Cloud computing - the new business force that is transforming how business communicates

Cloud computing - the new business force that is transforming how business communicates

By Andrew Patterson*

Cloud technology is providing boom times for Auckland based company ViFX which last year recorded revenue growth of more than 300%.

It’s one of the fasting growing sectors in the technology space and is effectively revolutionizing the computing sector while offering businesses the prospect of substantial cost savings at the same time.

ViFX specialises in cloud computing architecture and provides consultancy services to some of the country’s largest companies and organisations including Fonterra, Fletcher Building and Inland Revenue.

Studies have shown most IT departments currently spend up to 70% of their budgets on day-to-day maintenance dealing with a large number of individual servers and other independent hardware, the majority of which are only being used to a fraction of their capacity.

Think of it as each business having to generate their own power or running their own telephone exchange rather than producing it centrally and then distributing it to end users as we do today.

Companies such as listed accounting software provider Xero have based their entire business model around the future growth of cloud computing, while Apple recently began introducing households to the concept offering cloud based integration between devices such as the ipad and the iphone.

"Change it on one device and it automatically updates on the other" as the line in Apple’s latest television commercial helpfully points out.

ViFX focuses on the top end of the corporate market where the serious IT budgets are to be found.

Formed in 2007, the business sought to gain early market leadership in cloud computing consultancy by hiring the best talent and carefully defining its customer base.

Paradigm Shift

Managing director and co-founder Geoff Olliff says cloud computing is definitely changing the whole paradigm.

"It’s a way of doing computing which means that it can be provisioned on demand and in a way that is easily transparent from a cost perspective so people can get the resources they want when they need them."

"As well as the costs being much more quantifiable, when those resources are no longer required they can just as easily be let go so there is no on-going cost burden."

There are different aspects of cloud computing including the obvious ones such as servers and storage, but also development platforms and software as a service as we see with the likes of Xero and Gmail.

"It means different things to different users so for a small business owner it might just mean a mail system and an accounting package through to the likes of Fonterra who have much more complicated requirements, but the same benefits accrue to organisations at both ends of the scale."


Along with significant cost savings, cloud computing offers a range of other benefits.

"Over time the benefits are going to become more important as people switch to the cloud. Firstly, there’s an economy of scale. By pooling everyone’s demand and supplying it out of a central source, a bit like the electricity grid, you end up with a lower cost. However, the greater benefit is around the agility it provides. So a resource, such as an application or a server, can be available on demand or, when it’s needed, more of it can be requested and then it can all be let go when it’s no longer necessary."

"There are actually some amazing case studies, particularly involving young emerging businesses, who don’t have to go out and spend a whole lot of money on expensive IT installations but adopt a cloud based platform instead. It gives them the ability to just focus on the business itself rather than on the IT in their business."

Take up

It seems New Zealand’s largest businesses have been quick to jump on board and embrace the new age of computing.

"The organisations we deal with are typically well advanced in this process. While their IT issues are sophisticated, their scale is manageable whereas we look at organisations in Asia and the scale is simply mind-blowing. The challenge for large organisations is how they make that transition, which is where businesses like ours come in to the picture."

But why has the speed of change within the IT sector happened at such a blistering pace given that five years ago cloud computing was barely being talked about?

"It’s a question we regularly scratch our heads and ask ourselves as well. Probably the best explanation is that we’ve seen a number of technologies merge and virtualisation, the ability to separate a computer job from the resources its running on have merged with the likes of the internet."

"But really, the key value driver has been the shear economic benefit of a model like cloud computing. It drives not only substantial cost savings but also agility and tacked on for good measure you’ve got better resilience, redundancy, quicker disaster recovery so there’s really a whole lot of goodness that has come out of these technologies. Put that all together and you can see why the progress has been so rapid."


However, it seems while computing speeds have improved and hardware costs have fallen substantially, the same can’t be said for the efficiency of the systems themselves on which IT infrastructures operate.

"Studies done by our own Ministry of Defence back in 2007/08 found that of the 900 servers in their fleet, the average utilization was 2.3% which means that greater than 90% of the money, labour, power and resources were being wasted. Cloud computing has been able to address that issue very effectively."

While ViFX doesn’t operate within the SME sector, Geoff Olliff says that ultimately all businesses, irrespective of their size are going to have to start getting their heads around this issue.

"I think we have to stop thinking about computing as computing and think about it more as a way of achieving a business outcome whether that’s invoicing or inventory control or email these are processes that we use computers to do and cloud computing enables us to focus on the actual outcome, rather than the way the outcome is achieved."

"So I would strongly encourage all businesses, irrespective of their size, to think about the outcome itself and stop worrying about how to achieve the outcome."

"Here in NZ companies like Xero are a great example of that approach. Business processes are all becoming cloud enabled and so increasingly, it’s going to force businesses to come back to fundamental questions like what are we in business for and what is the easiest way to do a particular process and then look for the savings and benefits to flow.”

It seems the transition to the cloud is really only just getting started. Expect to hear a lot more about this technology in the future.


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ViFX came in at 22nd on the 2011 Deloitte Fast 50. The 2012 Deloitte Fast 50 information is here »

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Outsourcing has a place but it is not the nirvana it's proponents pretend.
1.  You may outsource the "problems" but you are still responsible for them.  If it goes wrong you can be sacked - on the other hand they have a 3 year contract.
2  Problems never go away they just change.  But now you have no control over your own systems to fix anything.
3.  For every dollar they suggest you will save on staff put back at least 50c.  Because although the IT people left eventual you will work out a compliance officer is required.  If things go badly your legal bill for contract work can go through the roof.
4.  When they tell you places like India have deep IT talent pools - remember IBM has a goal this year of increasing outsourcing staff educational level to 50% having degrees.  Meaning over 50% of these 'skilled' staff are high school educated.
5.  If it isn't in their contract they don't have to do it.  But no court or tax department is interested on why you can't get data out of your own systems.  You can't sue unless you can afford foreign lawyers.
6.  When your skilled IT staff leave they will also take your only understanding of your IT issues and challenges.  When you want independent IT advise what you will get instead is a salesman.
7.  Computer hardware may be under utilised but it's also cheap now.
8.  Did you know GM has just started a major in-sourcing program?  But why would you, in-sourcing doesn't advertise in the IT press.
9.  When they told me I would easily be able to export all my email back out of their cloud in the future - I said "Tell him he's dreaming".

There's no doubt there are potentially great efficiencies to be had, but two issues worth thinking over are:
a) Are you happy with your data being stored somewhere outside your organisation?  Think of who now has or potentially has access to the data.
b) Cloud computing relies on every link in the "supply chain" working.  The further away the cloud is actually located the more fragile that connection becomes.  Is it acceptable to your company for your systems to be down because of some glitch that occurred somewhere, quite possibly outside New Zealand.
Continuing on from b) systemic failure due to who knows what - perhaps economic collapse/effects of peak oil/everything, rioting, electrical supply issues, government firewalls, ??? will make the Internet of the future a less reliable than it is today.  That's my 2c anyway.

I am not an IT expert, but wit respect to the Cloud I ponder the security of the information deposited 'up there' ... ?

And it is worth checking out this link and think about your legal obligations.
Most cloud storage is not in NZ (too expensive here) but when your data is offshore, you are vulnerable to loss (think Megaupload and others) and it is subject to other jurisdictions and laws - typically not NZ law.
Practice being paranoid over data and you won't be too far wrong.
Cheers, TP uses cloud services extensively (although not with ViFX). Yes there are new issues we had to work through, but our experience has been that our business has been transformed by using cloud computing. Although there is a lot of detail in comparing the two options, I can honestly say the cloud option is better by a hugely significant margin. We just could not do the range of things we do do without out it, for a business of our size. It's a great equaliser.

The problem with Cloud computing is that if the supplier goes bust then say good by to the webserver. Then the web server infrastructure has to be built up from scratch using another cloud service provider, which is going to take time.
Virtuozzo is good because its a common platform used by different providers and its a lot easier to backup the remote servers locally which can then be uploaded to another provider.

When I see "paradigm shift", I think "more hype".