Economic downturn sparks interest in cloud computing

Facing uncertain economic times, enterprises may be more likely to turn to cloud computing services — such as SaaS (software as a service), Amazon-style utility computing, and managed service providers — for the lower up-front costs, the faster time to market, and the ability to add capabilities quickly without investing in new hardware.

Analysts at Gartner and TABB Group, a research and advisory firm that focuses on financial markets, agree that the current economic downturn is already sparking interest in cloud computing both on Wall Street and elsewhere. “We expect examinations of various cloud services to accelerate,” says Gartner fellow and vice president Ken McGee. “There will be a flight toward looking for lower-cost options.”

SaaS offerings in particular are becoming more attractive. Whereas enterprises “initially took advantage of SaaS collaboration, sales, and marketing applications,” explains Jeff Kaplan, managing director of ThinkStrategies, they “are now exploring SaaS solutions for back-office requirements like expense management, procurement, and supply-chain management.”

Some SaaS vendors claim to be feeling positive effects already. “We see evidence that our sales pipeline is growing because of the recession, rather than in spite of it,” says John Girard, CEO of Clickability, which provides content management as a service. “One of the great things about SaaS and cloud computing more generally is that they’re pay-as-you-go.”

Although companies won’t “immediately move resources to the cloud,” utility-style services from the likes of Amazon, IBM, GoGrid, and Google will follow the trail SaaS applications have blazed and get traction in business units, rather than as broad IT projects, says Robert Mahowold, IDC director of SaaS and on-demand research. “That’s absolutely how SaaS caught on,” Mahowald explains. “That’s what could happen as part of the economic downturn.”

Gearing up for greater demand The biggest IT vendors and cloud providers appear to be gearing up to take advantage of enterprise interest moving forward. Amazon, IBM, Intel, Oracle, and Microsoft have all made waves recently in one way or another.

Last week IBM detailed four new cloud computing centers around the world that are part of its overall effort to help companies architect, design, and construct clouds, explains Dr. Willy Chiu, vice president of IBM high-performance on-demand solutions.

Oracle, at its OpenWorld conference, highlighted its own cloud computing intentions by announcing separate partnerships with Amazon and Intel. Oracle is making its 11g database, Fusion Middleware, and Enterprise Manager software available on Amazon’s Elastic Compute Cloud (EC2), and the company joined forces with Intel to “accelerate enterprise readiness of cloud computing,” focusing on the key areas of software performance and power efficiency, improved virtual machine security, and standards for provisioning cloud services.

Microsoft corporate vice president of infrastructure marketing, Rob Kelly, put in a placeholder this week, essentially saying that at its Professional Developer Conference in October the company will offer more specifics about its cloud computing plans. “But you could probably guess to a large degree,” Kelly tells the IDG News Service in an interview. “We are a platform company, and we are going to offer platform elements in the cloud.”

IBM and Oracle, too, promise more to come in the near future. Oracle’s product development head Chuck Rozwat suggests the company might seek partnerships with Intel rival AMD as well as arrangements similar to its pact with Amazon for other cloud computing environments.

“You’ll see more announcements coming down with hardware and software services,” IBM’s Chiu says. “We see growing interest in efficiency. There’s also interest in deployment and testing, as well as collaboration in the cloud.”

Exploration before adoption IBM customer Sogeti Group turned to the cloud for quick-deployment and collaboration capabilities when it conducted what it called “an innovation jam,” where more than 4,300 employees from 14 countries logged on to a 72-hour event hosted at IBM’s Dublin facilities.

“We started small and figured out how things work,” says René Speelman, a project leader at Sogeti Group, a US$1.5 billion division of Cap Gemini. Explaining that the “innovation jam” gave them more confidence in cloud-based services than they had before, Speelman adds that “it’s all about trusting the partner you’re working with.”

Office Depot, meanwhile, turned to SaaS provider Hubspan for its integration services, which enable Office Depot to integrate its own back end with customers’ applications, such as e-procurement and ERP. Hubspan’s service allows Office Depot to “utilize cost-effective resources and make transactions happen very quickly,” according to Glenn Trommer, director of e-commerce and implementation services at Office Depot.

Trommer points out that Hubspan is the only SaaS or cloud service he’d consider for the time being because he wants to control all of Office Depot’s data in-house, which it continues to do. Also, it’s one place where Office Depot really benefits from a value-added service. “There’ve been other situations where it makes sense for us to do it ourselves,” Trommer adds. “It depends on the resources we have.”

Office Depot is by no means alone in cautiously choosing which cloud-based services to adopt, depending on existing internal resources. Thanks in large part to the turbulent economy, in fact, enterprises are refocusing IT money as they concentrate more sharply on the particular value they offer, says Robert Iati, partner and global head of consulting at the TABB Group. “Companies are going to maintain spending where they have their own value proposition,” Iati adds.

That inevitably means some enterprises will reduce reliance on external services and contractors to internally optimize their core business, Iati explains, while others will take the opposite path and look to externalize more. “To some extent, and I hate to say it, this is an opportunity to reduce head count. Those that do so will externalize. Overall, it will tend toward the external.”

Gartner’s McGee says that, as the situation stands today, it’s still too early to tell whether or not enterprise IT shops’ accelerated exploration of cloud services will translate into widespread adoption. “But the vendors will be busy filling out requests for information,” he adds.

Such cloud services are “a more attractive concept now. But it’s more challenging for IT to get the money. Any kind of investment right now will be harder to come by,” TABB Group’s Iati says. “Perhaps in next year’s budgets we’ll see more money going toward cloud services.”

Five questions to ask about cloud computing.

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