– Karthik Viswanathan, head of marketing at Aspire Systems (www.aspiresys.com), says:

Many continuous attempts are being made to unveil the ambiguity of “cloud computing” and to arrive at a standard definition. In simple terms, it can be explained as IT capabilities delivered as a service over the internet to many users. It is an approach to delivering services that harness the twin powers of economies of scale and virtualization. It enables an application to get as many services/storage resources/servers as required. Importantly, the resources can be rapidly provisioned and released with minimal management effort or service provider interaction. Its major promises are on-demand resources and the potential to do away with long cycles of software product installations and on-going maintenance.

The Cloud Computing market is typically segmented into public clouds (offered over the internet), private clouds (internal to an organization typically spread across geographies) and hybrid clouds (a mix of both). As the name suggests, the private cloud operates within the firewalls of the organization and hence is more secure. It is especially suited for large organizations (eg: government, GE etc) that do not yet trust the reliability and cost effectiveness of public clouds. It is also a great way to pilot your cloud strategies and course correct as needed. Another option is to adopt a spill-over or surge-computing approach – i.e. outsourcing just the peak loads to cloud. But this increases the complexity of the system.

The cloud market is often sub-segmented into IaaS (Infrastructure as a Service), PaaS (Platform) and SAAS (Software). IaaS is all about remote servers, storage, and computing power. Amazon Web Services (EC2, S3 etc) is the classic example. Costs vary from 10 cents an hour for a small server to $1.20 for a large windows server. PaaS vendors provide a platform to rapidly build and deploy your software on remote infrastructure. Their value proposition is that they provide ready-to-use functionalities, typically in the form of services that can be rapidly assembled to build market-ready software. Hence, one need not start application development from ground zero. SaaS is the popular trend of delivering software applications over the web. In fact, SaaS triggered the push towards cloud computing by demonstrating that enterprise and consumer services could be easily made available over the Web. While SaaS vendors originally did not use the word cloud to describe their offerings, SaaS is generally considered a subset of the cloud computing market.

There are also newer services like Cloud Platform management services, Integration as a Service, Security as a Service, billing as a service and so on. As cloud computing matures, more such services will evolve to ease the adoption of cloud computing.

Cloud vendors tout lower costs and conversion of Capital Expenditure (Capex) to Operational Expenditure (Opex) as key benefits. In software industry, opex seems to be more acceptable than capex because unlike physical assets, software is intangible to a certain extent. But you should do the math from a medium-long term perspective (factoring the time value of money principle) to see if this really applies to you. Typically in medium-large organizations, there is also a dependency on the departmental budgets (who is going to pay for the cloud?). Also, some departments may not have the budgetary approvals to make large upfront investments (say, for traditional data centers). The key thing to consider though is that although utilities (eg: EC2 machine images) may cost more when they are used, they cost nothing when they are not used.

While IaaS makes storage cheaper, there are other hidden factors to be considered such as bandwidth & connectivity costs. If your business requirements are such that you will transfer lot of data (50-100 GB) from the cloud to the users on daily basis, then cloud computing may not be cost effective. Moreover, if you start cloud operations and provide your software in an on-demand model, your revenue may be based on the monthly subscription fee and not on upfront licensing. Several financial analysts point out that while this model may be attractive to end-users, the jury is still out in terms of the long-term profitability and sustainability of the provider.
Metrics such as Net Present Value (NPV), Benefit-to-cost ratio (BCR), and Discounted Payback Period (DPP) are relevant when you do the ROI math.

To get the true picture, the overall returns should be calculated for a 3-5 year period as against any immediate/short-term benefits.

We think that the real value in adopting the cloud model comes from increased agility and the ability to seamlessly handle unexpected spikes. Cloud building blocks such as Amazon S3/SimpleDB/SQS, Google’s Big Table, etc provide the foundation to rapidly convert business ideas to web-scale software by enabling developers to focus on the business logic. Building any of these functionalities in-house is too prohibitive from cost and schedule perspective. Rapid prototyping of new functionalities (Minimum Viable Product), ability to simulate internet-scales, near-seamless provisioning and de-provisioning of resources, and the ability to outsmart competition by bringing in better functionalities faster constitute the true bang for the cloud buck.