A view on

Cloud Computing
by Dr David H. Jacobson, Advisory Services,
PricewaterhouseCoopers, Toronto
May 2010


Introduction
Cloud Computing is a way of structuring computing to enable on-demand
network access to computing resources. Other key features include scalability,
location independence, and use metering and use-based billing.

The key to understanding and using Cloud Computing effectively is to realize that
it is ultimately a bi-directional service; valuable data, information and knowledge
must flow easily and securely to and from the user and these valuable assets
must be saved securely and be adequately backed up and protected from
disasters.

There are several types of Cloud Computing. Software-as-a-Service (SaaS) is

any application which is delivered over a networking platform such as the Web to
users who access it, usually via browser. Examples of this would be Google
Apps and Salesforce.com. Platform-as-a-Service (PaaS) casts a much wider net;
this may incorporate application development and configuration management,
interface development and tailoring, database structuring, storage and testing for,
and by, the developer and/or business owner. This type allows users to define,
build, deploy and run applications directly from remote servers. Rightscale and
Amazon’s EC2 are two companies which have grown in this space.
Infrastructure-as-a-Service (IaaS) provides users with remote access to data
centers. The difference between IaaS and the first two types is the fact that IaaS
enables access to a “virtual world” of machinery and software residing either
internally or external to the user’s premises, which may themselves be distributed
over a wide geographical area.

Cloud Computing technology is still considered to be relatively new and in the

early adopter phase for both providers and consumers. Some, like Lew Tucker,
CTO of Cloud Computing at Sun Microsystems, see it as merely a service
provider trend and not really a new breakthrough concept. Others, however, see
it as a paradigm shift in how increasingly the world will use and value Information
Technology. Nicholas Carr, author of “IT doesn’t matter”, likens the growth of
Cloud Computing to energy generation a century ago. It used to be that
manufacturers built and used their own dedicated power source. In the 20th
century, that function is performed by an electric utility and companies pay per
use. But that analogy may not be very strong; Cloud Computing is a two-way
street with sensitive business data flowing in both directions and being stored in
the Cloud. This is hardly the case in electricity provision.

PricewaterhouseCoopers LLP 2 A view on Cloud Computing

Cloud Computing in Canadian Business
Cloud Computing has the business world
Role of Cloud Computing divided on its importance to existing business
models. The 2010 PwC Survey of Canadian
No significant impact
Software Company CEOs shows that 42.7% of
32.0%
on m bus iness business leaders believe that Cloud Computing
is critical to their model while 32% find the Cloud
Will follow the lead of
our custom ers
12.6% provides no significant impact on the way they
operate or their bottom line. Those straddling the
Need to understand
more about how it w ill 12.6% middle believe that there is a need for further
change my bus iness
understanding of the changes which Cloud
Critical to our Computing could bring, and if it will be a major
busines s mode l 42.7%
attraction for their customers.

0% 10% 20% 30% 40% 50% The Survey also indicates that in spite of the
uncertainty, 52.4% of respondents are Cloud
users.

Cloud users are, not unexpectedly, as diverse

as the web landscape out of which it operates.
User of Cloud Computing Financial services firms have been testing and
deploying CRM tools using public clouds such
as Amazon’s or Google’s; Vivek Kundera, the
No current plans to
use cloud computing
28.2% now-CIO of the United States, switched 38,000
employees within the District of Columbia (while
Pla nning to use, but
no fixe d timeline
12.6% he was the incumbent CTO) to web-based apps,
claiming to save millions of dollars in software
Plan to use it in the licensing fees; the Treasury Board of Canada in
next twelve months 6.8%
February 2010 received endorsement for the
Government of Canada Cloud Computing
YES 52.4% Roadmap, one that can be compared with
countries such as the UK, the US, Australia and
0% 10% 20% 30% 40% 50% 60% New Zealand.

In Gartner’s global annual CIO survey of 1,600

IT leaders, a noticeable trend was the modest increases in IT budget dollars. US
respondents expected an increase of 2.5% from 2009 numbers (an average drop
worldwide of 8.1% from the previous year). Because these financial challenges
are likely continuing into 2010, CIOs are approaching priorities with caution. This
stimulates a change in focus to Virtualization and Cloud Computing, as well as
modifying IT departments into more agile, highly productive organizations. This
involves, amongst other things, a change from owner-sourced technologies
(which often require heavy initial investment) to lightweight, easy-to-implement,
easy-to-use platforms, systems and services.

Consequently, IT professionals are experimenting with and piloting new

technologies, seeking to gain experience of, and develop skills in, new Cloud
Computing products, platforms and services to keep pace with the changing
computing environment.

PricewaterhouseCoopers LLP 3 A view on Cloud Computing

 In keeping with the growing interest in Cloud Computing by the private and public
sectors, to respond to requirements for skilled Cloud Computing professionals,
and to encourage cross-organizational cooperation, the IBM Cloud Academy was
launched in November 2009. This was described as a “global forum for
educators, researchers and IT personnel from the education industry to pursue
Cloud Computing initiatives, develop skills and share best practices for reducing
operating costs while improving quality and access to education.” Furthermore,
CompTIA, a global IT association, is now working towards “building certification
programs to release in 2010 and get in front of growing demand.”

According to a survey of Wall Street IT leaders conducted by SIFMA and IBM in

June 2009, the number of respondents predicting that Cloud Computing would
bring significant business change more than doubled from 21% in 2008 to 46% in
2009, implying it to be the top disruptive computing technology.

Cloud Computing Applications

Some 58.3% of the Survey
Most Promising Cloud Computing Applications
respondees believe that SaaS is
Would not use cloud computing 12.6%
the most promising application for
Social networking 13.6% the cloud due in part to the
Replacement for in-house IT Centre 20.4% savings it offers to both providers
Archiving and disaster recovery 31.1% and consumers. From a consumer
Product development & testing platforms 23.3% standpoint, less money is likely to
Additional hardware (e.g. servers) on demand 36.9% be spent on servers and licensing.
Customer Relationship Management database hosting 20.4% From a provider standpoint, costs
Enterprise Content Management database hosting 9.7% are lower compared to
SaaS Applications 58.3% conventional hosting, because
Information storage 35.9% resources can be utilized more
fully.
0% 10% 20% 30% 40% 50% 60% 70%

At 36.9%, respondents agree that additional hardware on demand (e.g. servers)

is a service that also makes the Cloud promising. Amazon.com’s EC2 now
provides increased hardware on demand, making it easier for IT professionals to
increase computing power and storage capacity as required. According to Geir
Ramleth, CIO of Bechtel, a cloud services provider, the savings while using a
pay-per-use service such as EC2 will enable a company spending from $800 to
$1000 monthly to reduce its costs through time-of-use charges of only 10 to 15
cents per hour. More organizations are moving their computing from their own
data centres to the Cloud as this provides greater flexibility, allowing IT Managers
to dispense with tedious approval processes.

Quite simply, the Cloud requires and enables an IT organization to be agile and
adaptable to changing technology and business circumstances. According to
Charles Babcock of InformationWeek Analytics, faster approvals, increased
collaboration, advanced architecture planning and building vendor relationships
are key skills for success in the Cloud.

PricewaterhouseCoopers LLP 4 A view on Cloud Computing

 Types of Cloud Computing to be developed
Cloud storage accounts for 35.9% of
respondents’ votes. Hardware for data
Providi ng chang e m anagem ent advisory services 0.0%
storage has become increasingly
So cial netw orking in Business 7.8%
cheaper but vastly greater storage
Social gam ing 1.0% requirements, both concentrated and
Replacement for in-house IT 5.8% distributed, make storing information
Archiving and d isaster recover y 7.8% in the cloud attractive.
Pr oduct developm ent & testing platform s 4. 9%
In spite of indications that only 9.7%
Additional hardw ar e (e.g. server s) o n demand 6.8%
of the Survey respondents feel that
Cu stom er Relati onship Manag em en t database hosting 5.8%
Enterprise Content Management
Enterpri se Con tent Manag em en t database hosting 8.7% (ECM) database hosting will thrive in
SaaS Application s 36. 9% the Cloud, we believe that this trend
Inform ation Sto rag e 14. 6%
will likely increase. The successes of
Salesforce.com and SugarCRM, point
0% 5% 10% 15% 20% 25% 30% 35% 40%
in this direction.

Social networking is low in the Survey respondents’ priorities, garnering only

13.6% of the votes. This is not surprising as social networking has up until now
been primarily a priority on the consumer side with relatively low use in business.
However, PwC has observed that consumers and employees alike want to play a
participative online role both at work and in leisure time. And the tools of social
networking are becoming increasingly powerful, easy and fun to use. So social
networking is now a business strategic issue. Social networking needs to be
coupled into the thinking and operations of the entire organization; it is not merely
a passing fad. Not only will businesses increasingly embrace social networking
as a part of their communications strategy and in their day-to-day operations, but
also they will gain greater skills in marketing to, and collaborating with, customers
and partners.

Current Developments in the Cloud

Some 46% of Survey participants are already
Developing Cloud Computing Applications? developing cloud computing applications for their
clients’ use, while another 8.7% are planning to do so.
N ot ap propri ate for
m y business
27.2% Of those in this sphere, 36.9% are developing SaaS
applications while in far second place, at 14.6%, some
Thinki ng of do ing so 17.5% will use it for information storage.

Will be do ing so 8.7% None of the respondents, however, are planning to

provide Change Management services to assist their
YES 46.6% customers to shift to Cloud Computing.

Currently, some firms are using the cloud selectively

0% 10% 20% 30% 40% 50%
and with a little hesitation. According to
wallstreetandtech.com, some financial giants have
been using public clouds for application testing and for basic applications such as
CRM tools. They have been reluctant in transferring sensitive data to the cloud,

PricewaterhouseCoopers LLP 5 A view on Cloud Computing

 fearing security breaches and limited privacy, due in part to the Cloud’s inherent
multi-tenancy nature.

In spite of the fact that productivity tools such as Google Apps and Zoho Office
are gaining momentum and popularity in the SaaS space, worries over reliability,
availability and security still keep them from being fully used. Some unplanned
outages of Google’s Gmail and Workday’s human resource apps ended up as
being perceived to be a significant performance problem, with no quick solution,
due to the fact that the hardware was remote and controlled by the service
provider.

According to an InformationWeek Analytics survey, 46% of companies

interviewed said that they would use Cloud CPU, storage or other infrastructure
services in 2009, an increase from 31% in 2008. In addition, 56% of respondents
indicated that they would use, or would likely use, SaaS in 2009.

For those organizations contemplating moving some or all of their computing to

the Cloud, it is important to note that this requires significant planning and
understanding of the organization’s business and architectural computing
requirements. Increased collaboration at the outset between the company’s C-
suite, system administrators, network managers, developers and information
security officers will help eliminate potential strategic and operational errors
surfacing after implementation and will mitigate missteps in contracting services
from Cloud providers.

Cloud Concerns
Security remains the main concern for
Cloud Computing Concerns
those contemplating a move to the
Cloud (34.0% of respondents). As
Other 1.0%
Cloud Computing is still in the early
No concerns 31.1%
adopter phase for providers and users,
Change Management in your company 7.8%
best practices and guidelines have not
Being locked-in to a cloud computing provider by
21.4%
yet been set. Security and reliability
difficulty, cost, di sruption of tr ansferring to another or

Security, Confidentiality, Compliance, Privacy 34.0%

issues will have to be resolved in order
Service Level Agreement compl exi ties/inadequacies 20.4%
to capture more users.
Difficulties in matching cloud computing use to in-house
21.4%
IT systems and servi ces
Users are warned to read the fine print
Availability Disruptions 22.3%
when signing provider contracts. The
Cost 17.5%
Cloud Security Alliance (CSA)
0% 5% 10% 15% 20% 25% 30% 35% 40%
especially has indicated that it is
prudent for businesses to perform a
risk assessment before signing a Service Level Agreement (SLA) so that both
parties are aware of, and agree to, their own responsibilities with regard to the
information exchanged with and in the Cloud.

In the United States, electronic data has been governed by the Electronic
Communications Privacy Act (ECPA) since 1986. The Digital Due Process
Coalition is lobbying for an update to the privacy rules. The coalition, made up of
tech companies such as Google and Microsoft, and special interest groups, has
expressed concern that the current regulations don’t protect personal data

PricewaterhouseCoopers LLP 6 A view on Cloud Computing

 sufficiently and this could prevent companies from adopting the cloud computing
model.

Indeed, the Digital Due Process website (www.digitaldueprocess.org) states that

the “ECPA is a patchwork of confusing standards that have been interpreted
inconsistently by the courts, creating uncertainty for both service providers and
law enforcement agencies.” The coalition therefore warns the public to be aware
of the limitations of the ECPA in relation to cloud migration, especially in the
realm of email storage.

Reliability and availability disruptions are also concerns top of mind with
Change respondents to PwC’s Survey (22.3%). Owing to the fact that users work on
Management virtual machines, the causes of outages may be hard to diagnose. This likely puts
the users fully in the hands of their service providers who may or may not be able
Flexibility is vital in an era of rapid to fix problems in a timely manner. There is a risk of significant revenue loss,
change. Christine Wallis of Hitachi
Data Systems (HDS) talking to
productivity decline and loss of data, as a result of even one hiccup in availability
PwC about data storage explained, of the service.
“The data storage industry changed
dramatically and it’s still changing.
So for us, one of the greatest
Another concern around the use of Cloud Computing is its limited portability.
challenges is helping individuals Depending on the amount of a company’s data and number and complexity of
throughout the organization, the applications already in the Cloud, it may be difficult and costly to transfer to a
culture, to be more accepting, more
willing to change.” This is change new Cloud provider, should the need arise.
management in action.
– PricewaterhouseCoopers Planning and implementing a move to the Cloud and putting in place appropriate
The block-and-tackle strategy for
new procedures and backup plans to mitigate unwanted disruptions of services
dealing with change that may have requires an organization to adapt itself to new ideas, network architectures and
worked in a simpler past just won’t
cut it today. To achieve sustainable responsibilities. This requires significant re-education and training of its workforce
success, today and in the future,
you must take advantage of
at all levels. The Survey results show, however, that Change Management is low
change — whether planned or on the list when it comes to concerns regarding the Cloud. But in fact there is no
unexpected — without ever letting
it sideline you. This means doubt that Cloud Computing brings with it new ways of working, new risk profiles,
embracing a new core competency: new IT Centre structures and requirements for new IT skills and experience and
agility.
– PricewaterhouseCoopers that companies and organizations will have to adapt to accommodate these new
things. This requires Change Management at all levels of the organization and
more often than not, the C-Suite will have to seek the assistance of outside
Advisory Services to guide their Change Management plans and train the
personnel who will be handling their move to the Cloud and its use. Joel Cawley,
IBM’s vice president of corporate strategy, suggests that because all “disruptive”
technology is fast moving and risky, best practice “is to develop business
processes and strategies along with a business culture that takes massive
change as a given.”

Conclusion
As the world economies and their technology industries continue to recover,
major tech companies are reporting improving financials and forecasts. But a
number of analysts are predicting that only modest increases in consumer and
enterprise IT spending will occur during the period 2010 - 2011. Accordingly,
companies are looking further than cost cutting and containment to new projects
to enhance their competitive advantages. Very high-speed wireline and wireless
services are greatly enabling the use of software as a service (SaaS) and, more
generally, the use of participative rather than mere passive digital media services
available in the Cloud. Indeed, the use of digital media is a C-suite priority and a

PricewaterhouseCoopers LLP 7 A view on Cloud Computing

 better understanding of the collection and use in the Cloud of “unstructured
information and knowledge” is being seen as a new competitive advantage in
several industries.

In February 2010, the PwC Technology Sector Cloud Computing team met in the
US to discuss Cloud Computing trends and the advisory services that the firm
provides to clients.

The consensus was that large companies were moving cautiously and likely to
move to private Clouds (those created by the client and containing only the
client's data) before moving to public Clouds (created and managed by others
such as Amazon, Google, AT&T and so on). Many companies have already
started down the path with virtualization and SaaS but they have done so without
a broader Cloud strategy - they have not defined why they need to move to the/a
Cloud; they are perhaps thinking of this too narrowly solely as an IT event rather
than what it truly is, a platform for business transformation, higher productivity
and innovation. PwC views this disconnect as likely to reduce quickly – but only if
company C-Suites put their minds to adopting appropriate Cloud strategies in the
next year or two. Such Cloud strategies must be driven by business
requirements rather than purely by technology. Increasing emphasis will have to
fall on security and governance issues but most companies have not yet come to
terms with these quite complex matters. The “re-platforming” of applications into
appropriately stable and dependable Cloud structures will be an important
challenge and opportunity for large, medium-sized and small companies alike.

Greater use could likely be made of “Hybrid Clouds”, i.e., the combination of
internal Enterprise Clouds and Public Cloud offerings. Not only could this enable
the Enterprise to make best use of, and achieve highest flexibility in linking,
internal and external Clouds, but also this could even enable Enterprise IT
Services to contribute revenue to the Enterprise by providing innovative off-peak
Cloud services to external clients.

“Cloud Brokers” could stitch together disparate Cloud service offerings thereby
enabling greater ease of delivery to, and use of Cloud applications by, clients.

On the Cloud provider side, partnerships with clients rather than merely
supplying loosely-structured services will likely have to receive high attention,
especially in terms of on-going services innovations and adaptations to meet
changing circumstances. Contractual, availability and reliability terms of
reference will become more dynamic and will depart from the “once and for all
contract” of the past.

PricewaterhouseCoopers LLP 8 A view on Cloud Computing

 The Cloud and Mobile Applications
According to ABI Research, mobile device use will increase 14-fold by 2014.
A significant portion of the increase will come from Cloud Computing
applications. Utility software (maps, barcode scanners etc) and productivity
tools (data sharing, collaboration software) will lead, followed closely by social
networking and searches.

A recent Juniper Research report found that enterprise applications would

account for the majority of revenues over the next five years, with businesses
increasingly seeking to capitalize on the ability of Platform as a Service
(PaaS) providers to offer scalable, flexible data storage solutions allied to
device agnostic, synchronized office services.

However, consumer-oriented apps will comprise an ever-larger proportion of

total revenues, derived both from time-based subscriptions to services such
as mobile online gaming and advertising from cloud-based social networks.

PricewaterhouseCoopers LLP 9 A view on Cloud Computing

 Q: What’s next? A: The Mobile Cloud
Developments in technology and customer and consumer demand have led
the IT industry to cater more toward the mobile audience. The 2010 Mobile
World Congress (MWC, formerly 3GSM) in Barcelona (February 2010)
discussed the trends in mobile computing and identified the increasing
usefulness of mobile use of the Cloud as one of the telecom industry’s top
topics.

Worldwide, the rapidly increasing use of mobile/smart phones for internet

browsing as well as business and leisure applications hosting has made
companies such as Google and Microsoft focus increasingly on a “mobile
first” philosophy.

Google’s chairman Eric Schmidt, during his keynote address, encouraged the
use of the Cloud for mobile data storage as well as for using its processing
power and versatility.

PricewaterhouseCoopers LLP 10 A view on Cloud Computing

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