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."

Benefits

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."

Efficiency

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.

-------------------------------------------------------------------

To subscribe to our weekly business newsletter, enter your email address here.

-------------------------------------------------------------------

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