What is Cloud Computing?

Sure there’s plenty of room for discussion on the specifics, but the business benefits of Cloud Computing will make it an inevitable part of your future.

Bechtel is a great example of the “enterprise cloud” version of Cloud Computing – building its own enterprise cloud rather than using a cloud computing service provider.

With projects in 50 countries around the world, and teams collaborating around the clock, Bechtel’s challenge is to operate a seamless Project Service Network (PSN) authorizing employees, contractors, customers, and partners to access their global network with any device at any time through an Internet portal. There were two main challenges to IT service delivery: 1) the distributed nature of global project execution, and 2) people – enabling collaboration between permanent and temporary employees, as well as vendors, customers, partners, even competitors.

It all began three years ago when CIO Geir Ramleth questioned the state of Bechtel’s IT strategy.

He asked himself the classic strategy question: If you could build your IT systems and operations from scratch today, would you recreate what you have?

Instead of being satisfied with meeting or exceeding his industry’s benchmarks, Ramleth decided to think bigger. According to this article, Ramleth researched 18 companies and developed benchmarks against many of them, including: YouTube, Amazon.com, Google, and Salesforce.com.

Why would a engineering and construction company like Bechtel even think about comparing itself to leading-edge Internet companies? In his December 2008 keynote presentation at the Network World IT Roadmap Conference, Ramleth explained why.

 

We operate “as a service provider to a set of customers that are our own [construction] projects,” Ramleth says. “Until we can find business applications and SaaS models for our industry, we will have to do it ourselves, but we would like to operate with the same thinking and operating models as [SaaS providers] do.”

 

In his mind, Ramleth believed that “to bring SaaS-like services to our projects, we will have to become our own SaaS provider and possibly integrate with other SaaS providers.” Bechtel would have to migrate its IT and its thinking from the bottom left to the top right corner of the service diagram below.

 

In other words, Ramleth isn’t content waiting for SaaS and Cloud Computing offerings to work their way up from consumer-ready, to SMB-ready, to enterprise-ready. Ramleth knows the underlying technologies can reduce his costs and increase his service levels now, but that integrating the right solution for an enterprise like Bechtel is the only remaining hurdle. Ramleth took the pioneering step of clearing that hurdle himself.

 

After benchmarking Bechtel against the best, here’s what Ramleth found:

– For the wide area network, YouTube was paying $10-15/megabit while Bechtel was paying $500/megabit. It was clear to Ramleth that Bechtel needed to entirely re-architect their approach to bandwidth capacity and adopt a more service-provider-like model.

Google employed one systems administrator for about 20,000 servers whereas Bechtel employed one systems administrator per 100 servers. The reason? Google has a standardized server infrastructure, while Bechtel was customizing everything.

Amazon sold storage to external customers for 15 cents/GB/month, while at Bechtel costs were $3.75/GB/month. The difference could be explained by higher utilization levels at Amazon.

Salesforce.com provides one version of one application for 1 million users. Upgraded four times/year with minimal downtime or training, whereas Bechtel ran 230 applications, up to five versions of each–nearly 800 different application versions altogether. Upgrades and training were constant with little or no version management.

The transformation was not easy. In 2007, Bechtel built three new standardized data centers –one in the United States, one in Europe and one in Asia–and began decommissioning the seven that it had just recently revamped.

In 1998, Bechtel had 35,000 sq ft of datacenter capacity across a distributed footprint. Today, less than 1000 sq ft of datacenter space is required for their virtualized foundation. And, in today’s virtual environment, servers are using an average of 70% of CPU capacity. Current savings on IT total spending was 25-30%. Says Ramleth: “On top of all that it provides a massive simplification for the business!”

“In the past we had brought the network to the data,” adds Ramleth. “But with the PSN, we wanted to bring the data to the network. We moved closer to the traffic aggregation points.”

The reaction from IT guru Nick Carr is on target: “For the largest enterprises, the very first step into the Internet cloud may well be exactly what Bechtel is doing: building their own private cloud to try to get the cost savings and flexibility of this new model… Large companies have such enormous scale in their own IT operations that the outside providers, the true utility providers, just aren’t big enough yet . . . to make them a better option.”

For his efforts, Ramleth is now honored in the CIO Hall of Fame, a fitting testimony to the vision and courage he has displayed. You can read more on Bechtel’s cloud journey: Cloud Computing to the Max at Bechtel.

In my mind, there are several important takeaways from Ramleth’s inspiring story:

1) CIOs must think like service providers: perhaps it’s because Ramleth was the founder of a service provider – Genuity, that he has the right mindset – thinking of his customers as a service provider would. Bechtel acquired Genuity in late 1995, taking it from start-up company to a leader in the Internet industry, and later selling it to GTE.

2) Cloud Computing is a competitive reality: if a traditional company like Bechtel can use cloud-computing to radically change the cost dynamics of its IT infrastructure, so can you!

3) The “Big Switch” is on: Author and provocateur Nicholas Carr is right – the big switch has begun. The sooner you start thinking about your roadmap, the better.

4) Service providers must offer cloud-based services: by now, alarm bells should be going off for IT hosting companies, MSPs, SaaS companies and yes, Telcos. If you don’t have cloud-based offerings in your near future, you may not have a future.

5) Even in a recession, moving to the cloud makes sense: why spend money on capital expenditures when you can pay as you go? The cloud helps your bottom line, period. And now is a great time to get started on your company’s journey to the cloud.

HP Upline, Yahoo Briefcase, and AOL XDrive have already closed or are closing their online file services. HP suffered a long outage recently, but in all likelihood their main reason for closing the business was a lack of short-term profitable financial results. This is most likely the case for Yahoo.

These online file services are not easy to offer. First, a competitive offering needs to be far more than just a place to store and retrieve files. Second, the service needs to be bulletproof. Finally, the service provider needs to be fully committed to the business.

In these difficult financial times, it is very easy for the financial organization of a large company to look at a service offering that is just one of many ventures, and quickly conclude that by shuttering the service, some short-term savings can be achieved. Never mind the trust that the many users have already placed in the service, and the problems that ceasing the operation could cause, which range from inconvenience to loss of data.

Speaking of trust, Google just sent a notice to a number of users of its Document and Spreadsheets products stating that it may have inadvertently shared some of their documents with contacts who were never granted access to them. Ouch!

So who can you trust?

I believe that these cloud-based services can and should be delivered through a network of IT Hosting companies and managed service providers. Why? Because they are closer to their customers and believe that their differentiation is their commitment to serving the customer. A new service offering that can replace costly servers, brings significant value, and delivers savings to their customers will not be easily dismissed.

IT Hosting providers, managed service providers and VARs looking to provide such services should not shy away from doing so. When considering the options for delivering online file services, they may want to consider the following.

First, how much control of the services will you really have? Things like SLAs, hosting, backend storage options and branding should all be factors in making this decision. Providers should want an offering that is truly differentiated and is easy to use in order to see real adoption.

Second, as a provider, you will want to look at the cost associated with service delivery. Finding a real strategic partner in this area means finding one that will not only give you a very low cost of entry, but will share in the investment with a pricing model that monetizes services as you do. And of course speed to market is also a must: getting to market quickly and generating immediate new monthly recurring revenue is a priority on everyone’s business plan as we face the current economic situation.

In a recent article on the Gerson Lehman Group web site, entitled SaaS Offers Three Benefits for Tough Economic Times, (which is an analysis of the ComputerWorld article, In a down economy, SaaS revenues rise), the unnamed author outlines three key value propositions that are extremely representative of why providers will want to offer online file storage as a service instead of the traditional hardware alternative of a local file server:

1) No Capital Expense;

2) Variable Cost; and

3) Scalability.

“These benefits are tailor made to address the challenges businesses face now.” The article goes on to say “This makes the three benefits of SaaS irresistible. Given the credit crunch and the uncertain outlook for any venture, it is important to try out new ventures without incurring large capital expenses. SaaS offers companies a way to get started without large up front costs.”

So, being close to your customer and managing their IT needs should naturally include offerings that help replace the capital expense of file servers. It turns out that part of being a trusted service provider includes a commitment to how you will serve the customer, and positioning your business for success in your offerings. It means a robust offering, with appropriate availability and backup. It means a partnership that enables success, for the customer, the service provider, and the service enabler.

Although finding these types of partners may seem hard, there are companies beginning to emerge who address many if not all of these critical needs, you just need to know where to look.

The cloud isn’t just for the big players. Look to the early stage and start ups to fuel not only solution innovation but business model innovation as well.

There’s plenty of room in the cloud.

Back in May of 2006, Amazon, introduced Simple Storage Service (S3) as file storage for their Elastic Compute Cloud (EC2) computing environment. Despite some short-comings, the pricing flexibility and the web-scalability offered by S3 made it an instant hit with the software development community.

For the first time, a large pool of storage was available for use, with three significant attributes: access via Web services APIs on a non persistent network connection, immediate availability of very large quantities of storage, and pay for what you use.

For many years, the Internet has been represented as a “cloud”. The term has now been extended to include the web scale computing capacity that is available via services offerings like Amazon EC2. As a result the term “cloud computing” was coined, and includes files storage, referred to as “cloud storage“.

As is the case with most nascent industries and technologies, there is no shortage of definitions. Some are the result of vendors seeking ways to include their unique features in the discussion. Vendors offering online file sharing claim to have a cloud storage offering; others doing online backup stake their claim as cloud storage vendors; even companies offering enterprise clouds believe (at least in public) that they also have a cloud storage offering! This statement is very difficult to understand for some, and easy for others, depending on your definition. We seem to have as many definitions for cloud storage as there are vendors and users. However, it seems like the marketplace is beginning to coalesce around some basic requirements for a cloud storage definition.

In my opinion, notwithstanding the complexity of the technology, the concept of cloud storage is fairly simple and straightforward. Here is how I define it: cloud storage is storage accessed over a network (internal or external) via Web Services APIs.

 

What is interesting about this approach are the benefits it brings to the table.

By exposing storage through a Web Services API, cloud storage enables the application developer or user to connect to an abstracted layer of storage as opposed to the storage device directly. As you can imagine this simplifies integration and development, and facilitates the introduction of many desirable features and options.

Certain elements of cloud storage functionality drive the ability to rapidly scale the amount of storage available to any user. Other capabilities enable a storage provider to bill for used storage versus allocated and available storage. It is worth noting that these two commonly accepted features of cloud storage service offerings are as much associated with the service provider’s business model as they are with some of the technological capabilities of cloud storage. For this reason, we do not include these features in our definition.

Depending upon how it is deployed, cloud storage can be as simple as a place to store and retrieve files (thus the use of “simple” in the Amazon offering), but it can also be designed to provide advanced functionality. These advanced capabilities, available with the storage layer of the infrastructure, will ultimately differentiate cloud storage offerings and drive their consideration for use, but the specific features do not need to drive our definition. It is important to note that these capabilities have a much more important role than simply differentiating vendor offerings, they will accelerate new applications, make mash ups easier, drive increased adoption of this approach to storage, and create new opportunities for the use of computing. This is the classic, game changing result of innovation in our industry. It is exciting, and timely.

 

Cloud Storage, like any other emerging technology, is experiencing growing pains. It is immature, it is fragmented and it lacks standardization. Vendors are promoting their particular technology as the emerging standard. While a standard doesn’t exist yet, we are confident that one will emerge soon. We believe that a set of Web Services API based capabilities, accessed via non persistent connections on public and/or private networks, provides the fundamental frame of reference and definition for cloud storage. The definition allows for both public service offerings and private (or enterprise) use, and provides a basis for expansion of solutions and offerings, versus a limitation.

Thanks for giving your consideration and input to our definition.

Hi and welcome to CloudStorageStrategy.com. I’m Steve Lesem, the founder of this site, and co-founder, CEO and President of Mezeo Software, the developer of the leading deployable platform for cloud storage.

Our story begins a few years ago when Gray Hall and I worked together at VeriCenter – an industry leader in managed hosting, co-location, and IT outsourcing services.

Our customers came from across a wide range of industries, representing some of the world’s best-known brands, from Kodak to NASA. We served businesses in a wide range of sectors – retail, health-care, government, energy, financial services, manufacturing, B2B, home-building, restaurants, and technology. We supported enterprise applications, Web sites, software-as-a-service (SaaS) applications, disaster recovery solutions, and general business infrastructure. In 2007, VeriCenter was acquired by SunGard Availability Services.

At that time, we were aware of a new sort of challenge facing our industry – from outside entrants like Amazon.com who were beginning to grow their storage and web services businesses, based on their own internal technology. Cloud storage, as a significant part of an overall cloud computing strategy, as we saw it, was going to change our business and yes, our entire industry. It seemed to us that while virtualization of the processing layer of the stack was serving our interests, there was a clear lack of an IT service-provider-ready cloud storage solution.

Amazon was first, but now major new entrants like Google and Microsoft, as well as veterans like EMC are delivering cloud-based offerings that are redefining the hosting and SaaS market even as we write these words. The hosting industry, managed services providers, and even telcos are not exempt from this market redefinition. Your customers, enterprises both large and small, are part of this equation as well. We must let customers know what their options are, before they are captured by the industry giants who are attempting to define and own the cloud.

There is an additional trend that is, as yet, poorly understood and lacks definition. New application functionality is moving into the storage layer of the infrastructure stack. Developers will expect that additional services come with the cloud storage solution they use. This will go far beyond the capability to store and retrieve files. And, it will include capabilities that extend well beyond management tools. Specific cloud storage services will ultimately be an expected part of cloud functionality. We want to engage with our community and define these services.

This blog is our response to this challenge. We want to ask questions, discuss alternatives, and help shed some light on this emerging space. We hope to bring together industry thought-leaders, professionals, and vendors to:

– Advance our collective knowledge of the definitions, trends, and technologies for cloud storage

– Discuss the business impact of cloud computing, and cloud storage in particular

– Examine the strategic alternatives available to MSPs, IT Hosting companies, and telcos – i.e., how are business models going to change?

-Understand how small and medium businesses will be served

– Clarify the choices and use cases for large enterprises, and resolve the private versus public cloud debate, in a way that makes sense to business leaders

– Develop recommendations for creating a cloud storage discipline within your organization; present sample business justifications supporting cloud storage investments

– Define and understand the critical factors that contribute to improving the customer experience

– Encourage discussions of lessons learned from cloud storage management practitioners

– Collaborate with vendors, businesses, and individuals to exchange ideas, create an online repository of “next” practices, and report on new developments as they occur

– Disseminate information on news, events, and relevant articles on a regular basis

– Create a framework for measuring cloud storage performance criteria

– Examine the critical security requirements for cloud storage

– Invite contributions from experts in the field to answer your questions

In essence, we’re here to help you challenge traditional industry assumptions that are no longer valid. Will you join the conversation?

Gray and I believe this phenomenon called cloud computing represents both an exciting opportunity and a significant threat to the IT service provider industry. We’re working together again, at a start-up called Mezeo Software, providing solutions we believe will create additional opportunities for our customers, and most importantly, our customers’ customers. At the end of the day, its all about giving customers options that make sense, new capabilities that truly create value, not just buzz about the latest thing. We’ve all been talking about utility computing for years, 120 volts of IT at every outlet, and the next step in this transformation of our business is upon us.

Our Bios

Gray Hall is Chairman of the Board of Directors at Mezeo Software. Gray is a veteran of the IT hosting industry, having co-founded VeriCenter in 1999 and serving as President and CEO until its successful sale to SunGard Data Systems in 2007. VeriCenter was among the first full-service managed IT service providers in the U.S. market, and was a leading national provider of Enterprise Hosting solutions. Gray led VeriCenter from its start-up through 28 consecutive quarters of growth to $80 million in annual hosting revenue. Most recently, Gray has served as Executive-in-Residence at Fidelity Equity Partners, a $500 million middle-market buyout fund backed by Fidelity Investments. Prior to VeriCenter, Gray’s experience includes seven years with IBM, where he led the formation and launch of IBM’s Center for Scalable Computing Solutions in 1994, and several years in the venture capital industry including serving as Managing Director of Broadband Venture Partners, LLC and various roles with a number of early-stage IT hardware and software start-ups.

Steve Lesem is the CEO and President of Mezeo Software, a Houston based software developer of the leading deployable platform for cloud storage. Prior to Mezeo, Steve was Senior Vice President and Chief Marketing Officer of VeriCenter. He has over 25 years of marketing and sales experience. Prior to joining VeriCenter he was Senior Vice President of worldwide sales for SafeNet, a Maryland based security technology firm. At BMC Software, a Houston based systems management software solution provider, Steve served in a variety of capacities, including VP channels and business development, Asia Pacific, and VP of Sales and Marketing for BMC’s Security Business Unit. Prior to BMC, he held multiple sales and marketing positions at IBM including General Manager, PC Server Sales and Marketing for North America. Steve earned a Bachelor of Science in Electrical Engineering from the University of Texas at Austin.

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