White Paper Cloud Computing II. The world of IT is changing.

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1 White Paper Cloud Computing II. The world of IT is changing. 1

2 Contents Introduction. 2. Cloud computing The world of IT is changing! 2.1 Changing the IT ecosystem. 2.2 Example of Microsoft: On the way to IT service provider. 2.3 Market expectations and acceptance. 3. Cloud computing What it is and how it can be used. 3.1 Definition and delimitation Binding definition? No chance Fully integrated the NIST definition. 3.2 Development paths in cloud computing General View Selecting the appropriate cloud computing variant Cloud forms and development paths. 4. Practical examples. 5. Summary. 6. Glossary. 7. Bibliography. 8. List of figures. 2

3 1. Introduction. Cloud computing is becoming suitable for business that has to be the initial conclusion in 2010 of the hype so far. More and more companies are deciding to use cloud computing, not just within projects but also to permanently support business processes. This is documented not only by the increasing number of contracts concluded and the scale thereof, but also by the assessments of hundreds of ICT decision-makers in the latest survey carried out by LMU München [Life 2, 2010]. Even though in Germany, in particular, there is still great concern about the new sourcing model, an increasing number of case examples show that the concept is being adapted in business life in a way which is both sensible and beneficial [Ruediger 2010]. The protagonists are also referring to a growing number of users from the corporate environment too. Financial analysts reckon that Amazon, with its web services, already makes around USD 100 m with annual growth rates well into double figures [Maier 2010]. They claim that cross-subsidizing the offer is no longer necessary. Google has managed to conclude contracts with the British cleaning company Rentokil Initial [COWO 2009], with the traditional brand Jaguar Landrover [Handelsblatt 2009] and, last but not least, with the City of Los Angeles [Heise 2009]. IBM also started 2010 with a bang by announcing a cloud deal with Panasonic [COWO 2010]. Salesforce is reporting over customers for its CRM software and continually growing income; revenue in the 2010 financial year reached USD 1.3 billion [IT-Times 2010].! Four market trends are driving the topic of cloud computing here: 1. Growing globalization (primarily in the virtual world) is providing new and more dynamic markets whilst simultaneously increasing competition and the rate of competition. 2. A new generation of people receptive to IT is entering the labor market and insisting upon using resources and services which were originally designed for personal use in the workplace (technology populism). Mobility and web-based applications are basic functions as far as they are concerned. 3. Constant cost pressure (particularly during periods of recession) is forcing not only IT organizations to put their investments to the test. Green issues can also play a role here. 4. In the last few years, a large number of technologies have matured which are essential for setting up clouds. They enable a high level of automation in the production of IT (IT industrialization). At the same time broadband networks will continue to be available, making high-performance access to network resources possible. Cloud computing will change IT companies, their technologies and their business models permanently. [BITKOM, President Prof. Scheer] Established IT service providers and internal IT departments must respond to these new impulses by at least introducing dynamic price, provision and IT production modules. At the same time they will continue to initiate the discussion as regards the weaknesses addressed in relation to cloud computing and use their competence in these fields. This is another important indication that cloud computing is becoming a serious topic. It can be easily seen from movements in the strategies and business models of known IT providers. The new impulses in the IT ecosystem mean that established IT providers are breaking away from existing strategies and old business models. Providers of Internet services, in particular, are attempting to make the Internet socially acceptable as the basis for business processes using cloud computing. The world of traditional IT provision is thus being exposed to a new attack from the Internet. A number of discussions, which have already been held in relation to the Internet, are also forcing their way onto the current agenda first and foremost the topics of security (see T-Systems White Paper Wie Sie die Vorteile von Cloud Computing sicher nutzen können [How you can use the benefits of cloud computing securely]), ability to integrate, general legal conditions and service levels. 3

4 Despite these discussions, the US environment in particular, which is already traditionally highly receptive to new (IT) topics, is very quickly discovering the importance of and opportunities provided by cloud computing. Flexibility, cost benefits and, above all, speed, characterize the new sourcing model compared with the traditional type of data center operation. Cloud computing thereby addresses the requirements of companies which, in our times of a globalized world, rely on a rapid response to market developments and at the same time want to reduce their costs for IT deployment in the long-term. Analysts certify that the US market has a head start of 12 to 18 months. In the Life 2 study commissioned by Deutsche Telekom, over a third of those surveyed in the USA thought that cloud computing would be very important in the future, while the corresponding number in Germany was 20%. Gartner consequently forecasts that in 2014, around 50% of revenue from the global cloud market will be generated in the USA [Baltner 2010]. In continental Europe, particularly in Germany, doubts continue to prevail even if it is sometimes already apparent that companies are thinking about a suitable use for cloud services and have started initial projects. This topic first featured on the agendas of German CIOs a long time ago, and the number of German-speaking publications is considerable; the ITC industry association BITKOM has published a comprehensive guide ( Cloud Computing Evolution in der Technik, Revolution fürs Business [Cloud computing Evolution in technology, revolution for business]) and the first textbook is already available ( Cloud Computing by C. Braun et al.). The strong dominance of US providers is even resulting in the first considerations relating to offering cloud computing from Germany in order to counterbalance this trend [Hackmann 2010]. The fact that Asian companies and even governments such as that in Japan, in the case of the Kasumigaseki Cloud [Hoover 2009], are also getting intensively involved in this topical area is being overlooked here. The good network basis in these countries could sustainably support this trend. The Life 2 study by LMU München published in summer 2010 and supported by Deutsche Telekom, backs up these observations and hypotheses. It also shows that German companies want, and perhaps even need, to get much more involved in the options and development opportunities associated with the topic of cloud computing now and in the future. A few example extracts from this study illustrate this: A good quarter of CIOs questioned in the USA and Germany consider cloud computing to be one of the three most important IT trends of the next few years. Around half of ICT decision-makers expect cloud computing to become established in the next 2-5 years. 81% of ICT decision-makers are convinced that cloud computing will become established on the market. Over half of ICT decision-makers even see it as a dominating alternative for ICT supply in the future. And only 4% think that cloud computing will remain hype. 75% of current cloud users rate the importance of cloud computing as very high or high and 77% of them anticipate an increase in investment in cloud computing. 71% of ICT decision-makers anticipate that the companies will try to keep ICT costs variable or to keep IT fixed costs low. This White Paper aims to broaden the understanding of the cloud computing phenomenon, to demonstrate the current developments and development opportunities and, in particular, and repeatedly, to encourage companies to get more involved with the topic. Section 2 takes a brief look at the IT ecosystem and the market, Section 3 discusses the definition of the National Institute of Standards and Technology which forms the basis for various options or development paths for sourcing. These are presented and assessed in detail. The explanations are rounded off by a few case examples in Section 4 which illustrate the implementation of various cloud provision concepts. The summary in Section 5 concludes this White Paper. 4

5 2. Cloud Computing The world of IT is changing! 2.1 Changing the IT ecosystem. Discussions on cloud computing quickly arrive at the expression paradigm shift. A paradigm shift signifies interruptions in the current doctrine. In the case of cloud computing this expression characterizes the change in the nature of IT: growing dynamics in production, provision, use and billing or payment of IT services. However, users and providers are not yet in agreement about the time schedule and relevance of the change. This appears to be reflected by the results of a study by market research company Vanson Bourne (on behalf of CA) [ZDnet 2010]: Disputed classification of the significance of cloud computing. n Temporary trend Complete paradigm shift Fig. 1. The fact is that with cloud computing, utility approaches in the provision of IT are becoming that bit closer to reality. In spite of this, the IT sector is still a long way off a genuine IT like electricity from a socket the worlds of IT and telecommunications still too often fail to be understood as an integrated unit as has been common practice in the much exerted analogy on electricity for decades now. Most cloud providers focus on the IT services offered and see network connections as continually available resources. 5

6 ! Cloud computing means a new option for users and promises more freedom of choice. For providers it means they must orientate their portfolio and their strategy towards the paradigm shift. Cloud computing represents a whole new era in IT service provision and, accordingly, an innovative and appropriate business model. It will change the competitive landscape permanently in the next few years. Providers of very different origins are confronting the cloud computing trend as part of their competencies. Alongside Internet companies, IT service providers, hardware and software manufacturers, telecommunications service providers are now also presenting themselves as candidates for designing a new IT ecosystem. Especially telecommunications service providers are currently in a good starting position because they control the indispensable backbone of the cloud the network. A trend towards shorter terms of agreement can already be seen. The relationship between customers and suppliers is becoming more situation-specific in the cloud age. In the segment of raw infrastructure services, in particular, the price will be the deciding factor in the future. However, the analysts at Experton point out in the current study Cloud Vendor Benchmark that this expected price war has not yet materialized [Experton 2010]. With pure IT infrastructure services which are offered as Infrastructure-as-a-Service, however, a gas station effect will be established over the next few years: the interchangeability factor opens up the option to switch to the lowest cost provider at short notice. At the other end of the service categories the situation is different: supplying complete software as-a-service is, according to Camille Mendler of the Yankee Group amongst others, already an established sourcing model in many companies. Due to the specific design of the service, however, it is not so easy to make a switch here. Nevertheless, even amongst skeptics of cloud computing, SaaS is considered to be an accepted software provision model which may have a huge impact on the future design of IT workstations. Workstations provided for a given situation based on centrally available roles and a small number of high-performance terminals will be possible. In this type of scenario the network connection is of key importance, especially for mobile users. It can definitely be said that the IT ecosystem is gaining momentum. With the offer of low-cost infrastructure resources or applications, companies which have up until now essentially supplied the end and private customer market with free of charge solutions are positioning themselves as new generation IT service providers. Amazon s EC2 and S3 to a certain extent form alternatives to the offers of traditional hosts. Google is also presenting its Google Apps as a low-cost alternative to conventional software offers. At platform level, alongside Google with its AppEngine, Salesforce with its Force.com development environment has also positioned itself on the market. Amazon has also recognized business customers as clientele and since 2009 has offered a virtual private cloud in response to security concerns [Current Analysis 2009]. 2.2 Example of Microsoft: On the way to IT service provider. Microsoft, for example, is responding to this challenge by providing applications in a type of SaaS model. It quickly managed to find important resellers for the BPOS offer. This is generating a high level of interest especially in the enterprise area (see Section 4 Practical examples). 6

7 With the BPOS offer, Microsoft is extending its added value by developing itself as the host of its own IT applications. This response shows, as an example, that software manufacturers need to at least think about new license models if not assume a new role within the IT ecosystem. This new role, in turn, is forcing traditional partners, such as IT service providers, who do not have their own software products, to likewise reposition themselves, possibly as integrators of various cloud services or as providers of advice or support on getting started with private or hybrid clouds. As a second response, Microsoft has brought its Azure platform to the market and is thus also addressing developers. Open standards will also be supported here. The example of Microsoft illustrates that cloud computing is not just a temporary trend. For a few months a hybrid strategy ruled, in which the traditional licensing business and requirements-oriented use were to coexist ( Software plus Services ). However, at CeBIT 2010 the Redmond-based company committed itself to a clear and exclusive cloud approach ( we re all in ). A notable user benefit can be found in the promise to comply with an update cycle of 90 days for cloud products, while this is 3 years for programs installed on the premises. Microsoft s service portfolio is therefore being dramatically extended in the direction of service provision, instead of focusing on the exclusive sale of licenses as up until now. Thus cloud computing is changing not only the type of use of IT resources and services but also the roles of the providers operating in the IT ecosystem. In many cases this requires a massive rethink not only amongst the potential users but also amongst providers. This is an unmistakable sign of a paradigm shift. Microsoft is by no means the only example of this Cisco has also changed its business model and is planning to emerge as an enabler of managed services. 2.3 Market expectations and acceptance. Cloud computing will cannibalize some of the existing IT services. Analysts estimate that by 2013 around a tenth of global IT services will be replaced by cloud offers [IDC 2008]. Right down the line, all analysts forecast growth rates of around 30% in this area. This also applies to Germany, which is hardly surprising considering the market is only just starting to develop in this country. Techconsult has calculated a market volume of around EUR 285 m in Germany for 2009 [BITKOM 2009]: The analysts at Experton even come up with EUR 436 m which, along with the forecast of EUR 1.22 billion for 2012 still appears to be negligible compared with the US values (IDC: USD 17 billion 2009). Statements such as these are however hard to classify since their evaluation of what cloud offers actually are remains unclear. A few analysts include income from online advertising as being part of the cloud market, for example. However, by 2011 Experton analysts expect to see the highest growth dynamics in development platforms, niche solutions and IT security and Infrastructure-as-a-Service.! The number of companies daring to use cloud computing is set to grow quickly. [Carlo Velten, Experton] In Deutsche Telekom s Life 2 study published in summer 2010, nearly 100% of the IT decision-makers questioned said they will retain their investment in cloud computing (approx. 20%) or will even increase it (approx. 80%). They see huge growth potential in the area of cloud computing. Thus 28% of ICT decision-makers claim that cloud computing is already used in their company. At the same time, 58% are convinced that cloud computing will be of (very) high importance in their company in the future. 7

8 The cloud computing adaptation. New Companies in the cloud Innovators Rentokil Initial Jaguar Landrover Los Angeles Panasonic Philips Conti MAN Linde Glaxo Smith Kline Coca Cola Genentech Brenntag New York Times Early imitators Early majority Late majority Laggards Fig. 2. In Germany this means that in the next 5 years more than 550 companies could get over employees using the cloud for the first time. Overall, in Germany, the United Kingdom, France, Spain and the USA there is a potential of over 100 additional companies in the region of over employees wanting to use cloud computing in the future [Life 2, 2010]. The target group for cloud offers appears to be mainly private users and small companies with low IT budgets and short decisionmaking processes. However, medium-sized enterprises can also benefit from the targeted introduction of cloud computing in the short and medium-term. Due to open issues regarding data protection, data security and general legal ambiguities, admittedly there are still by no means unjustified reservations within medium-sized enterprises. It should also be noted that the new, in some cases for the most part not familiar, generation of IT service providers is not necessarily classified as trustworthy by this customer clientele. Even the offer s high level of standardization does not always meet the demands of customers of medium-sized enterprises. Large companies and large international groups are approaching the topic of cloud computing pragmatically. They see that the public cloud involves security risks and that the private cloud is simply the better alternative here. In so doing they are evaluating the options for using the extremely low-cost resources in non-critical scenarios or the adaptation of cloud principles for companycritical IT services. The latter category includes, in particular the (outsourcing) contracts of Philips, Conti, MAN and Linde. Furthermore, McKinsey also describes in a study that an on-premise solution from the private cloud is cheaper for companies of a certain size and upwards [McKinsey 2009]. 8

9 ! All applications will soon migrate to the cloud. [Roland Schütz, COO Infrastructure Services, Lufthansa Systems] The frequently expressed assumption that and collaboration are perfectly suited for a transfer to the cloud is underlined by the cloud deal between Panasonic and IBM covering workstations, the outsourcing of mailboxes at Glaxo Smith Kline to Microsoft s BPOS and the Microsoft Exchange users who Microsoft supports for Coca Cola [Hoover 2008]. The cities of Los Angeles, Washington and the biotechnology company Genentech have also decided on communication and cooperation on a cloud basis with Google. These new business relationships clearly illustrate the trend for increasing the flexibility of IT services and the renunciation of traditional static IT service agreements. However, whether the flexibility also relates to the term of the agreements and/or to the interchangeability of the provider is questionable. 9

10 3. Cloud computing What it is and how it can be used. 3.1 Definition and delimitation Binding definition? No chance. There is no sign of the discussions on what constitutes cloud computing coming to an end. Analysts, providers of various backgrounds, users, associations and many others have published their definitions and in some cases already revised them. The definitions frequently strongly reflect the position from which each originator acts in the market. Thus occasionally an explicit reference to providing services over the Internet is found, which underpins the claim of cloud computing as being a service from the web compared to the traditional service provision in-house or over secure networks by a service provider. This is a point of view taken by IT journalist Walt Mossberg, amongst others, in his explanation of cloud computing [Mossberg 2010]. Academic institutions are also getting involved in the discussion about the nature of cloud computing. The Berkeley study by Armbrust et al. in February 2009 defines a cloud as data center hardware and software. With an additional pay-as-you-go billing model the result is utility computing. Here it is claimed that utility computing and SaaS together give rise to cloud computing [Berkeley 2009]. During the discussion, many of the definitions have been further developed in so doing the focus has moved away from the production method and towards the business model. However, none of these attempts at a definition appeared to be integrative and comprehensive enough to be generally applicable Fully integrated the NIST definition. Thus on May 15, 2009, against this ambiguous background, the National Institute of Standards and Technology (NIST) in the USA published a definition which extracted the essential parts of existing statements. Within a short time, this definition advanced to form an essential working basis for cloud computing (for example, Forrester considered the NIST definition in September 2009, which had however also been reflected by Macquarie Research or by the abovementioned study by Vanson Bourne). In October 2009, it was changed slightly for the last time and the current Version 15 has become authoritative. NIST defines cloud computing as a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. The second part of the definition describes the actual added value: The cloud model.is composed of five essential characteristics (1), three service models (2) and four deployment models (3). The Cloud Model (NIST), adapted by Macquarie. On demand self service Broad network access Resource pooling Rapid elasticity Measured service Public Cloud Private Cloud Hybrid Cloud Community Cloud Infrastructureas-a-Service IaaS 5 Characteristics 4 Deployment Models 3 Service Models Platformas-a-Service PaaS Softwareas-a-Service SaaS Fig

11 Essential characteristics according to NIST (1). By naming the five essential criteria for cloud computing, the NIST definition provides the most important stimulus for the discussion. With cloud computing the users must have the option to order resources independently and on demand (On-demand self-service). In addition, they should have access to a network which enables access to the necessary resources from various terminals (Broad network access). Here the user does not have control of the resources nor does he know their exact location. The resources are pooled and made available in a multi-tenant model (Resource pooling). This is elastically provisioned, i.e., the resources can be scaled in and out in real time (ideally automatically according to the requirements of the applications). To the customer, the resources appear to be unlimited (which is not of course true). In actual fact this emphasizes the parallels to electricity supply (Rapid elasticity). The final criterion specified by the authors is the provisioning of a service which includes the automatic control and optimization of the resources used. It must be possible to record this in terms of quantity so that providers and users are given full transparency, which ultimately only then makes pay-per-use billing possible (Measured service). However, pay-per-use billing, which is often named as a central criterion for a cloud service in the public discussion, is not explicitly mentioned by authors in the NIST definition as a requirement for cloud computing. These five essential criteria can be used as a measure for classifying a service as a cloud service and promote a targeted discussion about cloud services in the business environment. In the business environment, however, one further component must also be given the status of an essential criterion: the security which is closely associated with managing the delivering networks. The functioning end-to-end management of a service and the associated granting of service levels cannot be realized, amongst other things, without controlling the last mile. Supplying services over different networks is a special challenge for providers of cloud services for business use. Service models according to NIST (2). With the service models, NIST refers back to the established levels Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) precisely in the meaning of a cloud layer model of added value levels based on each another. This categorization of cloud offers according to the three levels IaaS, PaaS und SaaS has also established itself in the market. IaaS refers to the supply of raw infrastructure resources such as computing power and memory, SaaS refers to the use of specific complete applications. IaaS services are generally actually billed per use whereas SaaS services are billed at a monthly flat rate per user. PaaS services are aimed at developers. Development as well as operating environments are provided for applications here. The billing model varies according to use. Nevertheless, analysts and consulting companies are still making advances to extend this division into three. Thus Forrester formulates, for example, with Business-Process-as-a-Service a fourth level in which in addition to IT services the physical services of real people are also provided in a similar way to business process outsourcing in a pay-per-use billing model [Forrester 2009]. As a result, a cloud taxonomy is created based on Forrester s specifications which can be defined by the openness of use, i.e., the possible number of end users as well as the business proximity or business value of the offer: 11

12 Cloud taxonomy based on Forrester. Openness Public Global Provider IaaS PaaS SaaS BPaaS Original Cloud Market Virtual Private Dedicated Provider Private In-house Data Center Dynamic Infrastructure Services Infrastructure Virtualization Tools Integrationas-a-Service Middleware Virtualization Tools Dynamic Apps Services Apps Virtualization Tools Dynamic BPO Services BP Virtualization Tools Extended Cloud Market Infrastructure Platforms Applications Business processes Business proximity Fig. 4. In addition, many providers are trying to extend the supply of their cloud computing services with the concept as-a-service. They are thus illustrating the NIST criterion of freely scalable use at the customer s request and (generally also) billing per use. This primarily addresses the subpoints of the existing division, such as Storage-aaS, Compute-aaS (both IaaS) or Communication-as-a-Service (SaaS variant). However, with Enterprise-Mobility-as-a-Service (Verizon), Desktop-as-a-Service (Materna), Security-as-a-Service (McAfee), Test-as-a-Service or Landscape-as-a-Service (both T-Systems) offers also exist which go beyond the division into three. This trend is summarized under the term Everything-as-a-Service (XaaS). Deployment models according to NIST (3). The four deployment models differentiated from each other in the NIST definition are private clouds, community clouds, public clouds and hybrid clouds. Private clouds are operated solely for an organization or company. This infrastructure may also be managed by a third party. Since this third party (possibly an IT service provider) generally has an interest in implementing economies of scale, its strategy will aim to bring as many (additional) users to its infrastructure or platform as possible. In this case, a special form of private cloud the virtual or shared private cloud would arise. This cloud form is based on a highly standardized technical base layer ideal for a number of uses which can be deployed for various applications of several companies (see Section Cloud forms and development paths). By contrast, in a community cloud several organizations with similar interests share the infrastructure resources. In a public cloud, the cloud infrastructure is made available to the general public by implementing maximum economies of scale as is only made possible by the consumer market. The infrastructure itself, however, is owned by a company which provides cloud services. As we understand it, a hybrid approach is the combined use of several cloud forms which remain logically separated but enable joint data and application exchange. Here it is irrelevant whether standards or proprietary technologies are used for the exchange. 12

13 3.2 Development paths in cloud computing General view. Cloud computing signifies the trend towards the industrialization of IT production from an abstract viewpoint. This means that the economies of scale are making an important contribution to the success of cloud offers. Until now, the IT in companies has been provided more for specific tasks. The physical hardware and the software layers running on it were only available for this intended use and were based on the expected maximum load. With virtualization approaches, which are already widely-used, the degree of hardware utilization has been further optimized. For ICT decision-makers, cloud computing now offers an additional way of saving costs and flexibly adapting ICT resources to the current business trend. Positive effects will primarily be seen in the improvement of cost structures (through the flexibilization of costs for ICT and the avoidance of capital commitment), the utilization of productivity potential and the faster and more flexible access to new technologies. The outsourcing of all application management associated with this creates further freedom for ICT departments. With an average budget expenditure of 60-80% for ongoing operations, cloud computing also releases additional money for innovation(s) and makes it possible to address strategic topics. From this point of reference the various cloud approaches can now be adequately described: all cloud deployment models have economies of scale which result from running applications on an extendable infrastructure/platform with a number of uses. This leads to the standardization of operation based on a separation of infrastructure and application. There are obviously economies of scale along the Y axis (customers; see Fig. 5) since providers in the consumer area especially must be able to deal with exceptionally high numbers of users in the range of millions or even billions as well as with dramatic fluctuations in load. The economies of scale which can be achieved in the direction of the X axis (technologies; see Fig. 5) are more complex. However, for business this is, as it were, the interesting variant: here increased efficiency is achieved through consolidation on a shared infrastructure/ operating platform. Various applications and different variants of an application (e.g., SAP systems for various specialist areas and national organizations) can then be jointly operated on this platform. The dependency on the infrastructure is reduced and the result is better utilization of the infrastructure. Therefore, in private clouds several applications share one base, in public clouds several users share this base. Community clouds show an in-between variant in which multiple users share a set of several (mainly industry-specific) transaction applications or infrastructure resources. Hybrid clouds attempt to add the huge cost effects of public clouds to the existing benefits of a community or private cloud. A link between private clouds and community clouds can of course also be understood as a hybrid variant. 13

14 Cloud forms and development paths. Number of Customers Public Cloud (B) App MW OS HW NW (C) Individually Tailored Service Hybrid Clouds (A) (C) Community Clouds Private Clouds (D) Number of Technologies Fig Selecting the appropriate cloud computing variant. In addition to the decision on whether the applications and data are to be migrated to a private, public or hybrid cloud, the question as to which vertical range of manufacture or which service model is to be selected is equally valid. Here, the selection of the relevant service model (IaaS, PaaS and SaaS) is determined on the one hand by external regulations and on the other by requirements made by and of the application itself. External regulations such as legal or compliance specifications determine to what extent a company hands over the control of its (core) applications and data or in what form of cloud computing it may hand over this control. Infrastructure-as-a-Service offers make sense if the know-how on operating the applications either does not exist in the cloud the case of special applications or this knowledge is to be retained in the company. In so doing, depending on the situation, software modules, middleware or user interfaces already offered by the cloud provider can be used. In this case, depending on the desired vertical range of manufacture, Platform-as-a-Service solutions represent a suitable sourcing alternative. Where the desired IT support for standard applications is concerned, it is often possible to receive this as a full service (Softwareas-a-Service) from the cloud. In this case the company hands over the control of operations and complies with the adaptation possibilities, which are for the most part limited compared to in-house operation. The three service models described in the NIST definition offer companies the opportunity to obtain solutions from the cloud depending on the level of standardization and depending on the desired vertical range of manufacture. 14

15 3.2.3 Cloud forms and development paths. Development to/of a private cloud (A). With the private cloud approach, companies focus on a type of transformation which consolidates the existing systems. These have mainly evolved naturally and often have a high proprietary level. Associated with this is a strategic departure from physical hardware installations which run specific applications for certain tasks in particular (e.g., ERP). The first step is an assessment of the applications which could be migrated to a shared, standardized and virtualized platform. This operating platform is retained as a pool of virtualized hardware and enables shared use by various applications. The private cloud approach is primarily only tailored to one customer. However, when restricted to one company, mostly relatively low user numbers with for the most part only low economies of scale are the result. This is really only down to technology and the fact that various applications are (first migrated and then) run on one platform. For this reason, ICT service providers are keen to focus on further development in the direction of shared or virtual private clouds. This approach benefits both the provider and the users since only in this way can sufficient additional economies of scale be created through higher user numbers. In addition, (re)using operating processes already introduced and which run without problems, a standardized management system and the better utilization of resources all lead to long-term cost reductions which the provider can pass on to customers. The flexibility of the platform also enables the migration of further applications to the cloud. This approach therefore realizes two central effects of cloud computing: cost reduction and flexibility or reusability of technology. Depending on the economies of scale, the cost effects of a reduction correspond to 10-30% (depending on the virtualization scope already implemented). An essential requirement for all private cloud approaches is therefore a high level of standardization and a certain size of provider. The original private cloud offers a wider scope for individuality, even if this is already somewhat restricted compared to the traditional approach. In shared private clouds, there are less individualization options since the service provider s platform is set by default. However, this brings about increased efficiency and lower costs compared with standard operation (high level of standardization = lower costs). A private cloud can be operated in-house or by a service provider. With in-house operation, the ability to control data and services is high. With operation by an external provider, liability issues are generally regulated by a contract. This contract normally also regulates possible exit scenarios and the mode of data return. This minimizes the possibility of a vendor lock-in. Typical providers for (shared) private clouds are IBM and T-Systems, as well as providers of virtualization technology such as VMware. Current developments also show that large companies are increasingly deciding to deploy private clouds [Ruediger 2010]. Practical examples of this are shown in section 4. Summary of private clouds: with the private cloud approach, companies can realize some benefits of cloud computing in their own data center or with a service provider. On the technical side they gain flexibility and standardization in the IT infrastructure, whilst at the same time having a high level of control over resources, services and data. The standardization and better utilization of resources can also bring about cost reduction effects. The quality of the services offered can be determined by the company itself (on the condition that the network component is taken into consideration accordingly). 15

16 A private cloud cannot of course achieve the economies of scale nor therefore the cost effects of public clouds. The level of flexibility in the speed and volume of booking resources cannot compete with a public cloud. A further significant benefit is that in a private cloud scenario security, architectures can be set up so that they correspond to the individual requirements of business customers because neither public networks nor resources or applications are used. This means that private clouds can comply with legal provisions, in particular, by mapping the legal requirements to subcontracted data processing. This includes a contractual relationship which must be documented in writing and which closely regulates the relationship and services provided between the customer and the contractor as well as the opportunity to carry out regular monitoring of the service by the customer. An obligation to provide information in the case of unexpected or non-permissible processing with any follow-up instruction by the user, as requested by the Federal Data Protection Act [Bundesdatenschutzgesetz], can also be fulfilled. Where the processing of data is subject to special requirements, such as in accordance with 3 (9) of the Federal Data Protection Act [Bundesdatenschutzgesetz], 25a of the German Banking Act [Kreditwesengesetz] or 80 of the tenth German Social Security Code [Sozialgesetzbuch], the user must be able to select specific resources, locations and security levels something which is also possible in a private cloud scenario.! The trend is clearly towards the increased use of the external cloud. [Prof. Arnold Picot, LMU München, Life 2, 2010] Development into the public cloud (B). Public clouds tend to generate economies of scale from the volume of users. While in the corporate area numbers up to around 10 million can generally be achieved, according to our figures, Google with its Google Apps supports 1.7 billion users, 2 million of which are corporate customers. Supporting an additional workstations of a large company does not represent a particular demand on the existing infrastructure/platform in terms of scale. These developments prompt the authors of the Berkeley paper Above the clouds to conclude that the construction and operation of giant data centers at low-cost locations will be the norm in the future. This will dramatically reduce the costs for data center services (14 to 20%). The authors predict that cloud computing under such conditions and with the acceptance of optimum resource utilization can offer services at a lower price than a medium-sized data center and still be profitable [Berkeley 2009]. Due to the huge volume of users, public clouds focus not only on a technical standardization but also on standard offers and standard contracts with standard billing models. Here it should also not be forgotten that the overwhelming majority of users use the services free of charge. This minimizes the costs of customer support massively. Individualization is only possible with considerable cost and/or effort. In addition to using infrastructure resources for development and test purposes, observations show that existing applications will be replaced by relevant SaaS offers from public clouds, for example from self-operated exchange servers to Google Mail. This approach is generally not a migration of applications but a leap to existing (for the company, new) offers which are tried and tested in the private customer environment. Here the direct jump to the public cloud represents a clear break for the users. This step is easier if the current providers of on-premise software also offer these services as-a-service from the cloud. Other examples of use are found, for example, if independent software providers add public cloud resources to their development and test environments ( developer cloud ). Cost savings of up to 77% are estimated. Developers can also use existing complete development environments (PaaS) which significantly reduce development times. However, in this case developers must decide early on which offers to use. A decision for a platform which would no longer be supported in the future or which would disappear entirely from the market would have far-reaching consequences for the company using it. 16

17 ! When selecting a deployment scenario there is a huge difference between project-oriented use and long-term use of cloud services. [Dr. Michael Pauly, T-Systems] The project-specific use of cloud resources or platforms does not correspond to operation in the cloud in the sense of a permanent contract of service. It concerns a situation-specific deployment of cloud resources (also for test and development purposes, for example) which illustrates why references are often made to IT coming from a socket. Here it is important to establish the fact that the user is not relying permanently on one service provider; a loss of control such as that associated with permanent process support, heightened by any rescission, including data transfer, is not to be expected. By contrast to such IaaS or even PaaS scenarios from the public Internet, this dependency is much higher if (proprietary) SaaS offers are used in the long-term. Typical public cloud approaches are offers from Microsoft, Google, Amazon and Salesforce. These companies have high infrastructure resources, various (including proprietary) application development environments (Azure, Google App Engine, Force. com) and even complete software solutions (Google Apps, SalesforceCRM). Summary of public clouds: Public clouds can generally be used in two types of scenarios: Situation-specific and long-term. Even with situation-specific deployment, i.e., short-term and with foreseeable duration for example to support projects the full range of cloud benefits is used: flexibility, affordability and fast realization of results with low financial risk. Long-term (i.e., continual) deployment of public cloud computing should, by contrast, be strategically clarified since here it may be the case that a commitment is being made to a specific service. This makes the future freedom of choice as regards provider more difficult. Here too the high economies of scale result in potentially high cost savings for highly standardized services but which can, however, be put back into perspective through any integration costs. The providers have a high level of expertise in the technical protection of data and services but do not offer security in terms of liability, legal security and data protection. Development into a community cloud (C). Community clouds reduce the potential group of addressees compared with public clouds and extend it compared to the original private clouds. The community cloud is generally only available to a specific group of users such as those in a specific sector. The transactions offered therein cannot generally be deployed horizontally, but are tailored to specific sectors. The participants of a cloud of this type can establish cross-organizational collaboration mechanisms or rely on certified standards. As an example, work in a pharmaceutical cloud could thus be certified. The participants in this cloud would be able to fall back on these certifications which the operator obtains for all participants. Various participants in this cloud, from the original manufacturer or sub-manufacturer of the services or goods, to the developer of new services, the cloud operator and through to the customer are all recognized in the offers and thus promote the creation of value added networks. The notion of the marketplace thus comes alive once more. The added value networks in the automotive sector have been representing this aspect of community clouds for many years now. Community clouds are generally realized by a conglomeration of various participants: one infrastructure (IT and telecommunications) operator and at least a process designer, application developer and provider of cross-sectional tasks such as authentication and billing. Only ICT companies, which offer a wide range of services, can realize a community cloud on their own. Siemens is working on a community cloud in the healthcare environment, Flock IT in Australia and Dealer Track in the USA are further examples of clouds with a vertical structure. National clouds such as Kasumigaseki Cloud in Japan or the NASA Nebula project can also be seen as community clouds. 17

18 Summary of community clouds: Community clouds have a strong focus on the user groups who share common concerns. The potential size and thus the economies of scale of community clouds are therefore geared towards the target group or sector addressed. Community clouds enable small companies, in particular, to also participate in cost reduction effects or even to have high-quality IT services at all. Community cloud providers require knowledge of the sector and thus also expertise in the relevant security requirements, from a technical, legal and also governance point of view. The lock-in factor of a community cloud must be classified as high since it is likely that only a few alternative providers will position themselves on the market. Development to/of a hybrid cloud (D). Hybrid cloud approaches will become a significant driver for the development of IT in the business environment in the coming years. They combine, amongst other things, (very) low-cost services from public clouds with the data of protective and reliable applications from private clouds. Where possible, companies will take advantage of the cost benefits of public clouds and replace internal IT processes. Nevertheless, the new resources and services must be integrated in the corporate IT in terms of technology, processes, organization and legal aspects. Consulting companies and system integrators will find this segment to be a rich field of activity. Any combination of different cloud forms is referred to as a hybrid cloud. The integration of resources and services exclusively from various private or public clouds is not generally referred to as a hybrid approach. Nevertheless, integrators should also keep an eye on this business area. It is assumed that hybrid clouds often need to be implemented where public cloud resources are introduced in corporate IT. Hybrid clouds promote a change in the ICT architecture in the company in the long-term. At the end of the change process there may be a portal which is implemented either in the company itself or at an integrator, and which enables services or resources to be selected from an established provider pool, at short notice, at the click of a button. Summary of hybrid clouds: The company-specific optimum linking of various cloud services from different sources makes hybrid cloud approaches the most important cloud business area to date. Hybrid clouds are generally company-specific. They can be realized in-house or at an integrator. This means that the specific requirements of the company can be given particular consideration. Economies of scale during the integration are not expected. Nevertheless, it is conceivable that standard integration scenarios or interfaces will become established for large providers, for example. Cost reductions result through hybrid operation. In the target scenario, the user has the highest level of flexibility as regards using services and selecting providers. 18

19 4. Practical examples. Using private clouds in the example of Dynamic Services of T-Systems (A). IT services which are subject to specific regulations (e.g., data protection, finance law, etc.) and which are to be moved permanently to clouds are suitable for transfer to public clouds to a lesser extent. If, however, the aim is to achieve cost reductions with high security and corresponding compliance requirements at the same time, transfer to a private cloud should be considered. Workloads which are suitable for this are, for example, batch jobs, data-intensive applications and specialist area-specific applications, with the exception of financial systems. A typical shared private cloud offer is T-Systems Dynamic Services. Over 100 solutions are already operated on this basis. For example, for an international petroleum group, T-Systems transferred 232 SAP systems with a total of 1.2 million SAPS to a dynamic platform. Then further standard applications such as Exchange were transferred to this platform. Through the pay-per-use billing model and the consolidation or dynamization of the infrastructure, the customer experiences cost benefits of over 100 million. Another example can be seen in the chemical distributor Brenntag which has grown significantly through acquisitions in Asia. It rapidly became clear here that the number of technologies to be controlled increased rapidly at both IT infrastructure level and at application level. This led to bottlenecks and high IT complexity. To eradicate these problems and still be able to further expand them, Brenntag resorted to Dynamic Services combined with an MPLS backbone from T-Systems. The capacity to supply the complete ICT range of services in one solution was the deciding factor for Brenntag. Deployment of a private cloud variant (Dynamic Services) at Brenntag. Firewall Dynamic Services Datacenter Router MPLS DC Backbone/ Service Point Local Loop T-Systems SAP Services Service Manager Fig. 6. The platform meets the requirement to supply dynamic IT capacities in connection with a dynamic price model. In addition, it can be used to host various applications for various users. As a result, the customer has access to the benefits of cloud computing: cost transparency and thus planning security for costs, high flexibility via a scalable platform, which enables rapid growth and lower management costs for IT at the same time because the standardized platform removes complexity on the user side. 19

20 In addition to the private cloud approach, T-Systems is also working on the rapid provision of SAP landscapes over the Internet as part of an innovation project. Normally the traditional installation of a typical SAP landscape, comprising BW, CRM and portal systems, takes several days. Using Landscape-as-a-Service (LaaS), these types of SAP landscapes are ready for registration in a matter of minutes. Here, with the technical customizing, i.e., the communication of individual systems, and patches which are two timeconsuming additional tasks are already integrated. LaaS describes how companies can obtain SAP system landscapes for pre-evaluations from the Internet in the future. With LaaS, copies of existing live systems can be quickly provided for test scenarios. The landscapes can then be changed based on this. LaaS not only addresses SAP landscapes but is also suitable as a platform for further applications such as for web applications or Exchange. Via a web-based user self service portal, users are provided with the opportunity to connect additional systems for peak loads or to increase performance, but equally systems within the landscapes can also be replaced or removed. Due to its history of many years of commitment to dynamic SAP provision, SAP officially certified T-Systems as a cloud host in June Only four companies in the world currently have this certification.! T-Systems has demonstrated a very high level of maturity in the area of standardization and automation of virtualized SAP landscapes. [Michael Ressemann, SAP AG] Using public clouds (B). These first basic examples illustrate the selective or permanent switch to public cloud services which is possible and already tried and tested in practice, therefore corresponding to a vertical development in the overview diagram. Deployment of infrastructure resources using the example of The New York Times (B1). The easiest way of using cloud computing is to obtain free of charge infrastructure resources from the Internet or the public cloud. A few practical examples of this already exist which boldly illustrate the cost effect of cloud computing in time-limited IT projects. A classic example of this achievable cost effect is the project in which The New York Times converts old articles and images into PDF format in order to make them available on the Internet. It is obvious that in this scenario neither legal aspects nor security aspects needed to be taken into consideration. Only the copyright issues had to be clarified, and a publishing company that owns these rights is free to act as they wish. To transfer 11 million articles and images to PDFs, the internal IT department estimated a project duration of seven weeks and a hardware investment of around USD This is a considerable investment in hardware which is only needed for a specific project. In The New York Times blog Derek Gottfried describes the alternative project setup: use of 100 instances from Amazon s Elastic Computer Cloud (EC2). The conversion could be realized within 24 hours, thus saving 7 weeks of the project team s time in addition to USD The hardware acquisition became obsolete. The bottom line is that this corresponds to a cost saving of around 99% [New York Times 2007]. Transfer to SaaS using the example of Google Apps (B2). Typical examples of the permanent relocation of services to the public cloud are the use of Google Apps, Salesforce CRM or Microsoft s BPOS as alternatives to traditional local installations. Here the user enters into a permanent contract of service with the cloud provider. In addition, no on-demand or pay-as-you-use models are used in this scenario, rather for the most part monthly flat rates (occasionally also annual flat rates) per user. Here the users jump on platforms which already realize high economies of scale through their use in the consumer environment. However, for this the company must make a basic strategic decision. This relates to two important aspects: the abandonment of the existing solution and the associated familiarity of the end user with it on the one hand, and the binding decision in favor of the cloud provider with the corresponding dependency on the other. 20

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