Clouding the issue

To cloud or not to cloud? The decision has been made, but it’s still not quite that simple, with a range of data and technology storage options available.

When Jeff Bezos launched Amazon Web Services (AWS) in 2006, few thought that enterprise companies would trust cloud computing over their own data centres. Today, the Australian government has signed multimillion-dollar deals with Amazon and its chief rival, Microsoft Azure. The Commonwealth Bank has declared it will move nearly all its applications to the public cloud. Even the military is on board — the US Department of Defense on record as saying that the cloud is critical to giving its warplanes a tactical edge.

Bezos proved the doubters wrong. The AWS annual operating profit of US$13.5b in 2020 comprised 63 per cent of Amazon’s entire profits, up 30 per cent year on year.

“In the past five years, we’ve seen a huge acceleration. About 20 per cent of businesses’ technologies are in the cloud today and we’re probably going to go to 80 per cent in a five-year period, which is a drastic increase of uptake,” says Omar Abbosh, corporate vice president of industry solutions at Microsoft on the Directors on Digital podcast, a partnership between Microsoft and Company Director.

This dramatic shift is due to a very compelling proposition — computing infrastructure available on demand, at no upfront cost, at exactly the scale required by the business. Compared to the capital expense and risk of building your own data centre and paying a team of IT specialists to maintain and secure it, the cloud opex model is much more palatable to CFOs, CIOs and boards alike.

Picking a cloud partner

According to Statista research data, the market for cloud computing services is dominated by Amazon (32 per cent) and Microsoft (20 per cent). The rest of the competition hold single-digit shares, including Google (nine per cent), Alibaba (six per cent), IBM (five per cent) and Oracle (two per cent).

Amazon established a strong early lead by catering heavily to startups and software developers. Microsoft came to the party late, but brought with it a huge customer base. Microsoft frequently discounts the price of its Microsoft Azure cloud when bundled with its other products such as Microsoft 365, a hybrid cloud software and desktop software package. Azure has built up a formidable market share and is growing at roughly the same rate as AWS.

Moving to the cloud usually occurs as part of a broader digital transformation project in search of reduced costs, greater efficiencies or better service. The selection process will reflect the goals of the project and, for smaller companies, the preferences of their IT services provider.

Vendor selection can take a long time to decide because it comes later in the transition process, says Maggie Hu MAICD, managing director of Lumi IT, a technology company that provides integration and software development services to the healthcare and aged care sectors. Digital transformation projects follow the standard approach of assessing people, process and tools. The cloud provider falls under the third category.

“It’s a little slow at the beginning,” says Hu. “The point of acceleration is when you adopt the right tools, that is when you will see the most success. If you go for the bottom-up approach, from tools upwards, that’s where I’ve seen the most failures.”

Board risks

Any major changes to technology in an organisation come freighted with risk. Most of this will fall into the lap of the CIO — such as managing vendor lock- in. Just as with traditional software applications, vendors can make it difficult to retrieve data or share it with other applications. This concern can be addressed by creating a data-savvy framework that makes it easier to move a large dataset to an alternative provider down the track.

Directors need to be aware of more global risks such as security and finding the right staff. “Security has to be front and centre of whatever you do,” says BPay CIO Angela Donohoe GAICD. “The board needs to ask for assurance in managing the risks around cybersecurity. This means having the right people who understand that. If the organisation can’t afford that, then have relationships with people who do understand what they’re doing.”

Many organisations are turning to the public cloud because the security is a higher standard than what they can provide in their own centres, says Donohoe. The size of security budgets at Amazon and Microsoft dwarf those of most other companies.

HR is another critical and often neglected piece in moving to the cloud. There is stiff competition for developers, infrastructure specialists or those with experience in working with cloud vendors. These employees are not only sought-after, they want to do interesting work with the latest technology.

In the fast-moving world of enterprise technology, some skills can date quickly and IT specialists need to keep learning to maintain their edge. A board needs to consider how much budget is sufficient not just to manage the transition to the cloud, but to fund a team that will drive innovation.

Is cloud the best solution for every scenario? The answer appears to be mostly, but not always. Renting cloud-computing resources can become very expensive, especially for mature businesses, and contribute to blow-outs in cost of revenue (COR) or cost of goods sold (COGS).

A study by Silicon Valley venture capital firm Andreesen Horowitz estimated that 50 publicly traded software companies spent, on aggregate, US$8b a year on cloud computing. By building their own data centres and repatriating some of their applications, these companies could save 50 per cent (US$4b).

One company, multiple clouds

Some companies with more complex needs adopt a hybrid model that incorporates public and private cloud. BPay recently completed a three-stage journey to the cloud over five years. It now runs applications in the public cloud, with a private cloud provider, and in its own data centre. The first stage — moving applications to the private cloud — was motivated by cost, says Donohoe. BPay realised it could make significant cost savings by handing over commodity server and network management to an external provider, Macquarie Cloud Services. “We were paying security to babysit a data centre the size of a football field, with a few racks in it,” she says.

In the second stage BPay explored the opportunities presented by public cloud. Its customer-facing applications had to be taken offline occasionally for security and software updates. Amazon AWS offered higher availability and performance than BPay’s private cloud set-up, which meant fewer outages for large customers. It also diversified the risk of running all applications through a single provider.

The third stage was to change as many applications as possible from on-premise to software-as-a-service (SaaS) alternatives. Part of the appeal of SaaS software is that the vendor is responsible for maintaining the currency of the application. Proprietary solutions need constant maintenance such as updating drivers so the application runs properly on a company laptop, says Donohoe.

Cloud computing has long demonstrated it can improve costs, efficiency and service quality. It is also an essential stage in the transformation to a modern, agile business. However, as with all technology migrations, the risks are best managed by finding those who have already made the journey.

Sustainability

There is also a sustainability argument for the cloud. Advocates compare using shared public cloud resources to carpooling, and public cloud data centres achieve massive efficiencies (90-plus per cent) over on-premise data centres.

For example, moving applications to AWS can lower the carbon footprint by 88 per cent for a median US enterprise data centre and 72 per cent on average for the top 10 per cent most efficient enterprises surveyed in a 451 Research report (commissioned by AWS).

“AWS infrastructure is 3.6 times more energy- efficient than the median of the surveyed US enterprise data centres. More than two-thirds of this advantage is attributable to the combination of a more energy-efficient server population and much higher server utilisation,” the report says.

Counter to this are concerns that cloud data centres are encouraging much more activity — from Google Search to Amazon e-commerce — which consumes huge amounts of energy. According to the US Department of Energy, data centres accounted for about two per cent of all electricity use in the US during 2019.

In response, Microsoft, Google and, to a lesser extent, Amazon (which does not reveal its energy use, unlike other major players such as Microsoft and Apple) are moving quickly to reduce their footprints, even experimenting with underwater data centres (Microsoft). Google and Microsoft have purchased renewable energy certificates for many years to claim carbon neutrality. All three tech giants are building and investing in renewable energy generation with a target of 100 per cent or better. Google claimed it had reached 100 per cent in 2017. Microsoft plans the same by 2030 and Amazon has targeted 2040.

The “green cloud” trend is also catching on among smaller players. Australian data centre provider NEXTDC, which hosts private and hybrid clouds, has launched a carbon-neutrality program that uses carbon offsets for both its own operations and those of its customers.

Jargon buster

The technology industry loves to take a good metaphor and split it multiple ways. Here are some common terms in cloud computing.

Cloud computing

The practice of using a network of remote servers accessed via the internet to store, manage and process data, rather than a local server or a personal computer. Cloud computing comes in three flavours — raw processing power and data storage (infrastructure-as-a- service); a platform to develop, host and deploy applications (platform-as- a-service); and centrally hosted and managed software (software-as- a-service). The three main advantages of cloud computing are on- demand access to scalable computing resources; no capital outlay compared to buying your own hardware; and fewer IT specialists to maintain and secure your systems. The main disadvantage is less direct control over the computing infrastructure that runs your systems.

Public cloud

Computing services delivered over the public internet to multiple companies and users. These services can be infrastructure, platform or software-as-a-service. In this model, multiple companies share the pooled resources of a group of servers. However, each customer’s data and applications remain hidden from other cloud customers.

Private cloud

Dedicated computing resources delivered to a single organisation over the public internet or a direct, high-speed link. Typically, a third-party provider reserves servers and other infrastructure within their data centre that the organisation can draw upon on demand. A private cloud gives a company greater control and tighter security, at a higher price. The maintenance and security of a private cloud is either outsourced to, or shared with, the third- party provider. Confusingly, some companies build a private cloud within their own data centre. This is a delivery model where departments draw from pooled computing resources, on demand. The company retains all responsibility and cost for the construction, maintenance and security of the private cloud.

On-premise

Where a company builds, maintains and secures its own data centre or servers. In older data centres, applications sit on dedicated servers rather than drawing from a pool of resources as per the private cloud model.