Lets talk business: Cloud computing for the small and start up business.
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This presentation on how cloud computing can work for small business. was the opening of the 2011 City Of Sydney's "Let's Talk Business" series. Lets Talk Business is a program of four practical learning and networking events at Sydney's Customs House to provide the most up to date information and case studies on digital technology transforming the way Small to Medium Enterprises do business.
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Lets talk business: Cloud computing for the small and start up business.
- 1. The Networked Business How cloud computing is revolutionising business
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Editor's Notes
- The IT industry loves buzzwords and one of the biggest buzzwords at the moment is Cloud Computing. Another thing the IT industry loves is overselling concepts, think of Y2K or the Dot Com Boom, so in this presentation we’ll look at what cloud computing is, whether it’s being overhyped and what it can realistically do for today’s businesses. In 2003 Nicholas Carr wrote in the Harvard Business Review that Information Technology no longer matters. In Nick’s view, computers, the Internet and IT are all becoming a utility and we’ll take computers and the Internet for granted just as we in the Western world consider clean running water and electricity today. That point of view is probably true and the always on nature of the Internet and cloud computing is bringing us closer to the day we’ll assume IT is always there. In the always on, always connected society each of the nodes we see on this screen could be a customer, a supplier, an employee or even the tax man and this changes the way we do business. But every innovation has its risks and every revolution its victims. So we’ll look at the risks as well as the opportunities in an economy where cloud computing is changing the fundamentals of our businesses.
- Before we go on, let’s explain what the cloud is. The analogy of a cloud is quite appropriate, just as a rain cloud is made up of many individual water particles, the Internet is made up of millions of computers talking to each other. In fact there are so many computers on the Internet that the Internet Protocol version 4 developed in 1980 allowed around 4 billion address and we’ve just run out of those. The Internet Protocol 6 now being introduced allows 34 undecillion addresses. An undecillion is a trillion, trillion, trillion so 34 undecillion addresses is a big number, although in 1980 4 billion seemed to be a lot and it was unthinkable we’d use them all up in 30 years. The Internet though was designed to survive the unthinkable. Surviving a nuclear war was the reason for the Internet’s design. The fundamental idea behind the net is redundancy, should one group of computers fail the network adapts and sends the information around the damaged area. The same principle applies to cloud computing, the tens of thousands of computers in each data centre – the buildings that house the cloud computing companies – are duplicated many times so if one or a hundred fail then others will pick up the work and the person using the service should never notice there has been a problem. Naturally the data centres themselves are duplicated so the failure of one centre won’t interrupt the service. When you open a document in Google Docs, the data and the program are being run on computers in Oregon, Belgium possibly even here in Sydney. Interestingly, the computers in these data centres are cheap and basic with most of them having less power than our home or office desktop computers. The real power lies in combining the capabilities of these modest systems, as a group they are far more powerful than most supercomputers. For our purposes we can define cloud computing as using someone else’s computers to do the work rather than our own systems.
- The idea of cloud computing isn’t new, it goes back to the earliest days of computers. Until the arrival of the personal computer, academics and businesses had to use mainframe computers where time was allocated to them by the computing department. These were only really feasible for well resourced organisations. The Personal computer took the data off the servers and onto the desktop. It’s notable that IT departments back then resisted introducing personal computers for almost identical reasons that they are resisting cloud and web based services along with social media tools today. PCs and later laptops and smartphones had advantages that the old mainframes could never offer and while the old ways of centralised computing didn’t go away, most people and businesses preferred the advantages of the smaller, more flexibile systems. With the arrival of the Internet, it was possible to link computers in the same way again and take advantage of the economies of scale of what we call client-server systems while retaining the benefits of personal and mobile computing.
- This scalability, or flexibility, of cloud computing changes the way we buy and use technology. No longer are we locked into major technology investments as leasing services off larger companies means we don’t have the capital costs of investing in computers, servers and all the associated software purchases and support charges. An architect or designer a few years ago might spend $10,000 per employee every three years kitting them out with the latest workstation capable of running AutoCAD or another high end design program. While some businesses still need that sort of investment, most can now get away with just a computer running a web browser and the boss can pay the monthly bills on her credit card rather than having to take out a loan against the family home. The 19th Century Prussian general, Helmuth von Moltke said “no battle plan survives first contact with the enemy” and similarly no business plan survives its first contact with the marketplace. The flexibility of cloud computing means we aren’t locked into expensive technology choices as our business evolves to meet the changing demands of our customers and industries.
- Collaboration is another of the big buzz words of today’s economy. The truth is all successful businesses are a collaborative effort and have been since the days of cavemen hunting mammoths. One of the biggest irritants with PC based systems is how they are designed for one user at a time and how many force you to pay for an unreliable multi user versions. Think about Microsoft Word, if you’re accessing it on the network you’ll find only one user at a time can read or edit it. This was true of the older desktop accounting packages. The older, desktop based accounting packages only allow one user. Their multiple user, network packages are expensive and clunky. The cloud based systems like Xero or Saasu, an online service based out of Elizabeth Street here in Sydney come with the teamwork functions built in. Recently at a workshop in Melbourne, a director of a large services company told me how his board of directors are using Google Docs to work together on agendas and committee documents. Using cloud services are saving him and his colleagues many hours of work and avoiding having big piles of documents dumped on them the weekend before their board meetings. The team aren’t just your employees, it can also be your customers, suppliers and other business partners. Cloud services allow you to share selected information without compromising your own systems.
- By definition your customers and suppliers aren’t in your office. Increasingly your staff and even the boss aren’t there either. Working on the move has been one of the great weakness of both PC computing and the mainframe era. Cloud computing, made possible by accessible and affordable Internet, means we can now easily access data and applications while we’re on the road. Remote working has been possible in the past, but it was awkward and difficult. To set up secure connections usually involved setting up a complex and flaky Virtual Private Network that tended to choke at the times you needed it. In my own IT support business we saw this a number of times where we struggled to set up reliable remote networking connections. For instance the owner of a business in Pyrmont decided to move his home to Orange and telecommute into the office. At the same time his assistant had a baby and wanted to work from home. The juggling of hardware and server requirements so the client had a secure and reliable service was difficult and expensive. Today the use of online accounting and office packages along with cloud based document sharing services like Dropbox, that business could be paying $100 a month without any upfront capital costs.
- Those capital costs are real, a five person Sydney law firm I know ended up spending thirty thousand dollars when their software provider told them they had to upgrade their systems. Much of a big or small businesses IT budget goes into building impressive technological edifices that add little to the profitability of the business. Worse, IT is a time consuming beast – in a big business hundreds of people are employed to keep their computers running. In a small business, the proprietor or manager spends a disproportionate amount of time messing with technology. Cloud services take a lot of that load off businesses. We should keep in mind though that this is as big a benefit for big businesses as well as small. Last year the Commonwealth Bank of Australia announced they were moving services to the cloud. The big end of town has woken up to the benefits of cloud computing, while they have a problem in dismantling their massive structures once they do they will be stronger more nimbler competitors as their cloud platforms make it easier for them to respond to market changes.
- As large businesses are learning, removing big capital costs reduces barriers to testing new ideas. It means getting a new business up and running is cheaper and quicker than ever before. On the back of Sydney Buses at the moment you’ll see ads for Freelancer.com, stating you can get an iPhone app or website developed from $30. While the reality is you’ll pay quite a bit more than that, the point is well made – with a web browser and a credit card you can outsource large parts of your business. Most of these outsourcing businesses are run on cloud services. Many of the social media successes like Facebook and Twitter grew by hiring space off cloud computing services such as Amazon. For established businesses, the cloud is changing the very fundamentals of their operations. One of the biggest growing areas in the outsourcing industry is the legal profession where law firms are giving lower level work to companies in India that can carry out the tasks of junior lawyers or paralegals. The cloud technologies these services use allow the law firms to supervise and bill for the workers as if they were in the same building. Because you can be up and running in minutes using cloud computing services without the need of installing software on your computer, let alone the time involved in managing and downloading updates, it’s a quick and effective way to grow your business.
- There are some misconceptions about the cloud services though. Just last year, the Australian Financial Review ran a front page article headlined “massive savings to be made in the cloud” stating that cloud services can save a business up to 80% on its IT spend. Many industries have made the mistake of relying on cheap prices to get customers through the door. Think of Myer’s problems with their perpetual sales, a mistake being repeated today by dozens of smaller businesses offering 80% off meals or haircuts through the group buying services. In the Internet based industries we’ve made the mistake of training our customers to believe we can do everything online for free. Free is an illusion, there is almost always a cost and on the net you’ll either pay by spending time or giving away your own, or your clients’, privacy. The better services cost. The most successful cloud service, Salesforce.com, is quite expensive although still substantially cheaper than the server based alternatives. Many services though are based on the freemium model, when you need additional features or grow beyond a certain size charges kick in or increase with your needs. Mail Chimp, an online email management system is an example. Late last year I resurrected a mailing list which hadn’t been used for 18 months. I chose to pay the fee for MailChimp as their management service would deal with the hundreds of invalid addresses and unsubscribes a neglected mailing list always attracts when you restart it. Not only did MailChimp deal adequately with these problems but it also took the size of the mailing list below the 2,000 name threash hold for their free service. So spending a bit of money actually saved a lot more money and a massive amount of time. It also illustrated the flexibility of cloud systems and their pricing models.
- Nothing though is risk free. Any technological change comes with risks; electricity changed humanity but thousand of people die every year from misusing it. We can say the same for the motor car, steam engines and penicillian. For all the benefits of Internet technologies they too have their own risks. In cloud computing we can divide them into three major groups; Reliability, Terms of service and Security
- Probably the most misunderstood, and so riskiest, aspect of IT is security. Most business people over estimate the security of their own systems and are shocked when their data is compromised by viruses, hackers or, most commonly, their own staff walking out the door with vital information. Cloud services generally have better security than most business networks as they have the resources to deal with the massive task of keeping computing systems secure, but there are still risks in using online providers. Strong passwords begin to matter and guarding them is important as well. Granular access, not giving everyone access to everything also becomes very important. This is also a common problem on small business networks. Accessing cloud services from shared computers or through unsecured wireless networks is probably the biggest danger, particularly with mobile workers. It’s important any provider you use offers encrypted services, which you can tell from the login page showing https:// at the beginning, and making sure you log off when you finish using computers in Internet cafes or in other people’s offices.
- When using cloud services you have to understand these are someone else’s computers you are occupying so you have to play by their rules regardless how arbitrary they seem. Wikileaks is a good example of how large cloud and Internet providers use ToS to shut down customers they don’t like. You don’t have to upset the CIA or Julia Gillard to get into trouble. Victoria Buckley Jewellers in Sydney’s Strand Arcade uses beautiful porcelain dolls to model their products. One of the female dolls has nipples and Facebook shut down Victoria’s account after a series of photos showed the doll topless, nudity being a breach of Facebook’s conditions. A more common problem is eBay shutting down traders’ accounts on spurious piracy claims. This is very common and genuine risk to anyone running an online store relying on PayPal or eBay. Probably the best example of silly piracy claims is when the University of Florida hit the Flickr photo sharing service with claims that every photo with a description containing the words “Florida” and “football” was a breach of their college grid iron team’s copyright. The howls of outrage from angry Flickr users when their pictures of kids playing football while on holiday in Florida or local team photos were taken down soon convinced both organisations that their actions were hasty and ill-advised. The problem remains though that online services are still too quick to shut down other people’s services so you need to plan for these type of disruptions.
- Tied closely into the terms of service is reliability. Reliability is at the heart of all technologies. If something breaks down most of the time you use it, then it’s of little use to your business. If you are using a cloud service you need to have both reliable internet connections and a provider you can trust. This is why free services often don’t cut it for business use. One aspect cloud services and technology companies often sell is the Service Level Agreement or SLA, these offer a refund if the service doesn’t perform to set standards. While SLAs are useful, they don’t make up for the disruption a service interruption causes your business. As Virgin Blue found during their service problems late last year. As we’ve seen with the recent natural disasters in Japan, New Zealand and Queensland, the Internet routes itself around problems. So if you are in a problem area the challenges of keeping your business operating may be increased while communications are still being repaired Redundancy is the key, just as the Internet and cloud computers have redundant features, so too should your systems. You have to choose providers that let you easily download usuable data from their services in case you find yourself offline or unhappy with their product.
- Cloud computing is part of the future of of business. Increasingly it’s going to become of fundamental part of our society as we become more connected. Business is open 24 hours. Even if your office or staff aren’t working at 4am on a Sunday, customers are checking your website to look at your products. If you are selling online, everything has to be running. The cloud is not a tool for every business. For some, the risks or limitations mean they are better served running application or storing data on their own computer. For most businesses though the cloud changes the game, it makes them more flexible and productive. In an era where we’re seeing massive change in our economy and society, it’s the business who can respond quickly to the new normal who will survive and prosper. Cloud computing helps businesses adapt and are part of the key to running a successful enterprise in the 21st Century.
- At the moment we are putting 20th Century ideas on how we use the Internet. Slowly we’re figuring out how to use it in new ways. Watching and sharing videos is a 20th Century activity. Valid in this century, but not the whole game. Working patterns will change as communities adapt to demographic and technological change. Social patterns change as we connect both online and offline. open your ideas on where this is taking us