Cloud computing: why it’s good for your bottom line
(As originally published in the Financial Post, October 2012)
By Karen Atkinson, Tax Partner and Canadian Technology Leader, Ernst & Young LLP
What is cloud computing?
At its most basic, cloud computing is the shared use of the internet to access data, applications, resources and capacity outside of your own proprietary control. New evolutions in technology have allowed companies to more cost effectively leverage software and hardware over the internet securely.
How is it transforming the industry?
Cloud computing represents a fundamental shift in IT as companies move from continued investment in their own infrastructure to sourcing and developing IT services externally.
Technology advances, particularly ubiquitous high-speed internet connectivity and the ever-decreasing cost of storage, have finally enabled developers to meet buyers’ needs for simplicity, cost and flexibility.
Developing and realizing opportunities using the cloud is now the way businesses reach consumers for all transactions that utilize technology.
What are the benefits for entrepreneurs?
Small and medium-sized enterprises (SMEs) appear to be migrating to the cloud more rapidly than larger companies, and start-ups are virtually all cloud users.
Cloud computing offers distinct benefits for the entrepreneurial community, freeing both capital and staff time which can be focused on growing the business.
Lower barriers to entry
With cloud computing, the IT barriers to market entry are greatly reduced, enabling far more start-ups to get into the game with much lower infrastructure costs than pre-cloud.
SMEs are taking advantage of sophisticated applications and a breadth of functionality previously accessible mainly to large organizations.
The "pay-as-you-use" instead of "install-and-own&" model generally shifts the major, up-front capital expense from the buyer of the IT to the provider of IT services – a strong incentive in a world that continues to struggle with economic uncertainty and, particularly, for businesses with more restricted access to capital.
Greater agility and flexibility
There are many ways that cloud computing makes businesses more agile and flexible.
- Organizations can manage their investment risk by rapidly implementing and trialling new solutions before making long-term commitments.
- The flexibilty offered by cloud computing enables businesses to increase or decrease their IT infrastructure costs as their business needs change. It’s easier to buy in extra services and capacity to reach new customers and expand your market footprint quickly.
- New technology can be implemented faster, arming your people with the best tools and increasing their productivity.
Some experts are referring to cloud computing as "the next generation of outsourcing".
What are the risks SMEs need to consider?
Moving to cloud computing is not without its risks. Business leaders need to consider a number of factors to ensure the solution is right for them.
- Loss of control and changing roles. If you’re used to doing everything, will the loss of control work for your business? As data and infrastructure are hosted elsewhere, outside your control, your role will be to manage your relationship with your supplier, rather than operate your infrastructure.
- Information security. What is your organization’s risk tolerance and what are your security requirements? What security metrics will you use to select a provider?
Communicating data over the public internet, as opposed to keeping it entirely within a private network, may increase data vulnerability. With shared infrastructure, the security fates of multiple users are linked in a given cloud. Companies should consider the sensitivity of their information and whether the service provider’s location is appropriately secure for that information to reside.
- Privacy. On the privacy side, there is the concern that personally identifiable information stored in the cloud can be breached more easily than if stored in-house.
You need to consider the potential consequences from the fact that any sensitive data placed in the public cloud may become subject to the regulations of an unknown jurisdiction, especially if you are dealing with a provider that does not make its data centre locations known.
- Reliability and continuity of operations. Continuity of the business is critical, so it is important to understand a cloud provider’s geographical coverage and how this may affect your business. "In addition, you are depending on the cloud service providers’ business continuity program, disaster recovery capabilities, and capabilities regarding operations and support processes, such as incident management and service desk."
What is the outlook for cloud computing?
The current shift to cloud computing presents enormous opportunities for businesses. The ability to finally achieve real business agility with regard to IT will enable far more nimble responses to rapid market changes than previously possible. This will likely to lead to an increasing pace of change for all industries worldwide.
As the use of shared infrastructure capacity becomes optimized, the accompanying decrease in power consumption could contribute to further cost savings as well as help advance the "green" agenda.
However, the real power of cloud computing and its flexible, pay-as-you-use business model is that it allows companies to manage their technology costs more efficiently, enables deployment of new technology faster and easier than other models, and allows management to focus on delivering business value. And that can only be good for business.