Information Technology Services: Cloud Computing - Research Paper Example

Cloud Computing Introduction While technological development aims to harbor prosperity for human kind, businesses are quick to relate such developments with their economic benefits. Cloud computing is a step forward in this direction. Companies, depending on IT services and applications are searching for ways to reduce their costs, but not at the expense of their business growth. New ventures and start-ups want to realize their plans within the shortest possible time. With computing technologies like 3-D it has become a reality to build a model of any manufacturing facility, within a few days. Cloud computing makes it possible for small and medium businesses to take advantage of large datacenters and applications software that they require to run their IT operations. Obtaining such services by utilizing in-house enterprise computing resources would mean huge expenditure for purchase of new hardware systems and related software. While cloud computing service providers like Amazon and Microsoft are offering an inexpensive solution to these problems, issues like security and data safety concerns require intensive resolution by such service providers. Traditional model of enterprise computing An in-house IT computing division of any business would consider the total cost of ownership to run the required computer systems. This includes the cost towards purchase of licensed applications software, hardware equipment and devices, as well as maintenance of in-house IT staff and development of vendors. Fixed and variable costs Any new start-up has to bear the upfront expenses that include installation costs for hardware systems, software applications and cost towards setting up the required security environment. The variable costs include expenses towards running of the system, upgrade of software, training of IT staff and constant monitoring of security system. The operating cost for traditional enterprise computing keeps on increasing with the new technology upgrades. Every upgrade of software would require dedicated staff to run the application. With rapid expansion in businesses and fast technological development in the computing environment, the capital cost towards installation of new hardware is always high, considering the output required from such systems. In addition, the frequent need for replacing large and small equipment like servers and routers puts extra burden on the economics of the concerned company. Coordination with vendors and suppliers, apart from software application upgrades is yet another cost burden, which can prove hazardous for the company. As new applications are developed almost overnight, the earlier expenditure done on the outdated application is a waste, while the system would demand installation of new application software for quality deliverance. This would also need matching hardware, as per the software installation and running set-up instructions. The cost keeps on increasing with expansion in the company business volumes.(Total cost of ownership) In-house IT staff Any upfront set up would require in-house staff to install, maintain and subsequently run the IT computing infrastructure and software. Hardware installation and running requires a different group of IT engineers, while another group would install applications software. Similarly, the training methodology for both would be different. Hence, the company may require new group of engineers for running a replaced server or router. The vendor development and software applications purchase agreements would require another group of IT staff, which has sufficient legal and technical knowledge about the involved technicalities. In addition, the expansion of business would mean installation of another set of expensive hardware, requiring more staff to run the same. The capabilities of IT staff remain limited, as engineers may not be able to match the new requirements of technology with their existing knowledge. This puts additional burden on the concerned business, in terms of investments in extensive training of their IT staff at frequent intervals. Other alternative of hiring fresh personnel for the new job is still more expensive. Overview of cloud computing—service providers having large computing capacity While IT computing has witnessed phases of time-sharing and shared web hosting for internet based informational data, cloud computing marks the remarkable change in the delivery structure of the IT informational services. The concept is to move the data and computation services off-site at a transparent location, which could serve as a centralized facility for data processing and availability of applications software. This would result in huge business for cloud-computing service providers and advantage to their customers, as they can share these services with other consumers, from a single service provider. The shared common platform, thus achieved, can provide greater opportunities for enhanced integration and collaboration. While there are applications that form the part of software and services provided over the internet, the data centers ensure that these applications run smoothly by providing the useful hardware and system software. Cloud computing refers to both these applications. Accordingly, the data center hardware and software is referred to as “cloud” and the internet applications as well as services are called “software”. The public cloud is a form of utility clouding where the services are available to the public on payment basis. However, there are private clouds also, which form part of any business’s internal data center and they are not available to the public. Companies that sell utility computing applications include Amazon Web Services, Microsoft Azure and Google AppEngine. Cloud computing comprises of the web-based applications software along with the utility computing applications. (Armbrust et al) Technology and cost of cloud computing Cloud computing has better prospects of growth, in economic terms, when compared to private clouding or in-house computing, which requires maintenance of internal servers and data centers. The users pay for cloud computing services on hourly basis. This becomes a cheaper and viable solution for the companies, as compared to the dedicated virtual machines used by them, in case of private computing. In addition, the economic viability of cloud computing requires application software to be sold on license against payment, for using the application compatible to cloud computing. Infrastructure software shall run on virtual machines, while hardware system design must match the cloud computing cost parameters. This means that WAN routers and LAN switches must have improved design with reduced cost, as the processors need to work perfectly with the virtual machines. (Creeger) However, the use of cloud computing is being debated currently as can be judged by the following observations: (Armbrust et al) “The interesting thing about Cloud Computing is that we’ve redefined Cloud Computing to include everything that we already do. . . . I don’t understand what we would do differently in the light of Cloud Computing other than change the wording of some of our ads” (Larry Ellison, quoted in the Wall Street Journal, September 26, 2008) “It’s stupidity. It’s worse than stupidity: it’s a marketing hype campaign. Somebody is saying this is inevitable — and whenever you hear somebody saying that, it’s very likely to be a set of businesses campaigning to make it true” (Richard Stallman, quoted in The Guardian, September 29, 2008) Virtualization—cloud computing IT resources utilization can be improved by shifting the physical resources of any business IT computing environment to a pool, where dynamic allocation of virtual resources is possible through Virtualization for cloud environment Cloud computing can consolidate the physical resources of any IT department into a virtual environment. The resources include processors, networks and storage, which the company may be using in-house. The advantages of such virtualization include flexibility in IT operations, huge reduction in cost, and workload optimization. Virtualization is the creation of substitutes for physical and actual resources. While the substitutes vary in functions like cost, size and performance when compared to the actual resources, the external interfaces and the functions do not change. Multiple physical resources are combined into shared pools and the users can avail of virtual resources from such pools. This results in utilizing many resources virtually from such pools as maintained by a cloud-computing service provider. Essentially, virtualization takes place when logical thinking replaces physical thought process. System virtualization, commonly deployed with hypervisor technology, is responsible for creation of virtual systems, which are independent operating environments using virtual resources. Such systems are also called virtual machines. Hypervisors do the job of virtualization of system resources. Hypervisors Broadly, there are two types of hypervisors. While one type runs directly on system hardware, the other type requires host operating systems, which provide memory management and I/O device support along with other virtualization services. The performance metrics like CPU overhead, guest and host memory as well as capability of supporting virtual processors determines the type of hypervisor required by a particular service provider. In addition, the features like storage and networking capabilities must be considered for selecting a hypervisor. For working on heterogeneous systems in the service networks, the selected hypervisor must support the running operating system. Similarly, for homogenous network conditions, guest operating systems may not be large.(Tholeti) Virtual machines These are part of virtualization process and are also called virtual systems. Accordingly, such systems should outperform their counterpart physical systems, as they are expected to deliver more in quantity and quality, when compared to applications within each server. Any performance by virtual machines that delivers beyond the related physical system would result in the profit for service provider. The virtual machine’s performance can be maximized by having the hypervisor technology that ensures maximum optimization of resources. This again depends on the size of a particular project. (Tholeti) Economic impact of cloud computing In cloud computing, the user has little control over the computing infrastructure, as the services are accessed directly from the internet. However, the companies that provide cloud-computing services will have greater role in the future computing tasks, as they will need to maintain a number of servers to provide these services on a bigger scale, for the reasons of attaining economic viability. A fine example of cloud computing service firms will be the web based email service providers, where user can access these services from any internet enabled device like laptop, mobile phone, tablet or iPad. The massive scale of operations that cloud-computing firms would require include software and management services and data storage for fulfilling the needs of individual users. Impact on firm cost The services provided by a cloud-computing firm would essentially comprise of three components. These are software as a service, called SaaS; infrastructure as a service, called IaaS and platform services, named as PaaS . While IaaS is related to the computer servers for data storage, number crunching and management services, SaaS is related to the web-based services, which include Gmail, hotmail and other email services. PaaS is the real operating system for the cloud computing as it is required by Google AppEngine or Microsoft Azure and Amazon web services. The cost impact varies, accordingly. Impact on firm efficiency, cost, and benefits of specialization Amazon plays a dominant role for the services of IaaS, as it has almost 80 to 90 percent market share in this category. The overall sale generated by all providers under this category was around $1bn in the year 2010. The revenue generated for the same year, by providers under SaaS and PaaS has been around $1.7bn and $311 million respectively. The growth prospects for the future remains slim for IaaS providers, as they will face stiff competition in selling their hardware components, which would witness reduction in cost also. Hence, it can be concluded that data management and storage service will face cost competition, eventually with reduction in cost of such services. This would mean that such services would have almost 10 percent of the total cloud computing market share, while applications software services and virtual operating systems will capture 90 percent of the cloud computing market. Google, Amazon and Microsoft will benefit with increasing revenues from cloud computing marketing services.(Freshtman & Gandal) In addition, the companies will have to bear different types of costs, as detailed below, for offering cloud-computing services. Hardware costs Although the hardware costs shall come under the fixed cost category, the equipment will need updating and maintenance, else the performance will remain stagnated. However, to avoid expensive replacement of servers, routers and load balancers, companies like Amazon have strategically decided to purchase the hardware components in large quantity at lower prices. This would mean availability of their services to consumers at relatively cheaper rates, as company passes on the cost advantage to them. Nevertheless, the company has to bear other fixed costs, which include cooling and utility charges. (The economics of the AWS Cloud) Utilization of assets Efficient utilization of all resources, including the hardware assets remains the key to more revenue and profit generation. One way to achieve maximum utilization is to have heterogeneous customers that cover all economic sectors. The fixed assets can be best utilized if the same are used for 24 hours a day and 7 days a week. For example, customers from financial market sector would utilize such assets during trading time, while pharmaceutical companies may need to use them during night and e-commerce sector will require the cloud computing services during the whole day. This way the customers will also reduce their costs, as they pay on actual usage basis. The firm will have highest cost efficiency, as the fixed asset utilization shall remain full throughout. (The economics of the AWS Cloud) Variable costs Variable costs for the user companies and start-ups can be reduced considerably by opting for cloud computing, else these businesses will need to invest in the purchase of infrastructure and hardware components like expensive servers, before they actually run their business. The cloud-computing service provider will offer the computing solutions at a fraction of this cost, while users’ operating business expenses will vary according to the utilization of services by them. Hence, the variable costs will have direct relationship with the revenue generated by such start-ups without huge initial expenditure on infrastructure and hardware. This would also result in the efficient management of the user companies. (AWS Economics center) Impact on firm efficiency Efficient utilization of assets and resources, along with integrated management efficiency are the keys to earn revenues and profits in the current competitive market. This applies to enterprise computing also. Purchasing infrastructure and hardware items at low cost and in bulk quantity can increase operational efficiency. Firms passing on the cost benefits, thus achieved, to their customers will result in earning more revenue for them. In addition, the frequent reduction in their service cost would result in getting heterogeneous mix of customers, which means efficient utilization of their fixed assets. At the same time, the user companies shall benefit from the lower cost of such services. An example in this direction is the continuous reduction in prices charged by Amazon, as they have passed on their cost reduction benefits to customers many times, since they launched their cloud-computing services. (The economics of the AWS Cloud) Costs towards IT staff and technological innovation With in-house computing utilizing dedicated infrastructure and hardware, it becomes very expensive to have software upgrades and replace the outdated hardware devices like routers and costly servers. However, with onset of cloud-computing such expenses are borne by the service providers, like datacenter managers and applications software developers. Companies like Amazon keep their fixed costs at the lowest, by purchasing hardware at low prices and in massive volume, while they share these expenses among the host of their customers, which is ever increasing. Accordingly, the user companies do not need to worry about the expenditure on such upgrades. Same is the case with software service providers. An example is the Google “ad-sense”, which takes the user directly to Google instead of going through advertising agents. Cloud-computing has enabled the individual companies to access the latest technological innovation, without worrying about the cost involved in getting the same. Similarly, the cost of maintaining huge IT staff to run the infrastructure and applications software is also reduced by opting for cloud computing. Expenses incurred for training IT personnel on every upgrade and hardware replacement is a costly affair, which can be abolished through such computing innovation. (AWS Economics center) Access to expert knowledge New applications can be available freely at lesser cost to the user companies, as the information and services required for dispensing such applications shall be managed by large datacenters. Hence, services, which are dependent on large data sets, can be conveniently hosted by the cloud-computing datacenters on sharing basis. Provision of highly reliable mobile services through such service providers is an example in this direction. In addition, expertise involving parallel batch processing can be available to individual users on fraction of the cost, as “cost associativety” can make this possible by sharing the expenses among hundreds of users at the same time. (Armbrust) Due to rapid growth of transaction volumes for the business conducted online, support for decision analytics shall require database processing to be shifted from transaction analysis to business analytics. This will be possible at lesser cost through batch processing. In addition, the desktop applications that require compute –intensive operation ccan be extended to individual customers through cloud computing. The use of cloud computing for the latest versions of software packages, which require extensive calculations and evaluations, is an example for utilizing such services. Software like Matlab and Mathemetica will benefit most by using cloud computing services. Users of cloud-computing can access such expertise freely, which otherwise would require large data processing involving huge expenses. (Armbrust) Economic inefficiencies Concerns about Commercial licensing structure While efforts are going on for replacing the in-house computing with cloud computing by small and medium enterprises, there are certain hassles, which effect the costing of such changeover. In addition, the informational flow would require further alignment, in order to match the economy of cloud computing with the processes involved. The software licensing is one obstacle, which AWS would like to resolve for its smooth operations and dispensing of cloud computing services. As licensing model for commercial software cannot prove useful for utility computing, many cloud computing service providers depended on open source software. This leaves two options for the computing market. First is for the commercial software companies changing their licensing structure, so that the same matches with the needs of cloud computing providers. Second option is for the open software source gaining popularity. Due to licensing mismatch, AWS and Microsoft have higher rates for EC2 instances running on licensed software for Windows and Windows SQL servers. To counter such obstacles, the cloud-computing providers can sell pre-paid plans to bulk users, which can safeguard their economic interests with regard to licensing and fee structure of commercial software. (Armbrust) Data security Some businesses find it difficult to shift data from cloud from a particular site to run on another site, due to non-standardization for APIs applicable to cloud computing. This has been a major reason for many organizations to avoid using such services. Other issues that customers would consider include vulnerability of prices, reliability and business reputation of the service providers. The obvious answer to this would be to standardize APIs, giving an opportunity to SaaS developer for deploying services and data to number of cloud-computing service providers. This would result in greater reliability and data security, as all copies of customer data will not be lost even if a particular service provider has failed. Data Confidentiality The data confidentiality can be restored by various methods that are already in use through in-house computing environment. These include deploying technologies like installation of firewalls, virtual Local Area Networks and encrypted data storage. Many companies have tried to place previously encrypted data into the cloud-computing data centers for retaining the data confidentiality. Data transfer problems As applications are data-intensive, the transfer of data remains a major bottleneck for the cloud-computing customers. Although various methods of data transfer as physical shifting of data disks and computers from one location to another has shown some cost effectiveness, the cost implications at every level needs to be analyzed efficiently. However, Amazon has developed a new product called, “Cloudfront” service to tackle this issue.(Armbrust et al) Future trends-- cloud computing With achievement of business expansion and growth within a very short span of time being a realistic possibility now, computing has a greater role as a business utility. With cloud computing it is possible to provide all types of services directly to the customers via internet. Providers like Amazon are selling their services to customers on hourly usage charges, which are many times lesser than running the similar services and applications from in-house IT resources. The service providers are also making profits, although it is high-volume and low-cost business. However, certain questions remain, while looking at the long-term scenario of cloud-computing and its economic viability. Cloud computing being a low margin business, the profit generation is through high business volume, as providers sell their services to bulk consumers, catering to all economic sectors. The businesses, which are accustomed to high profit margins, like companies deriving advertisement revenues from search engines may not be comfortable in shifting to cloud-computing business. However, with increasing client base the volumes from such services add to the profits of the service provider, although the individual customer margins may be low. In addition, the companies, which have established infrastructure and applications software facilities, do not need to invest any additional substantial amount for starting the cloud-computing services. Therefore, the companies having datacenters, software infrastructure and networking facilities, will find it lucrative to add extra income to their revenues by offering such services. Amazon is an example in this direction. However, the challenges remain for the future of cloud computing. The ‘applications software’ should be capable of running on the cloud as well on the clients. As is evident currently, in many web 2.0 applications, this software meant for cloud computing has no use after getting disconnected from the cloud environment. Since cloud-computing economics is based on ‘pay-for-use’, the application software vendors will need to modify their licensing structure accordingly. Similarly, infrastructure software must be compatible to run on virtual machines, which may not be the case currently. Since, cloud computing service providers would require to go for bulk hardware purchases, the hardware systems must be designed accordingly for shipping in bulk, instead of single units, as retail sales. In addition, hardware systems must be designed to match the versatility of virtual machines. There is also a need for bandwidth and cost improvements in devices like WAN routers and datacenter switches, when looking at broader cloud-scenario of the future.(Armbrust) Conclusion As the technology develops, businesses also grow; taking advantage of the development and new tools as well as applications. The instances of shared web hosting are currently evident everywhere for internet usage. However, with business expansion and growth, it is becoming difficult to maintain the in-house IT computing systems, as they require frequent upgrades and replacements. For example, stock broking companies may not be able to serve their growing clientele, with limited datacenters and applications software. In addition, the maintenance of IT staff, along with frequent fresh hiring, puts additional costly burden on the concerned company. Hence, cloud computing is the solution to such hazards of in-house computing. With service providers like Amazon, individual companies can avail these services, at a fraction of cost. The pay-for-use policy of Amazon has made it possible to sell these services on low-cost hourly usage basis. However, cloud-computing service providers need to look into the concerns of data security and better coordination with applications software developers. Reports of data theft and loss of data, while shifting bulk files from one location to another must be analyzed seriously, to find a viable solution for their resolution. Although future of computing certainly lies in sharing the available resources, at low costs, cloud computing service providers cannot operate in isolation. They also need to coordinate with hardware system providers for getting the matching hardware, considering the use of virtual machines in the cloud-computing environment. Works Cited “AWS Economics Center” .Amazon web Services, nd, Web. 13 Dec. 2013. Armbrust, Michael, et al “Above the Clouds” .Electrical Engineering and Computer Sciences, University of California, nd, Web. 13 Dec. 2013. Creeger, Mache “Cloud Computing: An Overview” .Association for Computing Machinery, June 1, 2009, Web. 13 Dec. 2013 Fershtman, Chaim & Gandal, Neil “Migration to the cloud ecosystem” Cloud Computing, VOX, April 13, 2012, Web. 13 Dec. 2013 “Total Cost of Ownership” COMMON GOAL SYSTEMS INC., nd, Web. 13 Dec. 2013 “The Economics of the AWS Cloud vs. Owned IT Infrrastructure” Amazon Web Services, Dec.07, 2009 Web 13 Dec. 2013 Tholeti, P.Bhanu. “Hypervisors, Virtualization, and the Cloud”, IBM developer Works, 23 Sep. 2011, Web 14 Dec. 2013 Read More