The cloud may be the most eagerly awaited and most touted IT disruption of the decade. But while businesses look to put everything from traditional business applications to storage out the cloud, and while there's a lot of excitement and experimentation, except for some specialized instances like software as a service (SaaS), most IT staff are not yet willing to commit a major part of their IT budget to the cloud just yet. As a result there's a lot more talk than action as potential users wait for IT to gain confidence and cloud vendors to advance their wares.

This isn't to suggest that the first wisps of the cloud haven't arrived. They have, and according to Forbes magazine, Software as a service (SaaS) already saw over 3 million users by 2010, Platform as a Service (PaaS) offered over 60,000 applications and there are a whopping 15 million users of Infrastructure as a Service (IaaS).

Still, compared to the potential information technology market—which includes nearly every enterprise in the world that uses computers—these figures are just tiny numbers and the level of companies using the cloud for mission critical purposes remains a small fraction of its potential.

However the adoption rate for cloud solutions is growing rapidly. SaaS is clearly leading way, with high adoption rates for HR software and CRM. According to analyst firm Gartner the 2009 worldwide market for cloud solutions was $56.3 billion worldwide, up 21.3% from 2008 and expected to grow to $150.1 billion by 2013. Clearly, despite some confusion and caution, cloud computing is a major trend in information technology that will continue to disrupt the market.

As is often the case, the aggregate market numbers conceal as much as they reveal. To understand where cloud computing is going and where the opportunities lie, you have to examine the situation more closely. When taking a deeper look a lot of the hype dissipates and you're left with a highly segmented market which is growing at very different rates, and with each segment facing its own opportunities and challenges.

What Do You Mean "Cloud Computing"?

In fact cloud computing and closely related segments like hosting branch into a number of different IT service offerings, each with its own risk, opportunity and value proposition. Taken holistically, the clouds multiple layers are marked by unique target markets and varying solutions to address different types of business problems.

Networking giant Cisco breaks the cloud continuum into five segments, some of which aren't often considered a part of the cloud environment. However all of them harness a fundamental principle of the cloud: Performing IT tasks as services on someone else's computers, usually on a pay as you go basis. Cicso describes the parts of the "cloud chain" as follows.

Co-Location – Operating on a third party's servers or computing infrastructure in a remote location.

Hosting – Retaining a third party run your IT tasks for you on their computers. This is most commonly seen with Web servers and business applications as they are specialized applications with special needs, such as redundancy and reliability.

Infrastructure as a Service (IaaS) – This entails using the vendor's facilities for computing cycles and storage, most often using virtual machines with dynamic storage and perhaps basic software like antivirus managed by the vendor.

Platform as a Service (SaaS) – A packaged and ready-to-run development or operating framework from an platform vendor. This is most commonly found today in application development, especially web application development frameworks.

Software as a Service (SaaS) – The vendor supplies the software application as well as the hardware and infrastructure delivery resources. The most common SaaS applications are customer relationship management (CRM), human capital management (HCM) and domain specific programs such as web analytics, speech analytics or business intelligence, although there are thousands of types of SaaS business applications.

Each of these cloud computing layers is in very different stages of market acceptance. Aside from hosting and co-location, SaaS and some parts of IaaS, notably storage, have gained rapid market acceptance and continue double digit growth. PaaS is well regarded in web development groups but only getting started outside the software development communities.

Cloud Computing Segment Creep

It's important to grasp that none of these cloud categories are entirely separate technologies. In fact, most of them are variations on a common theme and there can be overlap. What's more service providers tend to expand into other categories as their business models and customers' demands evolve.

For example, Amazon began offering cloud services in March 2006 with its S3 IaaS (storage only) as a way to leverage excess capacity in their server farms. In December 2007, Amazon introduced SimpleDB, a non-relational database that permits users to launch queries on structured data in real time. More recently Amazon rolled out the Elastic Compute Cloud, a more flexible IaaS, that segways into the PaaS market, and offers virtual servers for rent and supports Windows, Linux and OpenSolaris operating systems. Today, customers leverage Amazon's cloud solutions in varying ways and for individual objectives, such as disaster recovery, virtual desktop infrastructure and handling peak demand for computing resources.

Salesforce.com developed its on-demand Customer Relationship Management (CRM) software and then extended its SaaS experience to later deliver the Force.com PaaS solution. Other major software and technology vendors are pursuing similar growth strategies by starting in an area they know well and then expanding their offerings as they become more comfortable with the cloud.

This kind of cross-pollination makes sense when you consider the highly concentrated nature of IT computing resources such as the server market. According to Rich Rashid of Microsoft, 20 percent of the servers in the world are sold to just a few companies, most notably, Google, Amazon, Microsoft and Yahoo!. These companies operate tens of thousands of servers in data centers around the world. The second and third tier technology companies also operate very large numbers of servers, with the numbers gradually tapering off until you get to companies with only a few servers.

Given the utilization of servers, the increasing size of "chunks" of server capacity as servers become ever more powerful, and the declining cost of storage, many companies operate tremendously over-provisioned server capacity. It makes business sense for these companies with excess server capacity to find ways to spread that availability to other companies and recoup some of their IT costs.

Meanwhile at the lower end of the market, capacity management is becoming increasingly tricky. It's not easy to right size dynamic server capacity and each server represents a significant capital expense to companies with less than ten servers. These companies may prefer to purchase their computing capacity in smaller increments with the ability to scale on demand as their needs rise, all while keeping a minimum expenditure tied up in data center resources.

That translates into a cloud computing opportunity whereby IT resources can be dynamically leveraged for the benefit of vendors and customers. Customers want to buy computing services as they need them and vendors want to spread their excess capacity by selling it short term to others.

What all this adds up to is a somewhat confusing, quickly evolving picture. Vendors are scrambling to meet the perceived needs of potential customers, customers are cautiously dipping their toes in the water and no one is certain how it's all going to shake out.

The Customer Perspective

When considering a move into the cloud it's important to set aside the hype and concentrate on the real world capabilities and measurable benefits. Among other things, this means looking beyond the cloud's hypothetical potential and a slew of vendor product announcements and instead aligning what is available and stable today with your organization's business problems and opportunities.

This is particularly important in the areas of IaaS and PaaS where many of the broadest products, such as Microsoft's Windows Azure and IBM's Blue Cloud are still in the early phases of roll out.

Like many young technologies, the devil in cloud computing is in the details. When considering a cloud service, particularly PaaS or IaaS, it's important to affirm your expectations with clear service level agreements (SLA) and other contract verbiage.

Utility and Subscription Pricing

One of the most important—and trickiest—things to nail down is pricing. Unlike SaaS, the pricing on IaaS and PaaS tends to be more highly variable, not only from vendor to vendor, but within individual vendor product portfolios as well. Most cloud suppliers offer some variety of capacity based pricing, but with so many variations that each contract becomes almost a custom agreement.

In fact it's possible to use cloud computing today for little or nothing based on your usage pattern. This is because many cloud vendors offer low minimum prices to encourage people to try their services. For example, Amazon SimpleDB offers the first 25 machine hours, 1 GB of data transfer and 1GB of storage for free each month. Theoretically a small user could use SimpleDB over an extended period at no cost.

The other factor is that many cloud suppliers bill for their services by function. For example Amazon's S3 storage service costs $0.15 per GB per month for storage alone. However there are also in and out data transfer charges. Data transfer in costs $0.1 and data out costs $0.17 per GB. There are also add-on charges, for example $0.01 per thousand requests and discounts for very high data usage. Prices are higher in certain regions like Europe.

Similarly Amazon's EC2 PaaS offers three models. A small instance server comes with 1.7 GB of memory and 160 GB of storage, A large instance server has 7.5 GB of memory and 850 GB of storage. And an extra large server instance offers 15 GB of memory and 1690 GB of storage. There are more variants here as well.

Other PaaS and IaaS Cloud Vendors offer Similar Packages

What this all comes down to is that IT buyers considering PaaS and IaaS cloud solutions need to know their requirements and usage patterns very clearly. Especially for larger applications, the exact nature of your use can cause a major difference in your monthly bill. Not to mention which service offers the best deal.

It's also important to understand that cloud services are usually purchased on a period basis, normally month to month. This is viewed as a major benefit of cloud computing, but it does mean that you need to keep careful watch on your usage patterns or you can find yourself with an unusually high bill if something goes out of whack or spikes in your data center.

Finally, provisioning is closely related to pricing. A PaaS or IaaS cloud supplier should be able to offer fast deployment as needed by the customer. The often touted phrase in the industry is "capacity on demand", however the contract will spell out how quickly the resources are to be available. For some suppliers, capacity on demand means exactly that. You need it, you self provision and you've got it in real time. Others take anywhere from a few minutes to several hours to get additional capacity for their customers. The quicker the better, but sometimes that should be balanced against cost. If there's a significant price difference between "immediate" and "in an hour" you may want to consider whether "immediate" justifies the price premium.

Stability & Reliability

Another important requirement for cloud computing of any sort is stability, both long term and short term. In other words, will the cloud service be up without interruption and does the cloud vendor have the staying power to last in what is an increasingly crowded and competitive market?

A key consideration for short-term reliability is provisioning across multiple data centers so a single incident does not interrupt services. Here again, there is a lot of variation on how cloud vendors build out redundancy to ensure reliability. Google and Amazon replicate each application instance to multiple geographically dispersed data centers.

AT&T is offering Synaptic Hosting to handle peak loads. The cloud service, which supports Windows server and several flavors of Linux, spreads applications between AT&T data centers and charges on the basis of average load per month. AT&T says the cloud service is especially well suited to computing environments with very high peak loads, such as retailers during the holiday season. Here again, the details included in SLAs and contractual guarantees are important.

A special case of reliability is disaster recovery or business continuity. In case of disaster, from a fire to an earthquake or hurricane, the data center image, or designated critical parts of it, are shifted to the cloud. This can be done in a matter of minutes.

A potential problem with disaster recovery in the cloud is that many businesses may be affected by the same disaster and simultaneously shift their workloads to the cloud. This may result in bandwidth and other congestion and degrade performance for everybody. Some cloud vendors offer premium services for a premium price that give businesses priority in bandwidth and other resources.

Business stability requires planning and due diligence on the part of the customer. You need to make sure that your cloud vendor is going to be around for a long haul. This is particularly true in the case of a long-term relationship where mission critical information or applications are going to live in the cloud for some time. Customer references, independent audits and financial viability must all be verified.

The cloud is evolving rapidly and as it does there will undoubtedly be shakeouts. Businesses that lived through the wave of consolidation of internet service providers at the beginning of the last decade remember the problems and frustrations as smaller ISPs were gobbled up by larger ones or disappeared all together. It's important to consider whether your cloud vendor will last. This is somewhat mitigated by the lack of long-term cloud services contracts, but it still needs to be considered carefully.

Information Security

Of course data privacy and information security is a given. Customers considering cloud computing will find that security is a critical diligence factor when selecting a cloud vendor, and varies significantly by vendor.

Generally in the case of IaaS and PaaS, the cloud services environment will include basic security services, such as firewalls and antivirus software. It's critical to understand exactly what you're getting and consider whether its sufficient for the value of the business data you're trusting to the cloud provider. You may want to consider additional measures and you need to be sure that the vendor will allow you to add your desired security tools.

One important feature to consider is logging and log analysis programs. The cloud vendor will probably offer logging and some log analysis tools, but you may want to add more powerful and sophisticated capabilities to keep abreast of what is happening in your little section of the cloud.

Moving Into The Cloud

Although taking advantage of PaaS or IaaS today requires a good deal of study, the good news is that things are getting much easier very quickly. As more cloud vendors iron out the kinks of their services and the market itself shakes out and settles down, it will get much easier to move into the cloud.

Additionally, as more businesses become more comfortable with PaaS and IaaS and entrust more of their business functions to them, it will be easier to convince IT buyers and corporate decision makers to advance their cloud strategies. Already the potential cost savings, especially in capital expenditures, are compelling. Increasingly the move to the cloud is a matter of working out the details.