Business Solutions In The Cloud:

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1 Business Solutions In the Cloud: Clearing Up the Confusion Page 1

2 Table of Contents Introduction 3 What is the Cloud? 3 On-Premises vs. Cloud: Benefits and Challenges 4 What is Virtualization? 7 Most Common Types of Cloud Server Configurations 8 On-Premises Moves to the Cloud 9 Types of Clouds 10 How Cloud Solutions Differs in Design from On-Premises Solution 11 On-Demand vs. Subscription 12 More About Multi-Tenant Solutions 13 Performing an ROI Analysis 14 Conclusion 15 Page 2

3 I. Introduction Understanding the cloud and developing a sound cloud strategy could be one of the most important factors in a company s future success. This is an unbiased, serviceagnostic and product-agnostic primer for understanding the options that businesses have when considering and comparing cloud-based offerings for their business solutions. This paper is targeted at those who have heard much about the cloud, but who have an incomplete understanding of it. This paper will provide clear definitions, it will clarify often-misunderstood and misused terminology, and it will provide some historical context. A clear roadmap will be presented, and key questions will be answered so that a company can better understand if it would benefit from a shift to cloud-based services. II. What is the Cloud? The cloud simply refers to services that are accessed via the Internet, and to the Internet service providers who host those services remotely in their own secure datacenters. The birth of cloud computing was made possible by the building of huge server farms (datacenters), containing many thousands of servers and allowing access by millions of users. The largest server farms in the world are owned by IBM, Google (Google Cloud), Microsoft (Azure), Amazon (Web Services or AWS ), ebay, Yahoo, GoDaddy and Facebook. Microsoft s Chicago server farm contains over 300,000 servers! This picture was taken inside the Facebook server farm and is as close as one will ever get to a picture of the cloud. These companies first built their own server farms a decade or more ago because they needed the computing power for their own business purposes, and they needed that power to be located in one or more central locations where it was safe and secure. Before long, those companies recognized that they had a huge computer infrastructure, some of which was idle much of the time due to fluctuations in their users demands. Page 3

4 They realized that they could sell their excess to other services and users, thereby monetizing their unused capacity. This was the birth of the cloud as we know it today. Large hosting providers have server farms located all over the world. The globalization of hosting services is a particularly important part of their business model because many international users only want their information hosted in their own country. This is particularly true in light of recent spying by the United States NSA on foreign databases that are housed on American soil. III. On-Premises vs. Cloud: Benefits and Challenges This section is for those who currently have on-premises systems, and who are considering moving to the cloud. If that is not the case, then proceed to Section IV. The major benefits, challenges, factors and considerations for a move to the cloud, or a decision to stay on-premises are: Solution functionality. If business solutions (ERP or CRM for instance) are not going to change at the same time that a move to the cloud is made, then skip to the next bullet. But, if a switch IS being considered, then the single most important factor in any evaluation is the new solution s functionality. If the new solution does not match almost perfectly with current and future business processes, and particularly if it does not allow a company to capitalize on its key business differentiators (special sauce), then it may not be the right choice, no matter how well-integrated it is with the cloud. In their annual ERP Report, Panorama Consulting recently reported that for implementation outcomes, the highest satisfaction rates (52%) resulted from overall software functionality and the software s ability to meet business needs. To put it simply, the advantages of going to the cloud will seldom make up for deficiencies in the business solution. If there are gaps in functionality, then consider exploring ways of filling in those gaps using built-in customization features, script programming or developer customizations. But the closer that the solution is to matching existing business processes right out of the box, the better. Page 4

5 Existing IT infrastructure. There is likely to be a sizable existing investment in server and network hardware and software, in routers and switches, etc. The likelihood of being able to justify a move to the cloud may depend on how recently those systems were purchased. If they are 3 or more years old, and will be in need of replacement in the next 1-2 years, then a move to the cloud may be the right thing to consider. On the other hand, if existing IT infrastructure is relatively new, waiting until it needs to be replaced may be the best approach. Remember that even if business functions are moved to the cloud, some of the existing on-premises infrastructure will still be needed to service , office automation and proprietary application needs. The best approach is to employ a high-quality IT consultant to assist in the design of a new system, and to assist in deciding where the various IT aspects of the operations will be located. Environmental considerations. Electricity, cooling and physical security are the greatest environmental challenges facing an on-premises server and network. Consider the following: o Electricity costs. In some regions of the country, the cost of electricity is spiraling out of control. o Electric quality and reliability. For many, the reliability or quality of the electricity has been a problem, due to substation issues, or problems in a building associated with the use of heavy duty equipment. o HVAC issues. Cooling the server room is always challenging and costly. o Security. The lack of secure access to the server room is commonly an important concern. If one or more of the above have been issues, then offloading some or all of these headaches to the cloud should be given consideration. What is left, once business applications are moved to the cloud, are individual workstations, any hardware that allows users to connect to the Internet, and remaining on-premises servers (if any). Will data be safe in the cloud? Moving to the cloud causes some loss of control of sensitive company data, so it must be well-protected and backed up on a regular basis, and the datacenter must be disaster-resistant. In general, sensitive data is safer in the cloud than it is on-premises, because to a large extent, on-premises security Page 5

6 and backups depend on a company s own IT staff to adhere to their own standards. They do so much less of the time than the automated processes in the cloud. Staffing issues. By moving ERP and CRM systems to the cloud, does that cause IT staff to be significantly less busy, and if so, what is the impact on their schedules? Can they still be kept busy on a full-time basis, or is it time to look at the possibility of outsourcing IT? These are questions that must be answered prior to a move to the cloud. The answer partly depends on what kind of technical support will be received from the cloud provider. What level of support can be expected from a cloud provider? If there is data loss, will a technician be available on an urgent basis? If premium support is offered, how much is it, and how does it change support coverage? Is support coverage 24/7 and is it only for cloud servers, or can support be obtained for some or all applications? These are questions that must be answered prior to making a decision. Most hosting providers have a set of support plans and options that can be tailored to meet a company s needs, so finding out about those options is important. Ease of use. How friendly is the cloud environment that is being considered? If an Intranet already exists for the in-house network, then the changeover to the cloud should be much easier. It should be virtually transparent. But if an Intranet doesn t exist, how easy will it be for users to login and find their most commonly used applications? Will they benefit from a Virtual Desktop (see Item 5 in Section V) environment? If so, does the cloud provider have a standard user portal that can easily be modified and is easy to use? Scalability. Does the prospective cloud provider have the ability to grow? Some companies have hit a growth plateau due to their inability to affordably scale their on-premises system. A cloud provider can easily scale up and down, allowing maximum flexibility. But prospective hosting providers must be asked if there are any hard limits on the number of users or on the amount of disk storage space that are available in the hosting plan being considered. Will there be a warning that limits are close to being exceeded before they are actually reached? What is the additional cost to increase those limits? Data migration. Will data be readily available for moving to another publisher s business solution if and when services are moved from the existing provider? This is Page 6

7 a critically important question. Any prospective cloud providers should provide details concerning migrations away from their service in the future. IV. What is Virtualization? Virtualization is the creation of a device or resource, such as a server, workstation, storage device, network or even an operating system, in which the underlying resources (processors, memory and storage) are controlled by a sophisticated program and allocated into one or more user environments. Most simply put, virtualization is the practice of mimicking a server or a workstation (desktop) or a disk drive by a sophisticated piece of software. Desktops and servers can be virtualized so that it appears to the user that they are using their own desktop computer or accessing their own server, but they are really communicating with software that simply makes it seem that way. Server virtualization was one of the most important steps forward for the cloud. Server virtualization software such as VMware, Citrix XenServer, and Microsoft Hyper-V allow many virtual servers to be placed on one physical device. Environments such as Amazon Web Services virtualize and combine three elements: Processors, RAM and storage. As an example, it is not unusual for a company to require four or five separate servers a domain controller, an application server, a terminal server, an Exchange server, and a SQL server for network support. Server virtualization now allows them all to be loaded and managed on one single physical computer or environment. Because only one physical device (albeit extremely highpowered) is needed instead of four, server virtualization saves an enormous amount of acquisition cost for the equipment, maintenance costs, and especially electrical and HVAC costs. If a cloud evaluation is being conducted to reduce on-premises hardware costs, it could be that virtualizing existing servers will yield the desired cost reduction. On-premises server virtualization should be one of the options evaluated. In a standard cloud environment, it is not unusual to have dozens of virtual servers loaded on to one powerful computer, and each of those servers may be serving the needs of many companies. This greatly reduces subscription costs for the cloud Page 7

8 services, but it also decreases reliability and security by a tiny amount. For instance, if something causes the physical machine to stop processing, then all of the companies on that machine are down. The most sophisticated cloud processing environments such as Amazon Web Services, Google Cloud and Microsoft Azure can instantly detect an equipment failure, and reboot that server instance on another device with minimal downtime. Of course, this kind of reliability is costly and is only justified for mission-critical serves that must be operational 24/7. Many less expensive hosting environments do not provide this level of reliability. V. Most Common Types of Cloud Server Configurations By virtue of server virtualization and through the way that cloud business solutions have been architected, there are many ways for a user to receive cloud services. These are the most common types of cloud services for business users: 1. Dedicated Server. This means that a company has the exclusive use of one or more virtual servers, and they are not shared by anybody else. A Dedicated Server environments are the highest performance and most secure option, but it is also the most costly. Dedicated Servers may be used in a private cloud or hybrid cloud environment (see Section VII). 2. Shared Server. This scheme allows many companies to share the same virtual server. Performance is not as good as a Dedicated Server, and security and reliability will also not be as good. For instance, if one company does something to cause the server to stop running, then all companies are affected. But, there is a considerable savings in cost. Many cloud users deem the cost savings for a Shared Server to outweigh the small decreases in performance and security. Shared Servers may be used in a hybrid cloud environment. 3. Shared Hosting. In this scheme, similar to a shared server environment, hundreds of companies and users share a single environment, and each user has their own folder. The Google Docs, Box.com and Dropbox.com are great examples of that. This is sometimes referred to as a public cloud. This scheme is not generally used for ERP or CRM applications, but it may be in the future. Page 8

9 4. Multi-Tenant Environment. This is a business solution environment (such as ERP or CRM) in which many companies share and run exactly the same copy of the business application, but their data is securely stored preventing access by other companies. In other words, a single copy ( instance ) of the business solution serves hundreds of companies and users. NetSuite, Intacct, salesforce.com, Acumatica and the Sage Data Cloud are great examples of Multi-Tenant cloud environments. 5. Virtual Desktops (VDs or VDMs). This is an environment in which a company s sensitive data, which is normally stored on individual workstations, is instead stored in the cloud. Desktop virtualization software is used to create each user s working environment. The user logs in to the remote server and accesses their own desktop. This is an effective scheme when a company does not want their sensitive data to be copied or transferred. Although the laptop device that is being used to access the VD may have a CD ROM drive or a USB port, there is no way to use them without permission. If Edward Snowden had been on a secure Virtual Desktop, WikiLeaks may never have gotten hold of sensitive Department of Defense information. These schemes are available to companies who wish to employ cloud-based ERP or CRM, and they will be discussing in the following pages. VI. On-Premises Moves to the Cloud Until a decade or so ago, virtually all multi-user business solutions were installed on one or more physical servers located inside a company s location, and its internal network made it accessible to all users at that location. Users in remote locations had access through a firewall and virtual private networks (VPNs) which protected the system against unauthorized access. These systems are known as on-premises systems, and they are still in wide use today. The ERP and CRM software that run on those systems is (disparagingly) referred to as legacy software by cloud-based providers. The vast majority of ERP and CRM systems still use an on-premises model, but cloud adoption is becoming more popular, and mixed on-premises/cloud server models abound, as described in the next paragraph. For instance it is very common to have an on-premises ERP system linked to an Internetbased CRM package such as salesforce.com or to other cloud applications such as AvaTax (sales tax). In their annual 2014 ERP Report, Panorama Consulting recently found that 85% of their respondents use on-premises ERP solutions while 15% have implemented multi-tenant or hybrid cloud solutions. Surprisingly, that number is down from last year s 26%, showing that the appeal of cloud-based business solution services is decreasing. They also reported that many users did not implement cloud strategies because 30% of them Page 9

10 had a risk/fear of data security breach, and 45% simply had a lack of knowledge about cloud offerings. Hopefully, this paper will help fill that gap. Panorama also found that cost reduction has been a major motivation in the past for moves to the cloud, yet they found that much of the infrastructure costs savings (HVAC, electricity, etc.) are nullified by the high cost of customization of multi-tenant cloud solutions. That emphasizes the importance of finding a solution that is a close fit out of the box. Many companies have a mixed server model, employing two or more of the schemes described in Section V. For example, a company might be using Acumatica, NetSuite or other cloud solutions for its ERP needs. These are multi-tenant cloud ERP solutions (Item 4 in Section V) but ERP is all they do. They don t handle , office automation, or any of the other vital services that a company might need. So, other servers or cloud solutions must be employed. Some of those servers may be located in the cloud (Items 1 or 2 in Section V) or if they are extremely sensitive, they may be located on-premises. To make things even more complex, the users may be accessing Virtual Desktops on a local or cloud server, which in turn access their applications in the cloud or on-premises. This is a mixed server model and it has become the definition of corporate computing. It is sometimes referred to as a hybrid cloud (see the next Section). VII. Types of Clouds There are no true, phony, real or fake clouds. These are not legitimate terms. They are red herrings concocted by some cloud solution publishers and service providers who are trying to sell their particular product and discredit all the others. As discussed previously, these are the different types of legitimate cloud models: 1. Public Cloud. This is cloud infrastructure using a Shared Hosting scheme (see Section V) and which is available via the Internet only and open for public use. We gave some examples previously. Public Clouds are generally regarded as being less secure than Private Clouds and they are less high performing. Page 10

11 2. Private Cloud. This is cloud infrastructure which may be located in the same datacenter as a Public Cloud, but it is only capable of being accessed by one company s staff, vendors or customers, and it is located behind a firewall that is managed by that company. Private Clouds are generally thought of as being more secure than Public Clouds, because they have an extra level of protection. They do not access public services, so they are sequestered behind their firewall, using only services that are installed behind their firewall. Private Clouds commonly use Dedicated Servers. 3. Hybrid Cloud. This scheme combines the best of both the public and private worlds. Using ERP as an example, a hybrid cloud deployment would place the ERP solution behind a firewall in a datacenter, and it would have access to other public or connected services such as Google, MapQuest, AvaTax, to a cloud CRM solution and on-premises applications or co-located servers. This makes it appear to users that all the public, private and on-premises services function together seamlessly within the same environment. 4. Multi-Tenant Cloud. This is a specific business solution such as NetSuite, Intacct or salesforce.com that is accessed by many users in a multi-tenant environment. This was discussed previously in Section V. As cloud computing matures, we ll find that some publishers, who have designed their solutions to be cloud-compatible from the ground up, will offer all three deployment models. Acumatica is a good example. Acumatica may be installed on an on-premises server, or in a Hybrid Cloud, or it may be used as a Multi-Tenant application in the cloud. A company should pick the deployment model that best fits its risk adversity, performance, security and disaster recovery needs, and budget needs. So, in the future (actually, it is happening now), s solution originally designed for the cloud may also be installed on-premises. VIII. How Cloud Solutions Differs in Design from On-Premises Solution There are fundamental differences between a solution that was written for the cloud, and a solution that was originally written for an onpremises deployment only. The most commonly used languages for on-premises solutions are Visual Basic, C++, Business Basic, Providex, Visual C, and older languages such as Fortran, Pascal, RPG, etc. The problem with these languages is that they are not very efficient when used over the Internet by remote users. Bulky programs Page 11

12 must be downloaded to the user s workstation, causing it to be slow and to use too much Internet bandwidth. These are often referred to as thick clients by IT experts. Cloud solutions are written in a web-ready language, so that they can be accessed by a user via his or her web browser. These languages are almost always characterized by a web-style user-interface, and they are highly efficient. That is, they are the thinnest of clients. They use as little Internet bandwidth as possible, allowing access by a greater number of users through the same Internet portal. Typical programming languages used by cloud solution publishers are JavaScript and.net for the user interface (client-side). C, C++, C#, Java, PHP, ASP.NET, Ruby, Perl and HTML5 are commonly used for the backend programming (server-side). The backend programs are those that run on the server only, and are not being sent and run on the user s workstation. On-premises solutions can be re-written for the cloud using a web-ready language and appropriate development tools, but that is a gigantic undertaking, usually taking one or more years. But a new option has recently emerged. It is Windows Azure by Microsoft. Azure allows on-premises solutions and operating systems to operate almost as efficiently in the cloud as solutions that were written specifically for the cloud. Azure uses Microsoft datacenters and the backend database is SQL. Many on-premises solution publishers such as Sage and Microsoft will be making (or have already made) their products available in the cloud in the near future using Windows Azure. IX. On-Demand vs. Subscription These terms refer to payment models, but they are joined at the hip with the Internet and the cloud, because without the Internet, they could hardly exist. Subscription solutions require the subscriber to pay in advance for services (usually a year in advance) and the solution is turned off electronically when the subscription expires. When that happens, the company s data is usually still available for inquiries or for downloading, but it cannot be updated or changed. This allows cancelled users to transfer their data over to their new solution of choice. Both on-premises and cloud solution publishers have made their ERP and CRM products available on a subscription basis. Many require an annual contract, but some are monthly. On-demand refers to a subscription model in which a company may start and stop using the solution (almost instantly) with no penalty and with very fast provisioning. Provisioning refers to the publisher s act of making the solution available for real-time Page 12

13 access in the cloud or on-premises. There is no annual commitment for an on-demand payment model. Salesforce.com and Sage Online are great examples of this payment scheme. An on-demand solution is a good choice for start-up companies whose mid-term future may be a bit murky, or for companies who are in between permanent solutions, and just need a temporary one to bridge the gap. The most flexible publishers make their solutions available on-demand, on a subscription basis, and via a standard per-user or per-module licensing model. This gives companies the maximum amount of flexibility in meeting their own short or long-term cash flow needs. X. More About Multi-Tenant Solutions Multi-tenant cloud solutions are designed in a way that allows one copy (instance) of the solution to serve multiple companies. That means that all companies are on exactly the same version of the solution, and that it is always the most current version. That also means that when there is a version upgrade, it can be made automatically by the publisher during off-hours. Of course, each of those companies has their own separate and distinct database which is secured from access by any other company on the system. The opposite of multi-tenant is multi-instance. In a multi-instance environment, there is one copy of the solution on the cloud server for each company that is using it. So, each company has their own separate database and their own separate instance of, and access to, the solution. This requires more cloud resources than a multi-tenant system, so this approach is costlier, but just the cost of storage is a trivial factor compared to the other differences between them. One of the primary benefits of a multitenant environment is that the solution is updated only by the publisher, and all users must be off the system when it is being updated, always during off-hours. Sometimes, updates require a data conversion process but most interim releases or patches do not Page 13

14 require that. This approach shifts the burden of performing updates from the company to the publisher, which is a great benefit to the company. In a multi-instance system, not all companies have to be on the same version of the solution because they each have their own copy. Some solution publishers allow companies to be on older versions of the system, and in such an environment, each company is responsible for performing system updates. Multi-instance systems are more amenable to programming modifications, and multi-instance systems give companies more control over their environment, which can be a good thing or a bad thing, depending on how responsibly it is handled. One of the limitations in a multi-tenant environment is that because all companies are on exactly the same version, programming customizations to the system are usually disallowed. Companies may subscribe to unique connected services, or achieve a moderate level of customization via the internal customization capabilities of the solution. But, some of the most advanced multi-tenant cloud solution providers (such as NetSuite and Acumatica) do allow programming customizations. So, one of the most important priorities for any prospective buyer is to determine the need for customization based on the solution s out-of-the-box functionality, and to confirm that the product can support those changes. Some cloud solution publishers proclaim that the only true cloud solution is multitenant. Do not believe it. A multi-instance solution running in a private or hybrid cloud may the perfect solution for a company s computing needs. Just be sure to factor in the additional cost of having staff or an outside consultant perform the updates. XI. Performing an ROI Analysis is one of the most important aspects of any move to the cloud. The single most important aspect is the functionality of the business applications, and how wellmatched they are with existing and future business processes. But once the right solution has been located, it is imperative to fully understand what the new solution will really cost, and what the return will be on the investment. Designate an evaluation team, and the team must include the company s financial officer or advisor (possibly a CPA). It will be the team s job to collect and quantify all of the costs and benefits associated with each option, and it will be the financial advisor s Page 14

15 job to determine how good or bad an investment each of the on-premises, hosted and multi-tenant options are. An ROI analysis, a breakeven analysis and a TCO (total cost of ownership) analysis should be performed. The ROI analysis yields the rate of return on the cash outlay, the breakeven/cash flow analysis identifies the cash flows for each of the years analyzed, and the TCO analysis identifies what the total investment is, during the period of ownership. It is common to look at five years of ownership, unless there is some other compelling reason to go shorter or longer. Technology is advancing at such a fast rate that looking at three or four years may be appropriate, particularly if a high growth rate is predicted. It is strongly suggested that all three analyses are performed, and that the company s priorities, strategic plan, growth rate, cash flow sensitivity, etc., are factored in before a final decision is made. XII. Conclusion Evaluating a move to the cloud must be done carefully, and above all, it must be done objectively. This paper has presented a publisher and product-agnostic overview of the challenges and benefits. Use this information to put together a comprehensive checklist of the key factors, and have an evaluation team of trusted advisors assemble a list of options, and collect the benefits, disadvantages and cost factors for each of those options. By approaching the evaluation in this manner, a successful conclusion is almost a certainty. Page 15

16 DSD Business Systems DSD Business Systems, Inc. All rights reserved. Page 16

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