The document discusses the evolving landscape of cloud computing, detailing its definitions, service models, and economic implications for businesses. It highlights the potential benefits of cloud adoption, such as reduced capital expenditures and increased efficiency, while also addressing concerns about data privacy and service reliability. Opinions from industry experts suggest a mix-and-match approach to cloud services, with considerations for sustainability and service level agreements as key factors for organizations evaluating cloud solutions.

1. FEATURE // SaaS
The Hitchhikers Guide To
THE CLOUD
Many pundits agree that
2011 is set to become the year of
The Cloud and that IT professionals
need to prepare themselves. While everyone
seems to be talking about “The Cloud” in excited
tones, do we really understand what it’s all about?
iStart helps demystify what it all means and
navigates a clear path through all the hype.
What are the implications of ‘going public’
and staying private? By Chris Bell
54 Start – technology in business Quarter One 2011

2. CLOUD COMPUTING
T
he word “cloud computing” is being indis-
criminately bandied about. Even the US
National Institute of Standards and Technology’s
DEFINING CLOUD
In order for computing to accurately be described as taking
Information Technology Laboratory (which offers
place in the cloud, NIST says it’s essential for it to display each
a definition of cloud computing that’s about as
of the following characteristics:
exclusive as it’s currently possible to get) point outs cloud
• on-demand self-service (the provisioning of computing
computing is still evolving and so its meaning will change
capabilities without the interaction of the provider)
over time. “Its definitions, use cases, underlying technolo-
• broad network access (capabilities are network-available
gies, issues, risks and benefits will be refined in a spirited
and can be accessed through thin or thick clients, mobile
debate by the public and private sectors,” runs NIST’s dis-
phones, laptops or PDAs)
claimer.
• resource pooling (a multi-tenanted model with physical
To paraphrase, cloud computing is a model for enabling
and virtual resources dynamically assigned and reassigned
on-demand access to a shared pool of computing resources,
based on demand)
such that can be rapidly provisioned with minimal manage-
• rapid elasticity (unlimited, fast up- and downscaling); and
ment effort or service provider interaction.
measured service (automatic, metered resource use).
For most people, it means that applications are accessed
through a browser. In addition, cloud computing should operate according to
one of three service models:
The dollars and sense of it • cloud software as a service (SaaS)
There are two basic cloud payment models: the utility • cloud platform as a service (PaaS)
model, similar to the way electricity is retailed, where cus- • or cloud infrastructure as a service (IaaS).
tomers pay for what they use. The other is a subscription
It should also be delivered via one of four deployment models:
model where customers pay a flat monthly fee based on the
• private cloud (internal, corporate data centres)
number of their users.
• community cloud (shared by several organisations)
If you’re ‘capex-poor’, cloud computing may make
• public cloud (cloud providers)
compelling economic sense, especially should you decide to
• hybrid cloud (a combination of traditional desktop and
focus on your core competency, which probably isn’t run-
online access).
ning and maintaining servers.
Source: US National Institute of Standards and Technology IT Laboratory
Because cloud providers can aggregate many custom-
ers into shared infrastructure they can reduce costs — or
so their standard sales pitch goes. But that isn’t necessar- Not all are equal
ily the case; especially for customers who select a local James Maniscalco is senior director, product manage-
provider. ment cloud computing at Infor, based in Boston, US. Infor
Aaron Kumove is the Wellington-based managing currently offers a subscription-based model for its cloud-
director of Horizon Consulting. He’s also a former chief based offerings. However, he says the market will soon
information officer of New Zealand Post and self-confessed demand utility pricing. “Given the richness of our cloud
cloud computing sceptic. He warns that while moving to applications, we welcome a utility pricing model,” he says.
the cloud can help to cut your capital expenditure, depend- “We believe consumers of software applications understand
ing on your choice of provider, your operating expenditure that not all software applications are created equal and
might increase. some will demand higher cost per computing hour than
“This is where New Zealand cloud providers may be others, based on the inherent value it delivers.”
at a disadvantage because we’re a small country. A public Cameron McNaught, executive general manager solu-
cloud provider in the US or Europe has a lot more custom- tions, Fujitsu Australia and New Zealand, says it began
ers than one serving the local market will have — they’re in looking at cloud platforms between 12 and 18 months
a lower volume, higher margin business.” ago, and it has since deployed a cloud service in some of >
Quarter One 2011 Start – technology in business 55

3. FEATURE // SaaS
its Australian data centres. It’s now looking at the New whose cloud investments have been too little, too late.
Zealand market to assess the viability of a local data centre “MYOB is really struggling because they haven’t released
and cloud platform next year, subject to customer demand. a credible online offering yet. It might take them three or
Fujitsu charges for infrastructure on its platform accord- four years to rebuild for the cloud.”
ing to a true pay-per-use model. “We offer a 30-day term for Of course, MYOB would disagree with that point of
the consumption of storage and computing,” McNaught says. view. Smith says when cloud offerings require customers to
“At any period in that 30 days, the customer has the ability make a complete leap from the desktop to the online world
The cloud is stuff it acts as a barrier to adoption. “And we’ve got quite a lot of
to turn the server off and while the server is off they’re not
charged for the compute component. That’s a 30-day term you do online. That’s research to back that up.”
and a 90-day termination for convenience, so there’s no the way we position MYOB is working with research analyst McKinsey to
lock-in for this type of enterprise service, which we think is help it evaluate and provide feedback on the ways business-
it for our clients. es would like to work. The vendor asked 956 New Zealand
unique in the market.”
SaaS vendors also offer a variety of payment models. Julian Smith businesses how appealing the cloud was compared with
New Zealand general manager of accounting software spe- New Zealand general both maintaining the status quo and a combination of the
cialist MYOB, Julian Smith, says MYOB takes a “pure devel- manager, MYOB two. Smith says 59 percent of its respondent businesses said
opment view” of what a cloud application is: “The cloud is they want the richness of a desktop client and the speed of
stuff you do online — that’s the way we position it for our running their own application, along with all the features
clients. Cloud or net-based solutions are based on a monthly of being online.
subscription model, which is quite good for cashflow, no MYOB remains altogether cautious about use of the
upfront cost, but you keep paying forever and businesses term cloud. “We talk about the cloud to our developer
might want to factor into their thinking the total cost of partners or technologists, but when we’re speaking to end
ownership of the service. Whereas, for as little as $250 you users or clients we just talk about being online — we don’t
can buy quite robust accounting software from us, and that’s use the word cloud by choice,” says Smith. “Over time, that
all you have to pay.” term will become more mainstream but it’s not that mean-
Local MYOB competitor Xero’s early adoption of a SaaS ingful.”
model for the delivery of accounting applications helped Even Xero’s Drury agrees that the term ‘cloud’ acts as
to add currency to the term ‘cloud services’. The company a turn-off to consumers. “When we talk to customers we
has been in the news again with the announcement it will never talk about cloud computing. We talk about the online
benefit from $4 million investment boost by PayPal founder benefits.”
Peter Thiel. Xero CEO Rod Drury says it would be prudent Smith says MYOB will use Microsoft’s Azure platform
for organisations seeking a cloud provider to be concerned to deliver its next generation of accounting applications,
about sustainability when comparing pricing models. and that this will eventually replace all of its existing
“We’ve seen a lot of ‘freemium’ [online applications avail- desktop software. The new offerings are scheduled to be
able at no fee, but with a premium charged for advanced released in the first quarter of 2011. “It’s taken us a very
features] companies that have packed up and gone home. long time to feel comfortable that online technologies can
Trying to provide things for free is a really hard business work in such a way that we don’t have to ask our clients to
model to build a sustainable business on. It can be a pain compromise the way they do things,” says Smith.
moving things if the business doesn’t exist in the future and
there’s a lot of very, very small companies getting into this Mix and match
space.” Steve Matheson, chief operating officer at Datacom
New Zealand, says a mix-and-match approach should pre-
Best or worst of both worlds? vail when organisations are evaluating whether they would
MYOB uses the hybrid delivery model, which Smith suit working in the cloud. “Businesses should look at the
describes as “the best of both worlds” for its business applications they require on a case-by-case basis and con-
customers. “We create demand for our solutions by really sider cloud offerings alongside the other options available.”
knowing what pain points businesses have and then show- Infor’s Maniscalco says many CIOs are currently mus-
ing them how our solutions will meet them,” he says. ing whether they’re suitable candidates for the cloud, which
But Xero’s Drury dubs MYOB’s hybrid delivery model will largely be determined by their intellectual property and
“the worst of both worlds”. He says pure cloud vendors security concerns. “One thing most agree on, the cloud is
provide real innovation, which scares traditional vendors a natural fit where the application is deemed a commodity
56 Start – technology in business Quarter One 2011

4. CLOUD COMPUTING
and has a requirement of continuous availability —
email, CRM, expense management and budgeting
all maintain the characteristics to be a natural fit.”
A few companies may already feel that they could be
operating all or most of their business applications in
the cloud. Maniscalco predicts almost all businesses When we talk to
will eventually operate this way. “The IT cost customers we never
reduction and the mere fact that the company can talk about cloud
focus on its core business, rather than managing
an IT infrastructure are just too compelling to computing. We talk
ignore. At the present, those best suited to work- about the online
ing in the cloud are those organisations that want benefits.
to reduce their operating costs and manage their
business, not IT.” Rod Drury
Many column inches are given over — and, it has Xero CEO
to be said, largely for the benefit of local cloud providers
promoting their own offerings — to the effect of unsched-
uled downtime on your customers, uncertain data jurisdic-
tion and the service level constraints of moving your data
to an offshore cloud provider.
Privacy an issue IBM: Cloud gives businesses
Daniel Roberts, managed hosting team leader at local
cloud infrastructure provider ICONZ, says the prevailing
a chance to innovate
data privacy laws are a crucial consideration for prospec-
tive cloud customers. “You need to know the laws in the P hil Sheehan, IBM NZ’s Cloud Specialist, is also an expert of try-
ing to demystify the cloud for IBM’s many clients. He said busi-
countries you’re buying these products from, how they nesses should think of cloud in terms of the services it will provide,
relate to New Zealand laws and what your options are. If and not simply in terms of a compute/storage network.
that’s a concern to you, you need to take that into consid- “While there is always risk in transforming IT, cloud can offer a high
eration. Because you can’t guarantee this physically, ask quality user experience, enabled by dynamic infrastructure, leading
what country the provider’s data centres are in, look at the to significantly improved supply economics. While virtualisation is a
stability of the governments, do they have data privacy component in any cloud story, it's not the end game.”
laws and what are they like? Or have they put their data
So what does Sheehan put down to being the key to achieving an
centre in a particular country because it’s cheap?”
optimal and effective cloud computing experience for the end user,
While choosing a local provider gives you the protec-
thus maximising value to the business? He replied: “Consolidating
tion of New Zealand’s relatively robust privacy legislation,
assets, increasing utilisation, and standardising and automating to
it doesn’t automatically protect your data or your custom-
improve service delivery and lower operational labour costs.”
ers against unplanned downtime. Datacom recently expe-
rienced an unscheduled outage that briefly affected some Get outstanding results
of its New Zealand customers. The outage occurred shortly Cloud computing offered businesses a real chance to innovate with
after the company installed its enterprise cloud platform in the potential for outstanding results, said Sheehan.
its Auckland, Wellington and Christchurch data centres. “Innovation has been described as brand new ideas and methods
Datacom’s Christchurch data centre opened shortly that change the game and give you an advantage over the competi-
before the September earthquake and survived it undam- tion - at least for a while - and the never ending search for improved
aged. Matheson says the enterprise quality cloud ser- productivity and efficiency i.e. doing more with less, and better than
vices it offers from its data centres are accompanied by before.
high-speed, relatively low-cost fibre connectivity options.
” From both of these perspectives, cloud computing offers busi-
Investment is underway to extend the cloud platform to its
nesses a real chance to innovate with the potential for outstanding
Australian data centres.
results,” said Sheehan.
Just under 100 customers are currently using Datacom >
Quarter One 2011 Start – technology in business 57

5. FEATURE // SaaS
provisioning model. But Datacom’s Matheson says a pure
play cloud offering is difficult to achieve unless applications
have been specifically designed to work in the online envi-
ronment.
“Applications that meet these requirements are begin-
ning to arrive, but the technical difficulty and cost of build-
ing sophisticated applications is hindering progress. That
said, pure cloud applications are appearing and some have
successfully navigated the technical challenges to produce
great outcomes, despite variable internet performance.”
Matheson says Datacom’s NetPay payroll service is an
example of a pure cloud service. It was developed 10 years
ago and its latest release interfaces with Xero. “This inter-
net-based payroll software is designed for smaller organisa-
tions and was intentionally built less functional than our
other offerings so it could be user-provisioned without our
cloud services, says Matheson. “We’re finding that most assistance. Customers are charged on a monthly subscrip-
new customers are looking for both the traditional and tion basis, upgrades are managed centrally by Datacom —
cloud approaches — mix and matching to their require- removing any complexity for the end user — and the appli-
ments — and we expect this trend to continue.” cation is accessible from any internet-connected browser.”
NIST defines private cloud as an on- or off-premise
SLAs: nice on paper This industry runs on cloud infrastructure operated solely for an organisation and
So how can organisations ensure they receive the service hype. It’s a matter of either self-managed or managed by a third party. Critics of
levels they demand of a cloud provider? “The way you do private cloud say it isn’t really cloud computing at all, mere-
that is by ensuring you have a detailed and well-thought-out
stepping back and ly a way for big server vendors to greedily hold onto market
service level agreement with appropriate penalty clauses in it applying some basic share, which would suggest a symptom that cloud hype
for non-compliance to ensure that the vendor is motivated to common sense — is as rife among traditional hardware companies as it is
respond accordingly,” says Horizon Consulting’s Kumove. among software vendors. ‘Cloudwashing’ is the attempt to
Local cloud providers place their responsiveness to sup-
don’t get blinded by ride the cloud-related hype wave, with offerings described
port and provisioning requests near the top of their lists of the hype. as cloud-enabled even when that may only be partially true.
reasons to choose them. However, the same providers rarely Aaron Kumove “Everyone’s talking about private cloud and that’s a
mention that the major overseas players are running global managing director, reaction from the traditional vendors,” says Dr Michael
24x7 operations, have the economies of scale and the reputa- Horizon Consulting Snowden, director of local cloud provider OneNet. “What
tion to insure against unscheduled downtime. do you think their negotiating strength is when they’re sell-
If you’re paying for top-of-the-range service from a large ing servers to Microsoft, to Amazon and Google? They’ve
European or US provider, you’re also likely to benefit from got no strength as opposed to selling to a distribution chan-
chat room and forum-based assistance, as well as phone and nel and individual buyers. Their market is not only being
email support. On the flipside, however well written your commoditised, it’s getting smaller and smaller. So they say
service level agreement with an overseas cloud provider may to the CEO, ‘Don’t worry, we’ll build your cloud inside,
be, it’s likely to be unenforceable — unless you belong to a you’ll get the same benefits!’ But the truth is you just can-
government agency or a large multinational. not get the benefits.”
Ben Kepes, analyst and blogger also sits on the boards Nevertheless, private clouds may remain attractive to
of a number of commercial and not-for-profit organisations, larger companies. “At the turn of the twentieth century,
and is regional organiser for CloudCamp, a non-profit cloud most manufacturers generated their own power. The eco-
computing event. His view: “An SLA is a fantastic thing but nomics didn’t make sense once the power networks were
you don’t really ever want to have to use it.” put in place,” Infor’s Maniscalco points out. “There are
still manufacturers who generate their own power, but
Pure play, pure cloud, private cloud… most buy their power off of the grid without any expertise
So-called pure play cloud is generally taken to mean around generating power. The internet is having the same
no on-premise hardware, with computing delivered com- effect on computing.”
pletely via the internet to a browser in an automated, self-
58 Start – technology in business Quarter One 2011

6. CLOUD COMPUTING
Trouble in the engine room
You don’t have to think for long before you start delib-
erating about cloud computing’s potential for disruption in
the industry as a whole. Customers must continue to chal- OPINION
lenge vendors who claim to be cloud-ready, until they’re
satisfied they’re not just buying something cloudwashed by
Server vendors’ days are numbered
a rebadged hosting or application service provider. Fujitsu’s By Renai LeMay
McNaught says cloudwashing is a disappointing side-effect
T
of the increased interest in cloud and cloud services. “We’ve his week I had a conversation with an In addition, Komatsu has negotiated what it
spent 18 months investing to deliver a true cloud service and Australian chief information officer which calls ‘technology refresh windows’ with the
we’re not sure a lot of the market has done that.” I considered both profoundly interesting — telco, where it will meet with Telstra and dis-
There’s little doubt a global movement to working in but also extremely disturbing. cuss the incoming wave of new technologies,
the cloud would change the economics of the IT industry with the aim of ensuring there is a common
I was speaking to Komatsu general manager
forever. Even some sceptics concede that if cloud adoption understanding about the future development
of IT Ian Harvison about his company’s recent
approximated industry predictions it would change employ- of Telstra’s platform and the governance of it.
decision to stop operating its own datacentre
ment dynamics, with fewer hands-on operational staff
and server environment and shift its servers Harvison said the last thing his company
needed to run and maintain inhouse hardware. “You’ll prob-
into an infrastructure as a service offering pro- would want is to get stuck on old technology
ably still need the strategists, the analysts, the business archi-
vided by Telstra. At one point, I asked Harvison being used by its supplier. And the converse
tects,” Horizon Consulting’s Kumove acknowledges, “but the
about the underlying server platform which also applies — his company wouldn’t want
hands-on operational folk you probably won’t need.”
Telstra was operating. things to advance so fast that its applica-
Smith of MYOB foresees only a kind of migration rather
tions wouldn’t be supported by underlying
than an extinction of skills. “I don’t see it eliminating lots His answer was nothing short of revolutionary.
infrastructure — such as Telstra’s virtualisation
of IT jobs. Businesses are still going to need telephones and
“We’re not interested in the technology at all platform, for example.
mobile phones and laptops that access the internet, and they
… from our perspectivewe don’t care what
all need servicing and managing.” However, the fact remains, that Komatsu is
the hardware is at all,” he said. And the execu-
McNaught of Fujitsu is also unconvinced by sugges- now a concrete example of a major Australian
tive went even further. “We’ve negotiated
tions the industry will experience a loss of operational jobs. end user which does not give a flying $%^&
quite robust service level agreements with
“Cloud will finally drive standardisation in an industry that’s about what server infrastructure is powering
Telstra,” he said. “As long as Telstra delivers the
struggled with standards. There’ll be less systems integration its more than a hundred virtual machines.
SLAs, who they partner with, and what they’re
and customisation. We’ll see a simplification of IT skills in This is a CIO of a major Australian organisation
running on, is a Telstra-driven initiative.”
some areas.” who simply does not buy servers. You’re wasting
But Infor’s Maniscalco agrees with Kumove that a shift Shocked, I laughed and pointed out to your time calling him, if you’re a server vendor.
to the cloud would foreshadow a shrinking in the size of Harvison that server vendors — companies
And that fact must give any vendor who sells
IT departments. “When the computing resources are con- like Dell, Sun Microsystems, HP and IBM —
into the datacentre pause.
sumed as a service there’s less and less need to employ server would be appalled at the statement that he
administrators and application experts to manage the install, had just made. After all, these companies The reality is that in future, there are going to
patching and testing process for upgrades and fixes.” have been selling servers in the dozens and be much fewer discrete datacentres operated
It’s a mistake, then, to view cloud computing as an all- even hundreds to companies like Komatsu for by major Australian organisations. Things
or-nothing business model. While it may be appropriate for decades now. are consolidating fast. Harvison’s comments
highly commoditised aspects of your operations, prospective represent a sharp warning to enterprise IT
But Harvison didn’t blink.
cloud converts should think carefully before placing applica- vendors: You had better start considering
tions that provide competitive advantage in the cloud. “At the end of the day, their relationship needs what your strategy is for selling your solutions
“This industry runs on hype,” Horizon Consulting’s to be more with the cloud partners, as op- to large service providers.
Kumove cautions. “It’s a matter of stepping back and apply- posed to the end customer,” he said.
Right now, the list of service providers selling
ing some basic common sense — don’t get blinded by the
Now, to some degree Harvison and his team the sort of infrastructure as a service or private
hype.”
will maintain an interest in what kind of cloud solution which Komatsu is buying is
In an old Punch cartoon a curate is breakfasting with
hardware platform which Telstra is providing. small — some of the names on the list include
a bishop. The bishop says, "I'm afraid you've got a bad
For example, the executive mentioned that he Telstra, Optus, Fujitsu, CSC and so on.
egg." Afraid of offending him, the curate replies, "Oh, no,
had been interested in what storage systems
I assure you that parts of it are excellent." It might pay to
Telstra was running.
treat cloud computing the way that curate rated his egg.
Quarter One 2011 Start – technology in business 59