Cloud

Small business? The cloud is the only way to go

Thoran Rodrigues makes his case for small businesses taking full advantage of the cloud. From pay-as-you-go models to making sense of your data, the cloud is your best bet.

The cloud computing model represents an important change in how information technology works. Just as the major changes that happened first with the client-server application model and then with the Internet, the drivers of this new revolution are accessibility and cost - how can computing infrastructure, platforms and applications have more widespread usage and how can they be made cheaper. In fact, price and accessibility go hand-in-hand: the cheaper technology becomes, the more people will use it.

These two drivers are especially valuable for small businesses. By making technology cheaper, the cloud allows more small businesses to adopt IT solutions - from simple e-mail and applications to more complex projects - leading to leaner and more profitable companies. The cloud has also brought a proliferation of service providers, and this gives businesses more options when choosing their vendors.

The advantages of pay-as-you-go for SMBs

The cloud computing model is furthering the shift from products to services that started in IT some years ago. The end-product of this is the pay-as-you-go model for everything, from infrastructure and servers to software applications. In this model, the user only has to pay for the resources used over the course of a given period, such as a month. This means, for instance, that a small business can pay for storage as their storage needs grow, instead of having to buy storage based on growth projections. The same thing goes for processing power, server instances and even application licenses.

This is important for small businesses for several different reasons. First, for a lot of them, making any kind of projections about how their IT needs will grow over time is usually very hard. Even large companies have trouble managing their operations, as evidenced by Wal-Mart's recent troubles. For smaller companies, predicting future needs is even more difficult. A sudden growth in popularity due to word-of-mouth advertising may bring so many visitors to a small business's web site that it becomes unresponsive, generating frustration amongst potential customers and having a negative result, instead of a positive one. With the elastic, pay-as-you-go model of the cloud, any small business can have access to easily (or even automatically) scalable computing platforms, reducing the risks of downtime and the need for accurate projections.

Another major advantage of the pay-as-you-go model is that it transforms expenditures in IT from investments into expenses. This means that companies no longer have to buy a new server. They can, instead, pay for a cloud server instance on a monthly basis. This greatly reduces the costs of going into business. As an added benefit, some of the major cloud providers have "free tiers", focused on small usage scenarios, which means that recently started businesses can have access to top-level providers for free.

Finally, this model solves a major problem of small businesses: the fact that a lot of them fail. If a small company makes an investment in software and hardware and then goes out of business for any reason, it has no way of recovering that investment, since there isn't much of a market for used servers, desktops or software licenses. By adopting cloud solutions, however, a company can shut down its operations and cancel software licenses at the click of a button. This means, in addition to having to make no investment in the first place, no leftovers if the company goes under.

A deluge of data

An important side effect of the shift to the cloud is the proliferation of data that has become available for anyone to access. Not only are cloud services massive producers of data, usually about their availability, uptime and so on, but more and more services are opening up their data for consumption by others. It is possible today for even small companies to leverage data from several sources, such as Facebook and Google analytics, to improve their offerings and better reach their customers.

Although information is the lifeblood of any business, big or small, Big Data can have a much larger impact for small businesses and startups. By making use of this data, companies can better segment their customers and create more focused marketing campaigns, improving the return on investments. For companies with a more limited marketing budget, having a better response rate to advertisement can make all the difference in the world.

If companies had to depend on traditional data analysis tools to utilize the generated data, costs would be untenable. Fortunately, there are also cloud tools and services that allow anyone to process, make sense of, and extract knowledge from Big Data. With these services, small companies can improve their processes and even have better profits over time.

If I were opening a small business today...

I would definitely jump on the cloud bandwagon. The simple reduction in costs that can be achieved by using cloud-based solutions can make a huge difference in the budget of a new company. If we add this to the fact that by using cloud solutions companies are able to start operating much more quickly, and add it to the possibility to scale operations as needed, it becomes obvious that cloud is the way to go.

The cares that must be taken when hiring cloud services are the same that would need to be taken with any regular IT provider: make sure you need what you are buying, that you are getting a good price, and that your expectations match the service level offered. Information about different providers is only a Google search away, so do some research. In terms of costs vs. benefits, however, there is no other way to go.

About

After working for a database company for 8 years, Thoran Rodrigues took the opportunity to open a cloud services company. For two years his company has been providing services for several of the largest e-commerce companies in Brazil, and over this t...

16 comments
George@2ndfloorcomputers
George@2ndfloorcomputers

Some companies have policies that state Production data cannot be kept offsite. Plus in order for the Cloud to work, you have to have great/reliable Internet. Out here in Rural Canada, that isn't always the case (though it is getting better). What about the legal issues? Most companies are only looking at this from one perspective. Once you upload your Data to the 'Cloud', you can lose control of it. I also believe your Data is subject to local law. I'm in Western Canada, if I upload my (or my clients) Data to a Server sitting in California, and there is a problem, I have to take my fight to California and it's laws. Just adding my two cents....

mark1408
mark1408

If you have a risk assessment framework then when faced with cloud as one of your options, simply feed into your framework the different risks that come with a cloud-based service. Look at the resulting risk level as well as the costs of the service. If you're happy with the risk, or you can mitigate it, then cloud may win. The only "production" cloud service we have is web-based email filtering. We've had it for a number of years and in the old days it may have been called SaaS or even just outsourced. But some of our corporate data spends its time on other people's servers and we judge that the risks are acceptable and the benefits worth paying for. When it comes to the likes of Office365, for example, that's a whole different ball game. Having said that, while we haven't moved any of our other IT services into the cloud we ourselves are developing a cloud-based service for our customers. We chose one of the big players and have assessed the risks to us and to our customers. We're happy with the measures in place and will keep them under review.

wizard57m-cnet
wizard57m-cnet

Here we go again, yet another space cadet with their head in the clouds. Spouting off some product pamphlet sales pitch and making the conclusion that " In terms of costs vs. benefits, however, there is no other way to go" with absolutely ZERO facts to back the claim. How many of these "cloud" blogs must we suffer through before even ONE of you snake-oil salesmen at least bring some statistics to the table to back your claims? Until I/we see some cold hard facts, your opinion is just that, an unfounded opinion. This time I didn't pull any punches either...so if you feel offended by my acerbic remark, tough luck! Back up your conclusions with facts, NOT by reprinting a sales pitch! ps...I own a small business, and the "cloud" is the absolute LAST place I want to store my business data! Have you not noticed the dramatic decreases in hardware costs over the last decade? Other than the current spike in platter driven conventional hard disk drives, all major components cost less now.

HAL 9000
HAL 9000

Really? What about insurance in the event of a Data Breach or the Company providing your Cloud Service going out of Business? Currently you carry 100% of the risk of the results of a Data Breach which can add up to Millions of $ in the event of you being Sued for allowing that Data Out with the Cloud Provider at best only being responsible for the cost of the Service Period that the breach happened in currently that is a Months Worth of Cost but that figure could drop to a week or less when Cloud Providers see a benefit for themselves. Also in the event of your Cloud Provider going Broke and this time it will not be the Dot Com Bubble but the Dot Cloud Bubble who owns the Data Stored on the Broke Companies Servers or the Servers that your Cloud Provider has Licensed from another Cloud Provider? Can you in any way access the data that you put there in a case like this? In the case of your Cloud Provider On Selling Cloud Services from another Cloud Provider will the Bulk Cloud Service Provider even deal with the Broke Companies Clients or on sell the data to who ever offers to pay? The supposed Cost Benefit is at best extremely marginal unless you chose to ignore most of the Factors which is never good business and those factors are the ones that the Cloud Providers [b]Do Not Talk About.[/b] Of course if you believe the Marketing people who sell Cloud Services you are very likely to be one of the many companies who do not survive their first year. So looking to fail to begin with is a good enough reason to me to [b]Not Start in the First Place.[/b] ;) Col

Alpha_Dog
Alpha_Dog

You need to realize that while the cloud is a good tool, it does not fit every model. A small business in rural areas may not have the bandwidth (or connectivity for that matter) to use an app which could be hosted locally to good effect.

Michael Kassner
Michael Kassner

You mention: "In terms of costs vs. benefits, however, there is no other way to go." I for one would appreciate some proof of this.

thoran.rodrigues
thoran.rodrigues

Yes, the price of hardware has gone down, and it is very low, especially so in the US. But the benefits of the cloud go beyond simple cost reduction, and that is what I mean by a cost vs. benefits analysis. The cloud can give small businesses more agility and it can accelerate the process of going into business by days or even months. Some cloud providers also allow for easy scalability, which is something that can be very important if a business experiences an unexpected growth spurt. Benefits such as these (easy scalability, faster delivery time, no need to have a physical place to put servers) can far outweigh the costs. In countries outside the US, these benefits can be even greater. In Brazil, for instance, the cheapest Dell server will run you a little bit over US$ 1000,00. You can get an Amazon EC2 instance with roughly equivalent specs for free, because of their Free Tier (http://aws.amazon.com/free/). The same goes for applications. Google Apps is still free for up to 10 users, which can be plenty for companies that are just starting up. Even for non-cloud users, cloud solutions are bringing benefits, since the competition helps drive prices for on-premises solutions down. As for facts, here is a sample survey showing some cloud benefits and that most companies have reduced costs by moving to the cloud: http://assets1.csc.com/newsroom/downloads/CSC_Cloud_Usage_Index_Report.pdf

thoran.rodrigues
thoran.rodrigues

A business with a self-hosted solution (of whatever kind) already carries 100% of the risks of a data/security breach, and I my experience has been that most small businesses are not very security conscious. The large providers need to be, or they risk running out of business. Though centralization leads to more attractive targets, it also makes security issues easier to fix. The issue with moving data from one side to the other, or of losing access to data if a provider goes broke, is, as you pointed out, a very real one. On average, however, small businesses have a larger probability of going broke than the providers they are relying on. I would also think that the risks of data loss would be similar to the risk of having a hard-disk failure: if it happens, I better have some sort of backup somewhere else; otherwise I'm bound to suffer. Finally, the risk of a cloud service failing in its first years is the same as that of any other company. That is where conscious choice comes in. If I could get a cloud server with the same specs from my neighborhood provider or from Amazon, then I should weigh the risks of each one: who is most likely to go under? Who offers the best guarantees? As I said, making a choice about cloud providers is no different from making a choice between any kind of IT provider.

thoran.rodrigues
thoran.rodrigues

I totally agree. There are several situations where the cloud migh be contra-indicated. Every small business owner should run his own calculations, taking into consideration his particular situation and his particular needs. I do believe, however, that in most cases the cloud will be the best choice.

tom.marsh
tom.marsh

Many small business owners may chafe at the the lack of customization, control, and accountability in most of the "affordable" cloud services providers' contracts. SMB's should consult with their attorneys, as they may not approve of accepting 100% of the risk themselves, as many cloud providers naked T.O.S. require you to, in the event of compromise or data loss. Read up on the recourse you have if they lose or compromise your data... Most of the time, all you're entitled to is a refund for that month's service. ...Which is cold comfort if the data lost is your entire customer database, and your revenue starts to suffer as a result.

AnsuGisalas
AnsuGisalas

Otherwise it's having three rental cars of different sizes sitting on hold, when all you need is the one. That's not worth paying for.

HAL 9000
HAL 9000

Most of the current crop of Cloud Providers do nothing more than OnSell Leased Server Space the same as a lot of the Telco's and have no actual Hardware themselves. Hence many of them are the Small Business likely to go broke in their first few years. Data Security is most defiantly one of the Big Ones here and as you say Small Business is already 100% Responsible which at the very least makes them think even once if they employ a half way decent IT Consultant instead of their neighbors 15 Year Old Boy who is Great with computers and knows nothing at all about business. At the very least their Accountant warns them to be careful because if their wifes find out how much the business has they could have [b]Issues[/b] at home. That in my experience makes most think twice and do the bare minimum to keep people out who shouldn't be in there. Of course if the Wife gets in and finds out just what is available for her to spend Data Security takes off in that Business and they get Paranoid. ;) However the problem isn't with the Cloud Provider [i]The large providers need to be, or they risk running out of business.[/i] One Big Provider not being Security Conscious takes just how many Small Business along for the ride? All it takes is one of the Big Providers who Lease Server Space through several Smaller Providers to adversely impact on everyone. The problem here isn't so much what your Provider Offers but what their Provider Offers. You could for instance have 2 distinct Cloud Providers one who claims to be Super Paranoid on Security and one who doesn't mention Security and Hard Sells Cheap Prices. The reality is that both of these Providers could be Leasing Server Space from the same Big Cloud Company and their Marketing Campaigns are just that Marketing Campaigns driven to a certain sector of the Market with little to no grounding in facts. Currently the [i]"Self Hoster"[/i] can not get insurance to cover them for their Stupidity which is as things should be but if you go and Jump into the Cloud and Trust your Provider you can still not get any Insurance Cover to protect you or your business from that Cloud Provider Slap Shod policies so you get all of the disadvantages with only a slight reduction in costs as a benefit. Not my idea of a good way to do things but then again maybe I'm just stupid. :^0 Col

Alpha_Dog
Alpha_Dog

...but you said it better. One area I disagree with is your belief that in most cases the cloud is the best choice. The lack of broadband in all areas business serves is only one of many issues. Consider what would happen if a business were completely migrated to the cloud and they lost connectivity. What could they accomplish? If all apps from verticals to office suites, VoIP communications, and so on were in the cloud, the employees would only be able to run local apps... which would amount to solitaire. A better course would be to analyze what the company can do without and for how long. Then look at the reliability / risk factors with their hosting, cloud, and ISP services. Use these pieces of data to make an informed decision and plan for the inevitable outage. The cloud is a great tool for many applications, but must not be considered ubiquitous.

thoran.rodrigues
thoran.rodrigues

A cost vs. benefits analysis involves measuring the relative cost of implementing a cloud-based solution against the cost of hosting that same solution on-premises, and also measuring the benefits (and problems) of each solution. While security and compensation are obvious concers, most cloud providers will offer very agressive SLAs. How many small business can hope to achieve 99% uptime with a self-hosted solution? How many of them can have instant scalability as the need arises? Cloud-based solutions are usually much faster to implement as well. You can have techonological infrastructure up and running in a matter of hours or minutes, instead of having to wait several days (or even months, in coutries other than the US) for the delivery of a server. These benefits far outweigh the costs associated with cloud computing (including the potential cost of data loss).

thoran.rodrigues
thoran.rodrigues

A proper numerical proof of the advantages is somewhat hard to give, since the value of different benefits can be different depending on the needs and realities of different businesses. A small business in a country with poor infrastructure, for instance, can put a lot of value on high-availability. A business in a country where servers take a long time to be delivered may put more value on being able to quickly spin up or down new servers. We would have to look at each potential situation and each individual business case to do the proper math. The best proof comes, perhaps, from business people themselves. Here is a sample survey showing that most companies have reduced costs by moving to the cloud. It also shows some additional perceived benefits: http://assets1.csc.com/newsroom/downloads/CSC_Cloud_Usage_Index_Report.pdf (I had already included this link in a reply to another comment). You can find several other surveys showing similar results. I myself have talked informally with businesses of all sizes (at least in Brazil), and they all told me the same thing: the overall analysis favors the cloud. If you want to run the numbers yourself, Amazon provides some tools to make this easier, such as spreadsheets and usage guides, which you can modify to fit individual cases (http://aws.amazon.com/economics/) ??? even ???non-amazon??? cases.

Michael Kassner
Michael Kassner

I know what an analysis is. I was asking for proof of your claims. I still don's see any.

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