Now that we understand all the technical options around cloud computing, it is time to look at the business side of the equation:  What are the pros and cons of a cloud solution from a financial and risk management perspectives?



Potential benefits of the cloud

Cloud technology, with its different options and potential setups, offers enough flexibility to provide value to many different types of organizations.  Some of the benefits of cloud storage are:

1)  There is no direct dependency on any single server or piece of hardware which makes it easier to ensure business continuity in the event of a disaster

2)  Additional storage or server space is available as needed with no specific action required while over provisioning is avoided in a pay-as-you-go model

3)  Access to entire storage and server pool can be accessed from a single point

General considerations when moving to the cloud

At the same time, it is important to be aware of potential pitfalls and to prioritize requirements.  Some important considerations are:

1) Although the ability of the cloud to provide data redundancy across multiple and disparate servers can give great confidence to users, you also need to allow for the worst-case scenario where your cloud provider goes out of business and takes access to your data along.

This is a possibility that needs to be covered in the Service Level Agreement (SLA) with a specific remediation process detailed in order to minimize the waiting time for compensation was the worst to happen.

2)  It is important to ensure that the provider you choose can meet your key requirements to the specified level.  These requirements will vary depending on industry and location of the business but will likely include compliance, security, data handling and recovery.  It is also important to ask your vendor about business critical issues such as availability, security and compensation from the start.

The best way to understand a provider’s capability is to look at its track record and to request referrals from clients.  And, just to be on the safe side, ensure that you have an alternative provider to whom you can migrate with certain ease should requirements not be met at some point by your current vendor.

3) It is relatively easy to understand how moving from on-premises software to a SaaS model will affect your internal IT and support requirements since the external provider will support every aspect of the software deployment, management and access. 

It may not be as easy to fully gauge the impact of moving to an IaaS model.  Although all aspects of the infrastructure should be covered by your provider, you are still responsible for monitoring, managing and developing your on-demand infrastructure. 

4)  Software licensing may be a difficult topic.  An example of a company that has already ‘ported’ its licensing agreements to its cloud offering is Microsoft with its Office 365 product.   But the license document is longer and more complex to understand than the licenses offered with traditional Microsoft products, which tend to be quite complex already. 

In any case, many companies do not yet have fully developed licensing agreements for their cloud products meaning that the agreements may not cover all possible product configurations or all possible deployment locations. 

Financial considerations when moving to the cloud

There are also some specific financial considerations that need to be taken into account and that will help you focus your analysis around the benefits and drawbacks of cloud technology.

Below is a table comparing how some key financial factors play in an on-premise model versus a cloud computing model.

The focus of this post was to give readers a general overview of some key considerations when analyzing, designing and negotiating their cloud setup.  Next week’s post will walk us through how to incorporate all these considerations in the different legal agreements necessary to seal the deal.



References:
1)  The Ultimate Guide to Cloud Computing - MagBook, Cloud Pro - www.magbooks.com - @DennisMagBooks
2)  IDC Blog 
3) Wikipedia
4) PC Mag series of articles titled 'What is Cloud Computing?'
5)  Forrester Research - 'Talking to your CFO about Cloud Computing'

MasterCard, is developing some new exciting concepts that, although are not yet available in the marketplace, give us an idea of how MasterCard sees the future of mobile payments and of the role they want to play within the ecosystem.  Let's look at some of those concepts: 

*  Xbox Kinetic prototype:  The idea is to allow consumers to purchase a product on TV by, for example, waving your hands at an icon in the corner of the screen.  Another example, being able to pull up shopping menus at any time using body language such as putting your hand into your mouth in an 'I'm hungry' gesture.  

Although this is only a prototype and it is clear that agreements with TV manufacturers, broadcasters and retailers are required to launch this service, it is a great example of how easy and seamless technology may allow payments to be in the future.

*  QR codes:  QR Codes have become a societal norm within the last several years. Yet, there is untapped potential in the TV world. For example, imagine watching the Home Shopping Network, or just a random commercial, with a QR code in the corner that allows you to order the product being shown (perhaps at a discount) from your phone. Yet, instead of scanning the QR code and being taken to HSN's or the product's website, there is an app - QkR - that processes the entire transaction through your phone, stores it and saves the receipt. Again, just as with the Kinetic prototype, scaryingly easy to shop.

*  Audio cues:  Another way to seamlessly shop while comfortably resting in your favorite armchair is to have your phone listen to the TV to have it pick out any high-frequency codes that an advertiser has embedded into the product. An example showed at MasterCard Labs was of NFL products during a football game. Of the concepts that MasterCard Labs has developed, this one may be the most far-fetched since broadcasters might need to alter their signal to make it work. Not to mention the change in smartphone audio functionality to register this signal. 

*  Pre-paid wristbands:  VIP guests to the 2011 Isle of Wight Festival, held in June, had the opportunity to pay for their purchases with UK's first ever MasterCard PayPass prepaid contactless wristbands.  The feedback received from the users was extremely positive, to the point that the wristbands were the preferred method of payment.  Respondents to a survey said that this solutions was quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they’d want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.

In addition to this deployment, MasterCard also put terminals in some public areas for faster card payments and integrated them with the main gate access points, to demonstrate another aspect of its technological innovation: access control.  All together, a success for MasterCard in showcasing the benefits of their technology in a real-world setting.

MasterCard's effort to develop mobile technology is not new but, unfortunately, some of the efforts it has launched in the past have not been as successful as they would have hoped.  Again, let's discuss two of those examples: 

*  Mobile Payments Gateway:  MasterCard's Gateway is a turnkey mobile payment processing platform that allows issuers, acquirers, merchants and mobile network operators to  provide customized mobile solutions in developing payments markets by tapping into the MasterCard Worldwide Network, a globally integrated network. As a result, banked and unbanked mobile consumers gain access to a wide range of MasterCard Mobile payments solutions, which provide greater payment convenience and security over cash - using their mobile phone to make purchases, send and receive money between family and friends, transfer funds between accounts, pay bills, deposit funds such as payroll or social benefits, top up mobile airtime, load value to prepaid accounts, get cash from ATMs, and keep track of their balances and activities with mobile alerts.

MasterCard launched this turnkey solution a few years back but, at the moment, only has one customer live on the platform - in Brazil since 2009, the partnership that includes Itau Unibanco, Redecard and mobile network operator Vivo.  Just recently, a new opportunity has developed in the Indonesian market, although whether or not this will develop into an actual deployment in Indonesia and beyond is still not clear.  

*  MobileSend:  This product is MasterCard's response to PayPal for mobile.  The service is relatively similar to that of PayPal with the solution offering peer-to-peer transfers after registering and entering a MasterCard card number to be associated to the transactions.  The user will create an ID and password to access his account and will only be able to exchange funds with other MobileSend users.

Although the service is fast, secure, relatively inexpensive and available via mobile browser, app or text message, it has not gained widespread popularity, probably, in part, because both users - sender and receiver - need to have a MasterCard credit / debit card.  

Nevertheless, the company has learned from these two initiatives and is sure to continue building upon them.  The hiring of Mung-Ki Woo as Group Executive for Mobile, which took place earlier this year, is a sign that things will continue to move in the right direction for MasterCard in this area.  Woo is helping the company further clarify its mission and vision for the mobile future.  What will the story be 12 months from now?

A few weeks back, in the second post of this series, we talked about the difference between cloud computing and cloud services.  Specifically:

1)  Cloud services – Consumer and business products, services and solutions that are delivered and consumed in real-time over the internet.  The key word used around cloud services is Software as a Service (SaaS).

2)  Cloud computing - The IT environment that enables the development, delivery and consumption of cloud services.  The key words used around cloud computing are Platform as a Service (PaaS) and Infrastructure as a Service (IaaS).

Most people are familiar with SaaS, whether they use it as consumers – Facebook, Twitter, iCloud – or as employees – Salesforce’s CRM, Citrix GoToMeeting, Google Docs.  The provider manages every part of the infrastructure, from the servers to the OS to the data and the application.  You, as an end-user or a company, can access the service without worrying about how anything works.

The concepts involved in cloud computing are less well understood since many of us have not been directly exposed to them.  For this reason, we will devote this blog to discussing PaaS and IaaS in more detail.

IaaS – Infrastructure as a Service

In this case, the vendor manages all the hardware aspects of the system.  The provider will source and maintain servers, storage and network, while providing and managing the virtualization software that separate the physical drives from the virtual machine you are running, which is required to create a true cloud infrastructure.  The user will be charged on a ‘pay as you use’ basis with the user having total freedom in deciding the OS, middleware and software he wants to run on the provided infrastructure. 

Typical examples of services provided as part of IaaS are replication, backup and archiving, powerful computers and network load balancing and firewalls.  Examples of IaaS providers are Amazon EC2, Microsoft, Rackspace, VMWare and Citrix. 

PaaS – Platform as a Service

PaaS is somewhere in between IaaS and Saas.  It is not a finished product that can be directly accessed by end-users but it also not a tabula rasa where anything can be built.  In this case, the PaaS vendor provides IaaS capabilities as well as the OS, middleware and runtime software.

PaaS provides a platform to develop and deploy applications while it frees you from selecting, managing and upgrading lower layers of software. The flip side is that you are developing software specific to a certain platform that you do not control, making it

Although PaaS will allow you faster development times and therefore faster time-to-market, the flip side is that the provider controls a larger piece of your hardware and software environment, potentially making you more dependent on them and harder to migrate to a different vendor.  For example, if the standard runtime or middleware environments have been customized by the provider in any way, any calls included in your software that take advantage of those customizations will need to be changed if a migration takes place.

SPI Model

Together, SaaS, PaaS and IaaS, the most common cloud computing service models, form the SPI model. 

Below is a chart showing simplified explanations for the three main layers of cloud computing that will help you visualize the differences.

XaaS – Anything as a Service

Although the SPI model is the best known and most commonly used model in cloud computing, there are also other emerging services that are slowly becoming part of the cloud jigsaw.  Examples are:

1)  MaaS – Monitoring as a Service:  Monitoring of infrastructure and applications to proactively improve efficiency and reduce downtime risks, has always been important for businesses.  MaaS provides the option to offload a large majority of these costs by having it run as a service as opposed to a fully invested in-house tool.  Other advantages include easy setup and purchasing process.

2)  CaaS – Communication as a Service:  It enables the user to utilize enterprise level VoIP, VPN, PBX and Unified Communications without investing in the purchase, hosting and managing of the infrastructure.  

After discussing, in previous posts, the different types of clouds - public, private and hybrid - and now, in some detail, the different flavors of cloud services and cloud computing, we are ready to move to the last posts to discuss how to analyze financial benefits and how to negotiate a cloud services contract.  

References:
1)  The Ultimate Guide to Cloud Computing - MagBook, Cloud Pro - www.magbooks.com - @DennisMagBooks
2)  IDC Blog 
3) Wikipedia
4) PC Mag series of articles titled 'What is Cloud Computing?'