Hometown News

BRYAN MCKAY

Welcome back. This month we’re going to discuss the economics of Cloud Computing and the driving forces that are pushing this disruptive technology forward. There are many similarities between the production and consumption of electricity as a utility and Cloud Computing, not the least of which is the economics.

In my October column I introduced Burden’s wheel and drew a parallel between power generation in the early 19th and 20th centuries and Information Technology today. Power generation was to a manufacturer in the 19th century as IT is to a business today. And this parallel is important because most manufacturers in the 19th century were small and medium size businesses. We didn’t have global companies or conglomerates back then. They were like most of us. And power was a necessity just like IT is today.

Try and imagine life back in the day. We lived by coal oil light, oil lamps and candle light. We heated our homes with coal or wood. We kept warm with layers. Lots of layers and scarves and blankets. Those of us who worked in a manufacturing plant probably lived nearby and walked. Commuting wouldn’t happen for almost a hundred years. The work was hard to be sure. Most workers either ran machines or moved raw materials and finished goods around. Most work involved some form of machine and machines needed power (mechanical or electrical). And since power couldn’t be transported any distance, it was made in the power plant next to the factory. It took an army of men and a mountain of money to buy the equipment and build the power plant, operate it, maintain it, and fix it when it broke down (which was often). All that just to keep the lights on.

In my November column I introduced a new approach to IT – cloud computing and drew the comparison between contemporary IT and cloud computing – at a personal level. I also tried to define cloud computing and give it some substance.

This month, in order to understand the economics (and ultimately the benefit to small business) let’s consider another example, this time a small business.

Let’s consider a small professional firm of say 20 people. We would expect to see a bustling office, perhaps in a business park, a renovated old multi-story building downtown, or even a renovated old Victorian style home. When you arrive you are greeted by a friendly receptionist and asked for your name and whom you are there to see. You take a seat and wait. While you are waiting you notice the receptionist has what appears to be everyone’s calendar open on her computer along email, chat and a few other windows. A few minutes later you are sitting in a rather comfortable office for your appointment. And on the desk is a very familiar laptop with calendar, email, chat and several other windows open. Spread across the desk were several files neatly stacked, a tray for mail and few magazines, and not much else. The laptop was the central focal point. Looking around it was clear each office was very similar. Computers and the applications we run on them (calendars, email, CRM, office applications, chat and many others) have become the focal point of daily business life.

In the background is the IT machinery that makes all of this work. In a typical office like the one above, there will be a room somewhere in the building with numerous devices, servers, network gear, wires and gadgets all humming away with blinking lights. That’s the server room. Not far from the server room there will likely be another room with a few computers and monitors, bookcases with reference manuals, and boxes with keyboards, mice, mouse pads and numerous other gadgets and wires. No humming and no blinking lights. This room is for the technical folks who keep all the gadgets humming and the lights blinking. When something goes wrong we go see them. We all know they are there. But we don’t really know what they do.

Those two rooms are like the “power generation building” of a hundred years ago. They both do the same thing essentially – they keep the lights on. And they are very expensive. And they are not your core business. In fact they are not part of your business at all. Although this is how things are today for most businesses, it wasn’t always that way (remember the old days when we didn’t have computers?) and doesn’t have to be in the future. There is an alternative.

And that alternative is Cloud Computing. And the economics is quite simple. A hundred years ago or so the power companies turned electricity from something you created yourself (at significant cost – capital cost for generating equipment etc. + labour to install maintain and upgrade and a building to house it all) into something you consumed (an on-demand service and fee for the amount of electricity consumed to run your factory and keep the lights on). The same shift is happening with computing today. Cloud Computing providers have built enormous data centers that provide the same computing services most small and medium business have onsite today – servers that provide file storage, backup facilities, email servers, chat services, office applications, business applications and many others. All that’s required to access those applications is a simple laptop with a browser, a wireless network, and an internet connection. And all of that is available on-demand as a service for a fee for the computing you consume, or quite often for a fee per user per month.

No more servers. No more software to install. No more gadgets to maintain. No more capital expense. No more ongoing software updates. No more maintenance outages. No more headaches. Your IT budget just became an ongoing operating expense you can easily budget for, and it just works – just like the production and consumption of electricity as a utility. By consolidating the capital expenditures on Information Technology the Cloud Computing vendors are able to deliver computing as a service for a fraction of the cost and spread that across an enormous client base, just like their predecessors did with the generation of electricity a hundred years ago. In the future, we won’t buy technology. We will become consumers of Information Technology services using our many devices.