internet, companies will be able to connect more easily with partners and suppliers. And because IT departments won’t need to spend so much time on administration, infrastructure, and commodity applications, they can focus more on differentiating the company strategically.

Still, cloud computing is relatively new, and like any other new technology, it brings with it risks. Security has been the primary concern. No CIO should be perfectly comfortable allowing sensitive data to reside outside the confines of the company’s firewall. Yet, as with outsourcing, the risk can be mitigated by looking carefully at the track record of potential vendors, how they handle other customers’ data, and the strength of their security infrastructure.

By the same token, how vendors price their cloud computing services bears close examination: Subscription pricing models for Web-provided applications and services are generally simpler than licensed models. Some Web-based models are based on the amount of traffic and storage used, others are priced according to the number of users, and still others are priced according to actual computing time.

A further risk involves data ownership: What happens to your data when you decide to terminate a cloud computing agreement? Will all the data be made immediately available to you, and how difficult will it be to move the data to another vendor? Will the vendor keep any of it? Will there be a financial penalty? And what are the consequences if a vendor goes bankrupt or is acquired by another company? Vendors have yet to establish and agree on standards on how the transfer of data can be managed easily — yet such standards will be vital to the continued growth of cloud computing.

Despite these concerns, we believe that cloud computing — while not perfect, or the answer to every IT problem — is a viable option. CIOs owe it to all the stakeholders at their companies to perform a realistic assessment of the technology, its virtues and pitfalls, and to understand how it can benefit their companies now and in the future. And the time is ripe: The current economic downturn has put pressure on many corporations to cut costs and do more with less, and cloud computing’s “on demand” model for applications offers clear financial advantages. Smart and aggressive CIOs will take advantage of cloud computing to lower costs and manage risk now, while getting ready to use it more strategically in the coming upturn. Those who choose to wait out the recession before venturing into the cloud will find that many of their competitors are already there.

Author Profiles:

Stefan Stroh is partner with Booz & Company based in Frankfurt. He focuses on technology strategy and business transformation, working with companies in the aviation, travel, railway, logistics, high-tech, and consumer products sectors.

Olaf Acker is a principal with Booz & Company based in Frankfurt. He focuses on technology strategy for communications, media, and technology companies.

Aneesh Kumar is a senior associate with Booz & Company based in New York. He specializes in IT strategy for health-care companies.
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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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