Cloud computing delivers processing, storage, and software as internet services while masking the complexity of the underlying technology. The topic is the subject of much media attention and hype. Vendors make great promises about the reliability and dependability of their services, but some cloud-computing technology is still immature and far from infallible. In addition, cloud computing is making it easier than ever to start web-based businesses—potentially flooding the market with a large number of low-quality start-ups and making it more difficult to find and accurately assess new companies worth investing in and doing business with.
Outages are a reminder that companies and organizations that entrust computing to the cloud face risks.
In late April 2011, Amazon.com's (Seattle, Washington) Elastic Block Store cloud-computing service failed, disabling many web-based businesses for a period of days. Automated system-management software caused the failure by overreacting to a small problem and flooding the system with unnecessary backups of data. Such automation is needed for the scale of the systems that cloud-services providers must maintain, but the automation brings complexity and unforeseen challenges. The failure follows another major outage of Amazon.com's cloud services in 2008 and brings the service well below the company's 99.95% availability target.
Also in April 2011, hackers broke into Sony's (Tokyo, Japan) PlayStation Network service and stole the personal information—possibly including credit-card details—of some 77 million users. The hack resulted in a 23-day outage of the gaming network.
These outages are a reminder that companies and organizations that entrust computing to the cloud face risks. Of course, risks also exist with in-house computing—systems crash and get hacked behind firewalls just as they do in the cloud—but some key differences exist. For example, large cloud providers are arguably a more visible target for hackers than a single organization is, and multiple businesses can suffer outages at once when a cloud service fails. In addition, in-house computing is somewhat more transparent when things do go wrong—the offending computers and networks are on company premises, and the people responsible for them are employees. More important, in-house-server technology has been around for decades and is tried and tested. Large-scale cloud-computing services remain fairly immature, as the failure of automation software at Amazon.com highlights.
Another type of danger that cloud computing presents is to enable a large number of low-quality web start-ups to flood the market. Cloud computing reduces the barriers to entry for new companies to a dangerously low level.
Some small companies, often run by young entrepreneurs, are "born to be clouds," according to Thomas Werner, president of service management at cloud-based-solutions provider SolveDirect (Vienna, Austria). Werner told Strategic Business Insights that many new information-technology companies no longer think in terms of having to buy hardware, manage a network, or maintain storage capability—they expect to get all these services from the cloud. Podio (San Francisco, California) is a prime example of such an approach. The company offers online work-management software that users can easily customize to create their own apps from basic building blocks. The company's product and services are all based in the cloud.
For small companies trying to develop web-based businesses, cloud services for computing infrastructure make a lot of sense. These new companies do not need the expense and expertise required to maintain servers, networks, and storage in-house, and cloud services can easily scale to support a company's growth.
Although reducing the barriers to entry for entrepreneurs is a welcome development economically, it can also create problems. When small companies become easier to create, assessing the quality of these companies becomes increasingly difficult. The internet enabled self-publishing, and the result was a lot of poorly researched, conceived, and written content. Will cloud computing enabling a lot of low-quality companies result in follow-up costs such as inaccessible services, data loss, or worse?
Low barriers to entry means high competition, falling prices, and little chance of carving out a unique business space. In information technology, the window of opportunity between innovation and commoditization has been shrinking for some time and appears set to shrink further. The fact that nonprogrammers can put together customer-relationship-management (CRM) systems from simple Podio software is a clear indicator of how commoditized the CRM market has become. More recently, Facebook (Menlo Park, California) has easily been able to replicate the location-based social-networking features of start-up Foursquare (New York, New York). Law courts may make matters worse. The Tokyo District Court recently dismissed a patent-infringement case by Pioneer Corporation (Kawasaki, Japan) against Navitime Japan Co. (Tokyo, Japan) regarding Navitime offering route-guidance services via the cloud rather than in the car (as the patent specified). Pioneer argued that the service infringes on its patent, but the court ruled that providing the service via the cloud is sufficiently different from the patent's description. This distinction potentially opens the way for other companies to try to create new businesses by copying patents and moving them to the cloud.
Although competition is likely to weed out low-quality and even mediocre cloud-service providers in the long run, a confusing market environment with a plethora of untested services and companies will be a short-term reality.
Cloud computing has some clear benefits. For example, organizations can avoid the expense of maintaining systems in-house and pay only for the computing resources they actually use. In addition, smaller organizations will likely struggle to match the reliability of cloud providers with in-house computing—despite the problems described above. However, potential users of cloud-computing services should consider that many cloud-computing services are using new technologies that bring new risks. Organizations considering the use of cloud-based services or investment in related start-ups need to exercise caution in evaluating small cloud-based companies because quality is becoming harder to assess as barriers to entry fall and because at least some related business models and services are unlikely to be sustainable in the long term.