10.6 Cloud Computing: Hype or Hope?

Oracle Chairman Larry Ellison, lamenting the buzzword-chasing character of the tech sector, once complained that the computer industry is more fashion-focused than even the women’s clothing business.D. Farber, “Oracle’s Ellison Nails Cloud Computing,” CNET, September 26, 2008, http://news.cnet.com/8301-13953_3-10052188-80.html?tag=mncol;txt. Ellison has a point: when a technology term becomes fashionable, the industry hype machine shifts into overdrive. The technology attracts press attention, customer interest, and vendor marketing teams scramble to label their products and services as part of that innovation. Recently, few tech trends have been more fashionable than cloud computing.

Like Web 2.0, trying to nail down an exact definition for cloud computing is tough. In fact, it’s been quite a spectacle watching industry execs struggle to clarify the concept. HP’s Chief Strategy Office “politely refused” when asked by BusinessWeek to define the term cloud computing.S. Hamm, “Cloud Computing: Eyes on the Skies,” BusinessWeek, April 24, 2008. Richard Stallman, founder of the Free Software Foundation said about cloud computing, “It’s worse than stupidity. It’s a marketing hype campaign.”L. McKay, “30,000-Foot Views of the Cloud,” Customer Relationship Management, January 2009. And Larry Ellison, always ready with a sound bite, offered up this priceless quip, “Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane.”D. Lyons, “A Mostly Cloudy Computing Forecast,” Washington Post, November 4, 2008. Insane, maybe, but also big bucks. The various businesses that fall under the rubric of cloud computing had already grown from an estimated $36 billion market in 2008 to $68 billion in 2010, accounting for over 13 percent of global software sales!M. Liedtke, “Cloud Computing: Pie in the Sky Concept or the Next Big Breakthrough on Tech Horizon?” Associated Press Newswires, December 21, 2008; A. Gonsalves, “Cloud Services Top $68 Billion in 2010,” InformationWeek, June 22, 2010.

When folks talk about cloud computing they’re really talking about replacing computing resources—either an organization’s or an individual’s hardware or software—with services provided over the Internet. The name actually comes from the popular industry convention of drawing the Internet or other computer network as a big cloud.

Cloud computing encompasses a bunch of different efforts. We’ll concentrate on describing, providing examples, and analyzing the managerial implications of two separate categories of cloud computing: (1) software as a service (SaaS), where a firm subscribes to a third-party software-replacing service that is delivered online, and (2) models often referred to as utility computingA form of cloud computing where a firm develops its own software, and then runs it over the Internet on a service provider’s computers., which can include variants such as platform as a service (PaaS) and infrastructure as a service (IaaS). Using these latter techniques, an organization develops its own systems, but runs them over the Internet on someone else’s hardware. A later section on virtualization will discuss how some organizations are developing their own private cloudsPools of computing resources that reside inside an organization and that can be served up for specific tasks as need arrives., pools of computing resources that reside inside an organization and that can be served up for specific tasks as need arrives.

The benefits and risks of SaaS and the utility computing-style efforts are very similar, but understanding the nuances of each effort can help you figure out if and when the cloud makes sense for your organization. The evolution of cloud computing also has huge implications across the industry: from the financial future of hardware and software firms, to cost structure and innovativeness of adopting organizations, to the skill sets likely to be most valued by employers.