Guidance Notes CLOUD COMPUTING. The Business Case for Cloud Computing. A compilation by. David Starkey

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1 Guidance Notes CLOUD COMPUTING The Business Case for Cloud Computing A compilation by David Starkey Senior Lecturer Operations & Systems Management 25 th September 2013

2 What to consider before taking the leap? The challenges of a clouded market If you are confused about cloud computing, are unsure of whether the hype is justified, and have no idea if it s right for your business, then you are not alone. With many definitions of the technology in the market right now, it s difficult to get a clear understanding what cloud computing is and what it does. The truth is that cloud computing isn t as all- encompassing as many argue. It suits neither every organisation nor every IT application. Nor is it wholly new. Hosted , for instance, is a cloud service, yet companies like Claranet been offering it to customers since Nevertheless, if you respond to the opportunities and challenges it presents by burying your head in the sand, you ll no doubt find that cloud computing has continued growing when you look up. According to a report by analysts at The 451 Group announced this month, the national cloud computing marketplace will reach $16.7bn in revenue by So unless you want your competitors to steal a march on you, you d better arm yourself now with the necessary information to make a decision about this technology. This article aims to help you do just that by providing: a definition of cloud computing (or cloud ) an outline of its benefits and pitfalls the steps involved in migrating, including what applications and IT functions are suited to cloud advice on how to measure the ROI of a cloud project important things to look for in a cloud service provider Making Sense of The Cloud Claranet s definition of cloud is: a computing infrastructure, sitting in a remote data centre, accessible via the internet or a Wide Area Network (WAN). The platform is owned and managed by a third- party organisation, purchased predominantly on an annuity revenue model and contracted on a short- term basis. There are two categories of cloud: public and private. A public cloud is multi- tenanted and a private cloud is dedicated to a single customer. The evolution of two key technologies has helped drive the recent expansion of cloud services: Major advances in networking technology - in particular the ubiquity of IP networks in business and huge reductions in the cost of Ethernet circuits The maturing of server virtualisation technology, which allows server resources to be aggregated to improve efficiency and reliability To work out exactly what cloud can do for your business, it s useful to look at the three main types of cloud services: Infrastructure- as- a- Service (IaaS) Platform- as- a- Service (PaaS) Software- as- a- Service (SaaS). IaaS offers organisations outsourced computing resources e.g. access to RAM, CPU, storage and networking up to the operating system level. As such, it is the foundation- level cloud service, and gives the in- house IT team the most control over the outsourced infrastructure, allowing the manipulation of things like disk space and virtual network connections. Amazon s EC2 and Claranet s Managed Virtual Hosting services are an example of IaaS. The flexible provision of CPU capacity, data storage, network bandwidth and basic operating system. Each customer is responsible for running their software stack on top, and is able to re- size the underlying Cloud Infrastructure (CI) on demand. PaaS is, in essence, enterprise- ready web space. It gives an organisation or developer a customisable platform, including the operating system, on which they can place and manipulate their application, code, content or intellectual property. It allows greater control and freedom than SaaS does. Microsoft s Azure and Claranet s Managed Application Hosting are examples of PaaS. It adds to CI a complete software stack; for example LAMP (Linux, Apache, MySQL, PHP/Perl). Each customer is then able to write or load applications into this known environment, with the provider responsible for expanding or contracting the CI and/or the software landscape to meet changing demands. SaaS provides customers with hosted online software applications to access and use, such as Hotmail and Salesforce. It is the most well- known and well- established type of cloud service. Compared to the others, its scope of customisable elements is more limited, only allowing organisations to add and manage data and make defined changes to applications. This takes CI and Cloud Platform (CP), then adds a complete pre- configured application environment - for example salesforce.com or Google Apps. The customer simply consumes the application as a service, usually on a per- user basis, and has no long- term commitment (but equally almost no control). It s also useful to look at what IT applications and functions these platforms can support, dividing them into two categories: internal facing and external facing. Cloud is a well- established way to host and provide access to external facing infrastructure, such as websites and e- commerce engines. Many of Claranet s customers (such as Amnesty International,

3 Ann Summers and Five) take advantage of Managed Virtual Hosting services to host websites or online applications. For internal facing IT systems, such as CRM and HR applications, VoIP switches and Microsoft s SharePoint, cloud is less established. Nevertheless, it is proving itself as an effective option to customers, including CRU and Healthcode, in the form of Managed Application Hosting. Of course, a company s IT system will often have elements that are both external and internal facing. For example, DeVere Hotel s room booking system, which is hosted by Claranet in a private cloud, has a front- end for customers and a back- end for hotel reception staff (the internal/external split is for illustrative purposes). The table below helps explain how all of this fits together, giving examples of what types of cloud service suit different parts of an IT infrastructure, and what tangible access the business will receive when these various types of services are purchased: The Benefits of Cloud As mentioned above, despite the hype, cloud computing isn t that new. Most of Claranet s multi- tenanted services, such as web space, hosted exchange e- mail, shared firewall, load balancers and shared storage, can be seen as cloud computing services. What s new today, and causing all the excitement, is the level to which businesses can shift their external facing and internal facing IT off- site, and the core benefits they can get from this. Cost reduction There is usually no (or reduced) capital expenditure (CapEx) for the parts of your IT infrastructure hosted on a cloud service. Operational costs tend to be much lower because maintenance is handled by a third- party and is spread over the total platform. This means an end to hefty server maintenance costs and lower power bills. Businesses pay for what they use, rather than paying for an under- utilised IT system (there is, on average, a remarkable 90-95% of unused capacity on a single physical server) Increased flexibility Cloud allows businesses to scale computing requirements up and down readily. Flexible contracts and payment options are offered. Less maintenance and administration of IT means the team is freed up to focus on developing an IT strategy that supports the business. Users can potentially access certain cloud services from anywhere, at any time Increased reliability Cloud can give a business access to high performance data centres and networks, which equals high availability of computing power. IT reliability is likely to be enhanced compared to in- house provision because most cloud services are managed by specialised, dedicated staff, with a broad range of skills to run and maintain these type of platforms on a 24x7 basis. In the instance of a physical hardware failure, the virtual server will not experience downtime. This enhanced hardware resiliency means businesses don t have to double up on servers to limit single points of failure. The Limits of The Cloud Like any technology, cloud has its pitfalls and limitations. The main potential pitfalls are complete reliance upon the network for access and application performance, which makes it essential to find a cloud provider that has expertise in networking and IT security. The remote access nature of cloud means that most businesses will need to spend more on bandwidth and quality of service (QoS) - although this increased expenditure is usually more than offset by resulting cost savings from the revamped IT infrastructure. Placing data in a public cloud means that businesses may not be able to vouch for its location, which has security and compliance ramifications, as discussed below.

4 Performance is wholly reliant on a third party, which means that a strong service level agreement (SLA) and appropriate monitoring are vital to provide assurances and visibility of performance. If/when things go wrong, finding the root cause is a complicated task underscoring the importance of a qualified cloud provider with experience of both the hosting and networking. Measuring ROI on a cloud project and migrating to cloud requires planning and execution by an experienced service provider. Another key challenge of moving to cloud is that migration requires a major shift in the focus and remit of the IT team, and therefore a great deal of trust in your IT partner. This is especially so in the case of IaaS, which involves outsourcing parts of a business IT infrastructure that IT managers are often not inclined to let go of. However, the benefits of outsourcing can make for a very compelling argument in terms of cost and innovation. Why Consider The Cloud? In organisations of all sizes, IT leaders are under intense pressure to do more with less. Cloud is a highly attractive proposition in this economic landscape, offering the promise of both immediate ROI and longer- term strategic benefits. The immediate promise is for significant operational cost savings, enhanced flexibility and scalability and, where this is seen as a benefit, the ability to move capital expenditure (CapEx) to operational expenditure (OpEx). In the longer- term, moving to cloud will increase every organisation s ability to focus on its core strategic competencies, by outsourcing generic IT services that can be better and more cost- effectively delivered by a specialist cloud provider. Even for the internal IT function, this will ultimately be beneficial, as it will help IT to become the enabling interface between the business and the technology, rather than leaving it mired in the day- to- day challenges of running a complex IT infrastructure. How is Cloud Computing different from Virtualisation? There is a misconception that virtualisation is the same as cloud computing. However virtualisation is really an enabler for cloud computing and not cloud computing itself. Companies that have invested in virtualised servers are 80% of the way there to creating a cloud computing environment. The 20% that is net new can be characterised by incorporating end- user provisioning capabilities which allow infrastructure, applications and services to be consumed and charged on a flexible charging model with the cloud management services layer applied. Cloud Deployment Models What to Consider when Looking at Cloud Discover what your IT infrastructure consists of, and what it s doing. The first step towards determining if cloud is right for your business is to conduct a thorough assessment of your current IT systems. This stage, like all the stages discussed below, is best done with the help of a qualified service provider that has proven expertise in determining what IT components and functions are suited to cloud provision and which are not, and can execute a migration strategy. The fact is that some IT applications - such as network file sharing and phone switches - are not always ideally suited to external hosting and management because they require either very high bandwidth or very low latency, or both. Compliance can also make moving some parts of a business IT infrastructure to public cloud challenging, or even out of the question. For example, the customer database of a financial institution, or an online retailer s credit card transaction processing, are subject to regulations such as the Data Protection Act and PCI DSS. This means that outsourcing these types of applications or functions needs careful consideration.

5 The next step is working out what your servers are doing, what IT resources you have and how are they being exploited. This means looking at things like available memory, CPU capacity and storage usage. The potential savings here are enormous. For example, once virtualisation is deployed, a 70% reduction of the number of physical servers is not exceptional amongst typical cloud customers. Weigh up Current Costs vs. Future Benefits Compare the current state with the IT resources you would need to support the business s plans, reduce maintenance costs, improve business process efficiency, and so on. We ve found that, in almost all cases, businesses could reduce their IT estate and centralise servers in a third- party data centre and still have ample processing power and storage to realise these kinds of ambitions. Determine Your Current Spend On IT This is the next stage and is essential to building a business case for migrating to cloud. Unfortunately this is not always a straightforward process. One reason for this is that it requires a more comprehensive picture of the IT infrastructure that takes into account costs for managing the entire IT estate, such as costs for power consumption by servers, time spent on maintenance, hardware upkeep and refreshing, hardware disposal in accordance with WEEE and data protection regulations, and operating system licensing. For fifteen servers, for example, the total power cost can be around 6,000-7,000 per year. However this spend is usually hidden in the Facilities budget; this means the project team will need to work closely with Finance and Facilities, among other areas of the business, to get accurate costs. Look Beyond the Numbers It s important to note that, as stated above, the benefits of cloud are not limited to cost reduction alone. The assessment stage is also an opportunity to look at improving your business s continuity strategy and disaster recovery plan, as moving to cloud can also make your IT services remotely accessible. Such qualitative benefits should also be considered in the project s business case. How is Cloud Computing affecting my Competitors? The cloud rebalances the competition equation for SMEs. The inherent economies of scale advantages that larger companies have traditionally had over smaller competitors, such as large numbers of technical staff and over- provisioning to cope with peaks and troughs, are eroded by the cloud. When it comes to IT, smaller companies now have access to the same, or potentially greater, resources as their larger competitors. Cloud computing models are interesting to all organisations irrespective of their size as business leaders are under intense pressure to do more with less. However, cloud computing can be of particular interest and deliver real advantages to small and mid- sized organisations who want to compete with large enterprises in terms of customer service, efficiency and innovation, but cannot afford to maintain the scale of on- site IT infrastructure required to do so. How Important is a Network Provider? Without a network, there is no cloud service. Performance is wholly reliant on a third party. If the network isn t optimised for cloud services, then application performance will be marred and in some cases organisations may have to contend with disruptive downtime. Network optimisation and moving to the cloud will almost always involve increasing bandwidth and introducing Quality- of- Service (QoS). Complete reliance upon the network for access and application performance makes it essential to find a cloud provider that has expertise in networking and IT security. If things go wrong, finding the root cause can be a complicated task, illustrating the importance of a qualified cloud provider with experience of both hosting and networking. The importance of the network to cloud services means that a strong Service Level Agreement (SLA) and appropriate monitoring are vital. A cloud service provider with equal expertise in networking can provide the necessary assurances and visibility of performance, help drive costs down and offer added value to a project. Optimise your Network for The Cloud It goes without saying that without a network there is no cloud service, yet the network is often an afterthought in cloud projects. If the network isn t optimised for cloud services, then application performance will be marred and in some cases organisations may have to contend with disruptive downtime. In general, network optimisation and moving to cloud will almost always involve increasing bandwidth and introducing Quality of Service, and therefore increasing a business spend on connectivity. This isn t the serious hurdle it once was, however, thanks to huge reductions in the price of connectivity. Overall, the importance of the network to cloud services means that a cloud service provider with equal expertise in networking can help keep costs down & add value to a project.

6 What Business Outcomes Might Companies Expect from Moving to the Cloud? Improved Agility All organisations want the ability to quickly scale up to accommodate new customers, new product or service launches, or new promotions. To manage unpredictable fluctuations, some businesses set up their infrastructure to cope with predicted peak demand. At all other times, they must simply swallow the high cost of paying for under- utilised hardware and over- provisioned software licences. Even then, they can miss out on commercial opportunities if their predictions of peak demand are too low. When lacking capital, many other businesses simply attempt to stretch their existing resources, which will expose any weaknesses - whether with personnel, budgets or infrastructure. In both cases, a fixed IT infrastructure will typically be unable to contract and reduce its cost- base if revenue loss causes the business as a whole to contract. Cloud services largely eliminate the need for detailed forward planning, making it possible for businesses to expand or contract their IT service provision precisely in line with business requirements. The cloud frees up internal resources allowing in- house technical staff to focus on adding new value to the business by refining and re- architecting business processes, by creating innovative products and services, and by building new business services in the cloud. Scalable computing resource accessible through flexible, reliable SLAs managed and delivered by a specialist cloud hosting provider also offers the opportunity to align computing resource more closely in support of the business processes and flex in response to the changing environment and future requirements. Cloud computing, particularly for IT intensive industries, represents a source of potential competitive advantage and can stimulate business innovation and growth. Operational Resilience As organisations become ever more dependent on IT services, the resilience and availability of the IT infrastructure are becoming absolutely mission- critical. With budgets in decline, most organisations, particularly mid- sized businesses, can no longer fully justify the business cost of protecting themselves adequately against IT disasters. Top- tier cloud providers will offer state- of- the- art managed backup & firewalls, 24/7 real- time monitoring, fully redundant hardware and services that are mirrored across several highly robust physical locations - ensuring that even the complete loss of a data centre will not cause service interruptions or loss of data. This degree of protection will be far beyond the economic reach of all but the very largest enterprises, yet the economies of scale made possible by the cloud model can deliver total resilience at mid- market pricing. Operational Efficiency The IT department is often expected to be the organisation s technology R&D lab, evaluating products and services for their suitability in the business. It is also roped in to monitor Service Level Agreements (SLAs) and contracts where systems are outsourced. The more open and heterogeneous the infrastructure, seen as an advantage to prevent lock- in by a single proprietary vendor, the greater the number of suppliers that need managing, and the greater the resulting burden on the IT department. With cloud computing, the organisation typically needs only to manage the cloud service provider, who then separately manages its own relationships with the vendors providing the full stack. As the economic situation remains uncertain, the need to make do and mend will further increase the proportion of the IT budget that goes on fixing and patching the existing technology, leaving little left for innovation and meeting new business requirements. Adopting cloud eliminates the entire maintenance headache and all associated costs. In most organisations, IT also requires a constant sometimes unpredictable drip- feed of capital expenditure (CapEx). Server and desktop hardware is typically refreshed on a three- to five- year basis, software licences are continually refreshed or upgraded, and so on. Moving to cloud will turn CapEx into operational expenditure (OpEx), providing predictable regular billing directly related to usage, and minimise or eliminate the need for overprovisioning.

7 Sustainable IT Energy consumption of IT systems and the associated real estate can be significant, and prove an issue from both a cost and availability perspective, as well as adding to the size of a company s overall carbon footprint. Virtualisation can mitigate this pressure somewhat, but future increased demands are likely to outstrip these gains. Moving from an in- house infrastructure to cloud- based services can deliver real environmental benefits. It means using only the IT resources - and the related power and cooling - you actually need; reallocating or reducing the real estate previously employed to host this infrastructure; and outsourcing the choices about the equipment, handling and disposal of it to a specialist provider. The associated reduction in the carbon footprint can potentially boost a company s public profile and help with their Carbon Reduction Commitment (CRC) compliance. The CRC will directly affect the top 5,000 or so companies. The regulations are designed to target indirect emissions caused by the creation of the energy you use, and the direct emissions which result from running the business. Even if your own business is not required to comply with CRC, you may be expected to report environmental figures if you supply goods or services to a CRC- listed company. What is the CRC Energy Efficiency Scheme? The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is the UK s mandatory climate change and energy saving scheme. The scheme started in April 2010 and is administered by the Environment Agency, the Scottish Environment Protection Agency and the Chief Inspector (Northern Ireland Environment Agency). It is central to the UK s strategy for improving energy efficiency and reducing carbon dioxide (CO2) emissions, as set out in the Climate Change Act It has been designed to raise awareness in large organisations, especially at senior level, and encourage changes in behaviour and infrastructure. Overview: Migration as a Four- Step Process To summarise, the table below gives an overview of the above as a four- step process: Selecting a Cloud Supplier: 5 Things To Consider 1. Disregard Cloud Providers that claim to offer 100% Uptime Some cloud providers claim to offer 100% uptime on the network, but their definition of the network will probably not include the internet connection. If they are unrealistically claiming 100% uptime, what other expectations are they setting that they do not intend to live up to. Read the Service Level Agreement (SLA) cover- to- cover, line- by- line. It is your way to hold your provider to account for their service. One of the first things to check is the scope of the SLA. Beware of those that do not hold up to scrutiny against your business requirements. Any service must be delivered with a SLA that is appropriate for your business, with every exception clearly stated and agreed at the outset. Claranet is unusual in that it offers both hosting and networking expertise in a single Service Level Agreement (SLA) and act as your one point- of- contact for all network and application hosting requirements. This makes for an easy and cost- effective way of managing IT. Claranet s Managed Application Hosting SLA guarantees the end- to- end availability of the application using synthetic transaction monitoring to test like a live user.

8 2. Select a Cloud Provider that can deliver High Service Levels It is important to select a partner with a dedicated team of highly trained support desk personnel and that can monitor the infrastructure around the clock and fix issues before they have a chance to impact on service levels. Claranet brings together the best people, processes and technology to provide flexible, secure and cost- effective managed services that guarantee network and application performance. It allows customers to focus on their core business, not IT management. Its managed services, with integrated security, range from internet access to private networks and from colocation through to application hosting. It has 16 data centres, 6 Gb/sec traffic, and its own core network. Claranet claims that quality and innovation sit at the heart of its offer. It is ISO 9001:2008 accredited and has ITIL processes across all business operations. Claranet was also the 1st UK service provider to offer IPv6 enabled networks. 3. Don t Underestimate the Importance of Network Infrastructure Security As organisations move toward a more cloud- based infrastructure, they will also need to consider that mission- critical applications may potentially be delivered over the public IP infrastructure. They will need to keep a close eye on network availability, security, quality of service, and compliance. Third- party network service providers can have a significant impact on the effectiveness of a cloud strategy. The importance of the network to cloud services means that a strong Service Level Agreement (SLA) and appropriate monitoring are vital. Because of its heritage, Claranet can uniquely combine the management of the network with server platforms and applications and take full responsibility for availability. It understands that being responsible for the availability of its customers business critical applications is not a responsibility that should be taken lightly. Claranet can provide cloud computing over a private network, avoiding the need to deliver computing power over the public IP infrastructure, and enabling a workforce to communicate securely and efficiently between its sites, staff, suppliers and customers. Claranet also has the ability to prioritise a firm s business critical cloud applications over a private MPLS network, so that they receive the resources they need to deliver. For example, real- time applications such as video conferencing can be given priority over traffic, ensuring that the user does not experience any loss of quality in the video data stream. 4. Be Clear on how Flexible & Scalable the Offering Is It is important to know whether your provider can support your future business needs. Find out how easy it is to scale the service and the related cost structure. How easy is it to build in additional services from the same supplier? How wide is their partner network? Claranet s cloud hosting services can deliver hosting services within days rather than weeks and you can scale your hosting requirements up or down at anytime within your contract period. Claranet offers three levels of service management, from standard to advanced, and opting for cloud hosting rather than traditional dedicated hosting can enable you to consolidate/ reduce your existing operational costs. 5. Check Out Their Residential & Data Security Credentials It is important to select a provider who takes a proactive approach to data security. Protection of your most valuable asset - data - needs to be core to their proposition. Few organisations can replicate the levels of resiliency and around- the- clock 24/7 monitoring that is available in a professionally managed data centre. Find out what systems they use to provide real- time monitoring of all systems and how often they conduct routine system checks. Compliance with UK data protection laws should also be factored in to your decision, and it may be sensible to ensure that your data is stored in a UK data centre. Claranet provides the most modern and efficient managed backup service in the market. Claranet managed backup uses state- of- the- art RAID disk array, with de- duplication and compression technology hosted in its data centres - meaning data is quicker to backup and restore. Managed firewalls are administered by Claranet to protect a company s office network or hosting service from unauthorised network requests, or flows of data that originate from either the internet or from within the customer s network, by blocking the data according to the pre- agreed security policy. Claranet manages the firewall by providing configuration, installation, support, monitoring and maintenance. Claranet aims to combine the management of the network, server platforms and applications, and to take full responsibility for the availability of the application.

9 Every Cloud can have a Silver Lining The most important factor for a successful cloud project is having the right service provider, so look for one with good references and proof of managing successful migration projects. An ideal partner would also be vendor agnostic, so that it can take advantage of the best technology in the market. In addition, as stated above, a cloud provider with networking expertise as well will help ensure the network element of the cloud service is optimised. Lastly, pay special attention to the provider s Service Level Agreement(s) (SLA). It should guarantee things that are meaningful to overall business objectives, not just technical requirements. Cloud has huge potential, but as with any migration project, it needs to demonstrate value against business objectives. After all, cloud isn t a panacea for all IT ills; it is simply a means to help businesses get more of what they need from their IT function This document was drawn together from a number of Claranet reports concerning the adoption of Cloud Computing for business advantage. It gives some balance and useful tips when considered alongside the Amazon Web Services references made in the Cloud Computing Hot Topic talk by David Starkey on the 25 th September 2013 in the Richmond Building. Should you wish to contact Claranet, please use the details below. Phone: Website: Blog: business@claranet.co.uk claranet.co.uk twitter.com/claranet Compilation by: D. Starkey Senior Lecturer Business Information Systems Operations & Systems Management Subject Group Portsmouth Business School.