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External Cloud Providers Must Be More Than Hardware Pool Providers

Cloud can expand needed enterprise software resources and contract those resources that are not needed

Cloud computing provides more than scaling. It provides elasticity. That means it can expand needed enterprise software resources and contract those resources that are not needed and It can do all this on demand. On the surface, this looks like a great opportunity for new cloud services businesses to emerge. These providers would basically sell capacity to other businesses that would otherwise have to maintain enough IT to accommodate infrequent but significant spikes in usage traffic. These cloud computing vendors would be providing what is called an external cloud.

One use case that is often used to explain cloud computing is a greeting card company that conducts business over the internet. During most of the year, sales are relatively constant with most business coming from birthdays and anniversaries. However, on some holidays, sales will spike and computing capacity needs may double or more. If the greeting card company were to maintain the infrastructure necessary to accommodate the holiday business it would represent a huge cost in administration, maintenance and physical space during most of the year. An external cloud provider would save this company money by giving it the needed capacity only when it is actually required and charging them for it on that basis. This description is very effective at demonstrating the advantages of external clouds.

Today, there is much discussion about the opportunities for cloud based businesses. But is there really such a green field for these kinds of providers? The cost constraint on the greeting card company is all about having enough IT infrastructure to accommodate infrequent spikes in business. It appears that an external provider could alleviate that burden but what kind of business must this provider have? An external cloud provider would be a data center for hire, so to speak. They would have to be able to accommodate the architecture that the card company has selected for their web business. But more importantly, they would have to have the capacity that the card company does not. While this looks obvious and relatively uncomplicated there are issues with the business of providing IT as a service (ITaaS).

An external cloud provider would be a dedicated IT business. It would have expertise, resources and management in IT that most businesses cannot afford to keep themselves. Also, their facilities would be dedicated to the maintenance of computers and networks. Such focus in purpose could make this business quite efficient. However, regardless of all this dedication they themselves would have a capacity limit.. They would have a limit on the amount of technicians they could support. In short, they could not provide infinite services. While this also seems glaringly obvious, there are details that must be observed.

IT is expensive. Hardware is expensive, skilled people are expensive, and physical space is expensive. An external cloud provider would have to be well capitalized to support the basics of maintaining such a business. The services they provide would have to be inexpensive enough to attract enough business, therefore they would be counting on either customer volume or on a small number of large customers with enormous needs. Very large companies have their own IT centers and most of them are competent. External cloud services would be aimed at small and medium businesses (SMBs). The idea of infrequent spikes in need implies some kind of commerce that changes in volume through the calendar year. Directly or indirectly, fluctuating commercial activity tends to be tied to business with the public. That means that many of the businesses that see these fluctuations may see the spikes around the same periods of the calendar.

An external cloud provider must anticipate the spikes in need from their customers but must also manage the spikes in need of their own resources. They would have the same basic problems as the businesses they support. This does not mean that the idea of being an external provider is not viable but it does mean that the business and investment planning must be carefully considered and executed. It also means that external cloud providers would have to be of enough size and capital strength to survive the leaner periods or they must diversify their services so that their computing resources are well utilized over as much of the calendar as possible. It would also help if they understood their customers businesses as it would be foolish to take on too many greeting card companies.

External cloud computing services is a business idea that has merit but, to be successful, it cannot be simply any collection of computers with a team of smart administrators. It must have a fully conceived and understood business model that has proper initial investment and planning. In fact, while most businesses would be happy to accept any customer that has a need of its services, an external cloud provider would have to plan on which kind and how many customers it could accept unless it was backed by the resources of a company that was already a giant in the IT field. The technology to support external cloud computing services is just now emerging; now the business models must catch up.

More Stories By Scott Quint

Scott Quint has been at IBM since 1996. He's been a developer, Lead Engineer, Chief Engineer, Quality Assurance Lead and Designer, Senior Consultant and Project Manager. Most recently Scott was a Lead Engineer for WebSphere Virtual Enterprise and is now a Cloud Computing Technology Evangelist.

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