How cloud computing could change your business – and save you thousands

If you want to slash your IT spending, maximise the flexibility of your systems, and be able to run your business from almost anywhere, then it’s time to jump on the hot new IT trends: cloud computing, and software-as-a-service (SaaS).

These trends are all about seeing the internet as vast pool of IT resources that any company can tap into at any time.  

Need a server, but don’t like the idea of spending thousands of dollars? Simply tap into the “cloud’ of virtual servers across the internet, and pay as you go.

Need a database management tool, but don’t want to shell out for software and a load of data storage? Pay for the software as you need it, and put the database online, where you can access it from any web browser.

But while cloud computing and SaaS offer great opportunities to cut across and increase flexibility, there are pitfalls – including security, reliability and legal issues.

How does it work?

You are probably already using some SaaS tools, such as Gmail, Hotmail and YouTube, which are all free examples of software-as-a-service delivered via the cloud.

Cloud and SaaS experts such as James Broberg, a computer researcher at the University of Melbourne, and technology research firm Ovum research director Steve Hodgkinson, say the best way to think of these models is like a giant online utility, not unlike electricity, gas or water.

“You wouldn’t have your own personal generator – you trust the electricity grid,” Hodgkinson says. “It’s the same thing with cloud computing, and really is a question of comfort and reliability.”

A good example of a free SaaS product delivered via the cloud is Google Docs – a suite of standard office tools (including a word processing tool and spreadsheets) similar to Microsoft’s Office suite.

Typically, when a business wants to put a suite of products like Office on every computer in the organisation, they head down to the local computer shop and buy however many copies of the program they need.

But with Google Docs, all an employee needs to do is get on to the internet, jump on to the Google Docs site, and start using the programs. Rather than saving every document to the company server – and taking up expensive data storage space – documents are saved to the cloud.

These documents can be accessed from any web browser, anywhere – you do not need to be in the office or even connected to the office network. 

What are the benefits?

Alan Noble, Google Australia’s engineering director, says the SaaS model allows people to collaborate in a way that traditional software doesn’t.

“Instead of sending countless copies of a document to a large group, you can simply give each person access to the document in the cloud. They can all edit it at once, and you can keep track of changes without losing the most up-to-date version.” 

But the biggest benefit is cost.

As SaaS becomes more popular, companies will no longer require the biggest and best hardware to operate their critical IT systems.

David Markus, from IT consulting group Combo, points to the rise of netbooks – cheap, slimmed-down laptops that allow users to connect to the internet and do little else – as proof of the potential cost savings offered by SaaS and cloud computing.

“A netbook has no data storage, a very slim operating system, and thus has very low costs, because the machine has no moving parts. It’s early days, but it’s only a matter of time before anything in your office can be set up in the cloud and just have an internet-connected computer,” he says.

“You don’t need to worry about managing infrastructure or about backup; you can be sure it’s more reliable than your own equipment.”

While big businesses are leading the way in the use of cloud and SaaS tools, experts argue the benefits are probably biggest for small and medium-sized companies, which often cannot afford to hire IT staff to build, manage and maintain their systems. Under the cloud computing model, these functions are effectively outsourced.

“Traditionally the benefits have been for smaller organisations which don’t have internal IT experience,” says Simon Hubbard, chief executive of Really Simple Systems, which sells a SaaS customer relationship management program.

“Obviously the benefit is that you need no computer knowledge whatsoever – you just need internet access and to know how to use a browser.”

Google’s Noble agrees.  “It means that even the smallest companies can now have as big a presence online as a multinational corporation, enjoying the same world-class software,” he says.

“After all, an internet browser window is the same size, no matter who is supplying the information that populates it. The cloud gives all businesses equal access to scalable and elastic computing power.”

This scalability is crucial for SMEs. The pay-as-you-go model behind cloud computing and SaaS allows smaller companies to increase (or decrease) their IT investment in systems as their company grows.

“As the current economic climate develops, that’ll become more attractive,” Hubbard argues.

Who is offering SaaS products?

A wide range of companies are now offering SaaS products across a range of areas.

Financial management software companies Reckon and MYOB both have SaaS offerings, as does people management firm PageUp People and Aconex, which provides document management tools to the construction sector.

Melbourne University’s Broberg from nominates customer relationship management software provider Salesforce.com as one of the more successful companies in the sector. . 

“Instead of running a client’s customer database in-house they put it into the cloud, and this results in considerable cost reductions because you don’t need to maintain the system and can use it as a service.”

What are the problems?

But as SaaS and cloud computing are relatively new, there are a few major issues to consider before jumping in.

The first is security. If you are storing customer data or crucial company documents in the cloud, you want to be absolutely sure they will be secure.

And there have been problems. In mid March, 0.05% of the digital documents in Google Docs were exposed to outside view, causing major embarrassment for Google.

Ovum’s Hodgkinson says confidentiality of data should play a big part in determining if SaaS should be embraced. 

“Having Gmail is an example of SaaS, and most organisations would be quite confident with using that for their email system. But if you were in a high security business with sensitive confidential data, you wouldn’t be confident with that.”

Markus says researching your SaaS provider is crucial. “Do some due diligence on the company you’re buying from. Be sure they’re not going to let you down,” he says.

The second problem is reliability.

“In the last two years, there’s been a lack of rigorous performance guarantees, which is a promise to guarantee the server will be on, say, 99.99% of the time,” Markus says.

“Some providers haven’t been transparent enough all the time, so there may be some massive outages.”

Just last month, a Gmail crash left thousands of businesses unable to send or receive email.

“People are saying cloud computing is the future, but it can go down because there’s no such thing as an infallible system,” Markus says.

Hubbard also warns of the problem of vendor lock-in, which occurs when you get stuck with a provider and can’t simply up and leave to a new provider. He says that because SaaS is an emerging area, many companies are using different operating models and transferring data from one to another may not be easy.

“You can’t necessarily just switch to a provider when you feel like it. There’s not really a standard yet, so it’s a degree of vendor lock in, and the dominant provider may end up being decided by default.”

Hubbard warns businesses to be aware of hidden costs. “Businesses need to ask about things such as limits on disk space, and whether they have to pay to get a backup of data. These need to be clearly understood before they proceed.”

Finally, Hodgkinson also warns that SMEs must be aware of the risks involved in outsourcing data to different parts of the world.

“For example, the Patriot Act gives the US Government the right to look into data if they believe there’s a terrorism-related reason to do so. If you have cloud computing data that is US-based, you would fall under that legislation.”

The future

But despite the risks, the experts claim use of cloud and SaaS tools will increase as companies look to cut IT costs and improve the efficiency and performance of their systems.   

“It’s growing because it gives businesses access to infrastructure that they couldn’t build themselves, even as a large organisation. It’s merely a question of time as these things become more trusted as utility infrastructure,” Hodgkinson says.

Hubbard agrees. “For small companies, which don’t really know much about IT and rely heavily on third parties to support them, SaaS does away with all of that,” he says.

“I do think that large vendors are moving into this space and see it not as a trend, but as a real alternative for companies moving forward.”

See the forum on Cloud and Saas software model sustainability.