Enterprise 2.0 To Become a $4.6 Billion Industry By 2013

http://www.readwriteweb.com/archives/enterprise_20_to_become_a_46_billion_industry.php

April 20, 2008

A new report released today by Forrester Research is predicting that enterprise spending on Web 2.0 technologies is going to increase dramatically over the next five years. This increase will include more spending on social networking tools, mashups, and RSS, with the end result being a global enterprise market of $4.6 billion by the year 2013.

This change is not without its challenges. Although there is money to be made in the industry by vendors, Web 2.0 tools by their very nature are defined by commoditization; as is much of the new social media industry, a topic we touched on briefly here, when discussing how content has become a commodity.

For vendors specifically, there are 3 main challenges to becoming successful in this new industry, including:

1. I.T. shops being wary of what they perceive as "consumer-grade" technology
2. Ad-supported web tools generally have "free" as the starting point
3. Web 2.0 tools will have to now compete in a space currently dominated by legacy enterprise software investments

What is Enterprise Web 2.0?

Most technologists segment the Web 2.0 market between "consumer" Web 2.0 technologies and "business" Web 2.0 technologies. So what does Enterprise 2.0 include then?

Well, what it doesn't include is consumer services like Blogger, Facebook, Netvibes, and Twitter, says Forrester. These types of services are aimed at consumers and are often supported by ads, so they do not qualify as Enterprise 2.0 tools.

Instead, collaboration and productivity tools based on the concepts of web 2.0, but designed for the enterprise worker will count as being Enterprise 2.0. In addition, for-pay services, like those from BEA Systems, IBM, Microsoft, Awareness, NewsGator Technologies, and Six Apart will factor in.

Enterprise marketing tools have also expanded to include Web 2.0 technologies. For example, money spent on the creation and syndication of a Facebook app or a web site/social network widget could be considered Enterprise 2.0. However, pure ad spending dollars, including those spent on consumer Web 2.0 sites, will not count as Enterprise 2.0.

Getting Past the I.T. Gatekeeper

One of the main challenges of getting Web 2.0 into the enterprise will be getting past the gatekeepers of traditional I.T. Businesses have been showing interest in these new technologies, but, ironically, the interest comes from departments outside of I.T. Instead, it's the marketing department, R&D, and corporate communications pushing for the adoption of more Web 2.0-like tools.

Unfortunately, as often is the case, the business owners themselves don't have the knowledge or expertise to make technology purchasing decisions for their company. They rely on I.T. to do so - a department that currently spends 70% of their budget maintaining past investments.

Despite the absolute mission-critical nature of I.T. in today's business, the department is often provided with slim budgets, which tends to only allow for maintaining current infrastructure, not experimenting with new, unproven technologies.

To make matters worse, I.T. tends to view Web 2.0 tools as being insecure at best, or, at worst, a security threat to the business. They also don't trust what they perceive to be "consumer-grade" technologies, which they don't believe have the power to scale to the size that an enterprise demands.

In addition, I.T. departments currently work with a host of legacy applications. The new tools, in order to compete with these, will have to be able to integrate with existing technology, at least for the time being, in order to be fully effective.

Finally, given the tight budgets, there is still a chance that even if a particular tool does meet all the requirements to get in the door at a particular company, I.T. or other company personnel utilizing the service may try to exploit the free version of the service if the price point for the "enterprise" version gets to be too high. They may also choose to look for a free, open source alternative.

Enterprise 2.0 Adoption

How Web 2.0 Will Reach $4.6 Billion

All that being said, the Web 2.0 market, as  small as it is now, is, in fact, growing. In 2008, firms with 1000 employees or more will spend $764 million on Web 2.0 tools and technologies. Over the next five years, that expenditure will grow at a compound annual rate of 43%.

The top spending category will be social networking tools. In 2008, for example, companies will spend $258 million on tools like those from Awareness, Communispace, and Jive Software. After social networking, the next-largest category is RSS, followed by blogs and wikis, and then mashups.

The vendors expected to do the best in this new marketplace will be those that bundle their offerings, offering the complete package of tools to the businesses they serve.

However, newer, "pure" Web 2.0 companies hoping to capitalize on this trend will still have to fight with traditional I.T. software for a foothold, specifically fighting with the likes of Microsoft and IBM. Many I.T. shops will choose to stick with their existing software from these large, well-known vendors, especially now that both are integrating Web 2.0 into their offerings.

Microsoft's SharePoint, for example, now includes wikis, blogs, and RSS technologies in their collaboration suite. IBM offers social networking and mashup tools via their Lotus Connections and Lotus Mashups products and SAP Business Suite includes social networking and widgets.

What this means is that much of the Web 2.0 tool kit will simply "fade into the fabric of enterprise collaboration suites," says Forrester. By 2013, few buyers will seek out and purchase Web 2.0 tools specifically. Web 2.0 will become a feature, not a product.

Enterprise 2.0 Spending

Other Trends

Other trends will also have an impact on this new marketplace, including the following:

External Spending Will Beat Internal Spending: External Web 2.0 expenditure will surpass internal expenditure in 2009, and, by 2013, will dwarf internal spending by a billion dollars. Internally, companies will spend money on internal social networking, blogs, wikis, and RSS; externally, the spending patterns will be very similar. Social networking tools that provide customer interaction, allowing customers the ability to create profiles, join discussion boards, and read company blogs, for example, will receive more investment and development over the next five years.

Europe & Asia Pacific Markets Grow: Europe and Asia Pacific will become more substantial markets in 2009. Fewer European companies have embraced Web 2.0 tools, leaving much room for growth. Asia Pacific will also grow in 2009.

Web 2.0 Graduates from "Kids' Stuff":  Right now, it's people between the ages of 12 and 17 that are the more avid consumers of social computing technology, with one-third of them acting as content creators. Meanwhile, only 7% of those 51-61 do the same. However, this is another trend that is going to change over the next few years. By 2011, Forrester believes that users of Web 2.0 tools will mirror users of the web at large.

Retirement of Baby Boomers: As with many things, it takes the passing of the older generation from executive status into retirement before a true shift can occur. Over the next three years, millions of baby boomers will retire and the younger workers brought in to fill the void will not only want, but will expect similar tools in the office as those they use at home in their personal lives.

What It All Means

For vendors wanting to play in the Enterprise 2.0 space, there are a few key takeaways to be learned from this research. For one, they can help ensure their success in this niche by selling across deployment types. That is, plan to grow beyond just selling to either the internal or external market.

Another option is to segment the enterprise marketplace by industry and then by company size. Some industries are more customer-focused than others when it comes to the external market, so developing customized solutions for a particular industry could be a key to success. For internal tools, focusing efforts on deploying enterprise grade tools that include things like integration or security will help sell products to larger customers. Other  levels of service can be designed specifically for the SMBs, featuring simple, self-provisioning products to help cut down on costs.

Finally, vendors looking to grow should consider making a name for themselves in the Europe or Asia Pacific markets, where the opportunity comes from the expected increased investment rates for Web 2.0/Enterprise 2.0 in those geographic regions.

However, the most valuable aspect of this change for vendors is the knowledge they obtain about how to run a successful SaaS business - something that will help propel them into the next decade and beyond and, ultimately, will provide more value than any single Web 2.0 offering alone ever will.

Enterprise 2.0 industry matures as businesses grapple with its potential

http://blogs.zdnet.com/Hinchcliffe/?p=173

April 22nd, 2008

Some of the big IT news over the weekend was the announcement that Forrester predicts that the Enterprise 2.0 space will be a $4.6 billion industry within 5 years. ZDNet’s Larry Dignan had the full breakdown yesterday on Forresters bullish outlook while Dennis Howlett immediatelytook umbrage with Forrester’s conception of the Enterprise 2.0 marketplace using a “loose definition and one that could be applied to any number of technology components from CRM through to supply chain management and pretty much anything between.”

Certainly that’s the challenge of pinning down something with a term that still doesn’t have industry consensus after two years, yet seems destined to be a vitally important space that our businesses are going to be moving to over the next few years. Enterprise 2.0 itself was originally defined by Harvard’s Andrew McAfee a couple of years ago in careful detail (early timeline) about something he called freeform, social, emergent software applications (such as blogs, wikis, but many others as well.) The enterprise software industry began carrying the banner ever since, applying Enterprise 2.0 to the next generation of countless marketplace offerings, often whether or not they were any of the things that seemed to make this new type of application unique and special.

Read The State of Enterprise 2.0, a thorough summary of this new software space.

The intent of creating this new term, however, was to capture a very significant change in the way that people use networked software, regardless of it was the genuine retooling of “big box” traditional IT software suites or the infiltration of subversive Web 2.0-style consumer applications across the firewall. Careful market segmentation for research tracking purposes and the debate over the inclusion of traditional, top-down IT systems into the definition of Enterprise 2.0 can be interesting exercises. But such efforts also miss the big picture and the long-term potential of this potentially potent new generation of enterprise software applications.

In my studies of Enterprise 2.0 adoption, there are two major methods by which these new applications take hold. The first is the traditional model where the IT department or some part of the business decides at a high level to adopt these new tools and begins the process of evaluation, acquisition, deployment, training and adoption. This is the traditional model that most IT large-scale software acquisitions still use today.

The other model is where individuals take it upon themselves to find the best solutions to a given problem at hand and solve them creatively and collaboratively at a grassroots level. This is becoming increasingly more common, particularly in organizations that are less strongly hierarchical and I’ve identified this story in many large organizations, from AOL’s stunningly rapid viral adoption of MediaWiki (the open source platform that runs Wikipedia) to the story of a large utility company getting ready to roll out Enterprise 2.0 only to find that the majority of departments had already adopted a solution on their own.

This second form of adoption is one of the hallmarks of this new model for using software to solve business problems and it speaks volumes to how different they are from the previous generation of applications. So it’s worth spending a little time understanding exactly why and how they are so different. To explain this, I often refer to John Hagel’s excellent work onpush vs. pull systems that goes directly to the heart of why 2.0-era software applications seem so different from the software we’ve used before to solve business problems.

In other words, we seem to be coming from a push-based era of command-and-control management and are heading into an era where more and more work is being conducted using a decentralized pull-based model that’s more scalable, efficient, and leads to increasingly innovative outcomes. This also demonstrates how the network effect driven model of the consumer Web can actively remake the internal IT landscape as competitive entries in the form of SaaS applications, mashups, and enterprise cloud computing. Thus these new software models can not only co-exist but will thrive and even push out existing “IT approved” applications.

New trends fostering Enterprise 2.0: More social, more adoption

And despite some parts of the enterprise community still debate whether applications like Facebook, Twitter, Friendfeed, and other social networking and media applications will have any lasting relevance to business, we are however tracking several important new trends this year:

The first is that more companies are adopting 2.0 tools intentially (for better or worse as we’ll see). 2008 is going to be the broadest year yet in terms of Enterprise 2.0 adoption and Gartner is reporting that half of all companies investing in 2.0 this year will be doing so for the first time.

The second is that the Enterprise 2.0 industry continues to look at the consumer Web as the model for how to make these applications work best. The upcoming release of the respected Enterprise 2.0 platform, SocialText, adds true social graph capabilities and will adopt OpenSocial as a model to leverage the fast-growing consumer ecosystem around social networking apps. We’re seeing a similar trend in other Enterprise 2.0 offerings as well in an attempt to bring the richness and robustness of the social computing ecosystems in the consumer world to the enterprise.

The results of pull-based software models

While most of us are familiar with traditional top-down methods for prescribing the use of IT to solve problems, it’s the new organizational capabilities that Enterprise 2.0 and pull-based models for working and achieving business goals that will be interesting to most businesses. What do these “new capabilities” appear to be at this stage? The picture is just emerging but it looks as these are some of the potential results:

• Ad Hoc Processes and Problem Solving. While prescribed policy and procedures will always have a place, workers on the ground often need to make on the spot decisions and develop their own solutions to problems as they occur rather than waiting for one to be developed. Enterprise 2.0-enabled environments can give workers access to the right information and talent to solve their problems and enable solutions.
• Cross-Pollinating Innovative Methods. Pull-based systems are good an enabling innovation, particularly across what are known as weak ties in far flung parts of an organization. Enterprise 2.0 tools are good at flatting the organizations and leading knowledge stream from every corner, allowing the sharing and leveraging of ideas not possible before.
• Competition-Driven Outcomes. In the top-down hierarchical model of management, there is less competition for ideas, solutions, and especially software. In a decentralized, bottom-up environment, multiple solutions can emerge and the best ones can win.
• Pervasive Social Computing Interactions. We are just beginning to understand how social computing is transforming the work landscape, as it already has the consumer world. A highly social enterprise seems to enable a higher level of collaboration, communication, organizational awareness, which leads to the improvement of processes depending upon these activities.
• Situational Software Solutions. Self-service is a classic hallmark of 2.0 solutions. The organic use of blogs and wikis to create simple dashboards and mashups is a commonly recurring theme in organizations deploying Enterprise 2.0 tools. Now, more and more businesses are looking at the potential for putting software creationdirectly into the hands of workers to enable solutions to be created for business situations as they occur.

The bottom line is that regardless of what it’s called, the industry around enabling pull-based business models and Enterprise 2.0 applications is going to be growing significantly over the next half-decade. These solutions will come both from the top of the organization as well as from the edge of the organization and will often have to be disentangled at the middle as these new applications cross-over into the highly-regulated “core” infrastructure of IT. The challenge will be learning how to apply these new models effectively to business while not strangling them with the traditional aspects of enterprise software that can greatly limit their potential and have led to poor outcomes and excessive structure in the past.

The good news: Most likely they will be hard to stop as Web 2.0 applications become increasingly commonplace in our organizations over the next few years. The bad news: Most organizations will take years learning how to create environments that fully allow the leverage of these tools.

Twelve best practices for online customer communities

http://blogs.zdnet.com/Hinchcliffe/?p=190

July 25th, 2008

One of the more significant Web 2.0 trends in business this year has been the advent of the Web-based customer community, where groups of like-minded individuals focus around a brand or a set of product and services come together and interact online. Far from the cynical marketing ploy that it can sometimes seem, customer communities often sprout up on the initiative of passionate customers. Successful examples of this includeXMFan around XM Radio, HDTalking for Harley-Davidson, and IKEAFANS on IKEA products.

It’s imporant to note that the communities above are vibrant, active, and absolutely not affiliated with the businesses that the communities are focused on. As a result, business are increasingly realizing they can reap benefits by attempting to foster these communities themselves, rather than hoping that a group of users will do it on their own. While this can be a risky proposition — garnering an active community of users successfully is still more art than science at the moment — the rewards are increasingly clear for those that are successful.

Numerous studies over the years have underscored the benefits of customer communities, ranging from the 2001 McKinsey-Jupiter Media Metrix showing that “customers of web community features generate two-thirds of sales despite accounting for only one-third of a site’s visitors” to the brand new Deloitte study recently highlighted by the Wall Street Journal that showed that over a quarter of community initiatives increased sales even while most business-sponsored customer communities struggled to achieve critical mass in terms of users.

Despite the growing body of research and studies, exact numbers for customer communities are still pretty hard to come by yet it’s clear from a number of sources that business are beginning to get community religion en masse. A couple of recent examples that demonstrate the kind of customer community initiatives that are emerging include Hyatt’s new Yatt’itcommunity for frequent travelers and the decidedly back-from-near-deathMember’s Project by American Express. Both are highly produced and attractive-looking communities, especially compared with the three successful grassroots communities I listed at the beginning of this post, but are struggling for customer engagement and participation nonetheless.

Deloitte’s Tribalization of Business customer community study is getting a lot of attention. View a Slideshare summary of the findings.

What then is the secret formula for building successful communities for your customers? Certainly there are well known success stories to examine for clues. One good example is Dell’s online community which it famously used for a corporate image turnaround last year and remains one of the most highly regarded and highly trafficked customer community properties. Another is SAP’s various customer communities, with over a million registered business and technical users and a high degree of participation.

What can we learn from these success stories and a rapidly emerging set of business practices? Quite a bit as it turns out. I’ve taken as as many lessons learned as possible from the available outcomes of customer community efforts, as well as my hands-on experiences, and the synthesis forms the list that you see below. Please note that like any of my lists, it’s not exhaustive, and you are welcome to add your own in Talkback below.

Best Practices for Online Customer Communities

1. Put the needs of the community first. Communities exist to serve the needs of their members, and in customer communities businesses can elect to become close-knit participants in good standing or keep the community at arm’s length. The most vibrant communities such as Dell’s or XMFan have a good relationship with at least a few key leaders in the sponsoring organization. But making sure the community has truly free rein to serve itself — even if it ends up recommending competitor’s products in some cases or becoming a venting zone for customer’s complaints — is essential for the community to thrive through open conversation, honesty, trust, and candor. This back-seat position can be a very difficult thing for some organizations to accept, much less encourage but the best organizations manage to do this with humility and a sense of mutual respect.

2. Community is mostly not a technology problem. There are literally dozens of capable community platforms in existence today. Almost all of them can be used to create a compelling community with the features that users will need to discuss, share ideas, brainstorm, complain, support, and moderate each other. I’ll do a round-up of these in an upcoming post, but whether you use Drupal, Joomla, or DotNetNuke (to name just three leading example), it’s safe to say that the biggest challenges you will have will be around the business challenges and social architecture of your customer community and not the technology, with the possible exception of emerging community architecture standards such as OpenSocial andDataPortability.org.

3. Active community management is essential. When Josh Catonerecently analyzed some of the findings of the new Deloitte community study, he noted that one of the big takeaways was that most customer communities lack proper management. Communities are indeed self-organizing, but like community of any kind they require active administration, management, and moderation or the community will devolve into a least common denominator environment where abuse, spam, neglect, inactivity, and poor behavior of a few go unaddressed and drive away productive participants.

The most successful community management also is very proactive and goes out the way to draw in the best new participants and contributions to ensure the community has a substantial foundation that will hold on to members long enough for it to form a cohesive identity and a strong network of relationships amongst its members. This is one of the most consistent observations in the online community world: well-resourced community management is apparent in every one of the successful online communities I’ve come across.

4. Measuring success with community requires new yardsticks. Unique visitors is one often cited community metric that I’ve come across numerous times. Experience share is another, probably more relevant measurement that cited more often these days. But communities offer much better benefits far beyond the sheer visitor count or community size. Often the most influential members of an organization’s customer base will be active in online communities, both forming a draw for other members but also shaping community and public opinion in a forum that is mutually vouched for by the community and its sponsoring organization.

Beyond just behind home for influencers, communities form a qualitatively new type of relationship with a customer base and it’s interesting to note that while Dell does cite page views as part of its community success, it also cites the large number of new ideas that customers have submitted, the value which can’t possibly be measured in terms of traditional Web analytics. While many customer community budgets will continue to be approved on the basis of very Web 1.0 metrics, pushing hard for new ways of measure value will be essential, particularly has communities will interface with organizations across just about every major business function sooner or later, and not just marketing and PR, even though that’s where many sponsored customer communities start life.

5. Consumer social networks, grassroots customer communities, and business-initiated customer communities are closely related yet very different creatures. A quick glance at a few of the customer communities listed above as well as some of the larger, more active customer groups in Facebook, shows how different they can be. Primark (a U.K. retailer) probably has the largest existing commercial Facebook group, with over 94,000 members and a level of participation that would make it the envy of most customer community efforts. The unforced and natural user experience of grassroots communities such as XMFan and HDTalking is also probably not coincidental in their success, most likely making it seem a less-corporate and more relaxed setting for participation. The lesson here is that customer communities come in many forms and understanding the motivations, expectations, participation styles, conversational modes, and desired user experience will be required learning as we undestand what our customers are really seeking from online communities based on interest in products and services.

6. Customer communities do work as a marketing channel, just not in the traditional way. It’s probably safe to say that customer communities are a solid marketing channel for an organization. The recent Deloitte study mengtioned above confirmed that fact consistently in a number of ways. But the benefits often come in unexpected ways include the community becoming a place where the latest “unofficial” news is exchanged or leaked, where visitors can expect to have non-hierarchical contact with an organization’s employee, with the attendant increased flow of oft-unapproved information, and other communication is conducted, both subversive and otherwise. Customer communities tend to project customer influence and demands deeper into an organization and create more sustained contact. And the reverse is also true, with the result being outcomes which don’t appear so much as marketing but as cooperation, mutual brainstorming, and co-development of ideas and outcomes.

7. The more the business is integrated, the better the community will work. One of my favorite stories was of a community manager informing the organization that on day one, the community will be “90% us and 10% them. Give me your involvement, and a year from now it’ll be 90% them and 10% us” and this result was borne out. Customer communities in reality are joint communities of the business and the customer both. Deep involvement by both as early as possible and from many parts of the organization will create the early critical mass that can avoid the low-levels of participation seen in many organization-initiated customer communities.

8. Growth will come, but not until a community finds its identity. To expect something based on social dynamics as much as community is to be predictable and grow linearly just doesn’t reflect reality. Many communities struggle for a while until they catch their stride when they reach the right participants, or offer the right means of engagement such as using a different model such as a social network instead of discussion forums (or vice versa.) While pilots can help find some good models early on, only sustained contact with customers will find out what they really need in a community. The first community may be the on that provides the necessary input to create the “real” community. Such organic growth models can be hard to embrace from a process and expectations standpoint, but are more likely to return meaningful results in the medium to long term.

9. Mutual ownership and control of communities enables trust and involvement. Like so many things in the Web 2.0 era, giving up some control of the community to the community itself is the surest way to get buy-in and to make sure that the participants in the community can make it into what they want it to be. As with Enterprise 2.0, communities are excellent change catalysts, as long as you allow them to be.

10. Most communities are highly social entities, and the rules of social engagement apply. Certain general rules seem to apply to communities, such as allowing like-minded individuals to self-organize into sub-groups, protecting conversations from scale, rewarding members that do good works, and so on. Imposing artificial rules that are counter to natural social inclinations are likely to invoke dissonance and prevent natural communities from forming as they should. The basic rules of social media apply here.

11. Going to the community, instead of making it come to you, is a risky but increasingly viable strategy. I’ve heard and been involved in a lot of discussion about social networking and community fatigue and how users are more likely to be comfortable using their existing social sites for customer interaction. The jury is still out on this despite the fact that initaitives like OpenSocial are indeed likely to make it cost effective to go to the customer across hundreds of open social networks in a single act. However despite the risk, the relative ease of doing so makes the risk and investment likely worth it in many cases. That doesn’t mean such community channels don’t bring with them major restrictions in control, governance, and data ownership. Use with care, but at the very least such “go to the user” strategy can be an important plank in driving membership and participation.

12. Connect the community with the other CRM-related aspects of the organization. Customer communities have been used successfully for customer service, the generation of innovation, trend spotting, marketing, lead generation and many other activities. In the future, it’s likely that many customer communities will blur extensively with the organizations they are associated with and become more and more closely involved with their customers in a wide variety of activities. Those organizations that can do this successfully will likely reap rewards of efficiency, innovation, producticity increases and others, while assuming some of the risks involved in any sort of crowdsourcing activity.

Recently, I’ve been seeing tremendous interest in community aspects to almost all customer-facing online activities. And by the very nature of community, this will have varying levels of success based on whether the community is already thriving to how well its integrated into the activity and if it provides sufficient motivation from the customer. I made point #1 the first because of the most common attitudes is an overriding “What’s in in for us” view towards investing in community efforts. While this is clearly tied up in entirely valid ROI discussions, the bottom line is that if customers needs are put first, the value will quickly emerge. Just ask those with successful communities whether it was worth the investment. The answer I’ve always received has been enthusiastically in the affirmative.

Enterprise cloud computing gathers steam

http://blogs.zdnet.com/Hinchcliffe/?p=191

August 1st, 2008

The days when organizations carefully cultivated vast data centers consisting of an endless sea of hardware and software are not over, at least not yet. However, the groundwork for their eventual transformation and downsizing is rapidly being laid in the form of something increasingly known as “cloud computing.” This network-based model for computing promises to move many traditional IT capability out to 3rd party services on the network.

The promise of cloud computing has captured the industry’s imagination this year for two big reasons. The first is the growing realization that cloud computing can successfully be used to strategically cut costs and drive innovation. And the second is that current offerings are getting very close to being ready for prime-time use in enterprise environments.

When Web behemoth Google officially entered the cloud computing arenaback in April of this year, the space became a hot topic in IT circles almost overnight, despite the long history of availability from major vendors such as Amazon and Sun as well as a number of pioneering smaller vendors such as 3Tera and Egenera.

Other major IT players include IBM, Dell, HP, Intel, and Yahoo are all making serious investments in cloud computing research or major infrastructure Om Malik reported this week. ZDNet’s Mary Jo Foley is also tracking Microsoft’s movement in this space with project ‘Midori’.

Why was Google’s entry a signature moment in cloud computing? Most likely because it brought the necessary critical mass to an industry which was growing steadily but had yet to break out into the mainstream. Google has a well-known reputation for globally scalable applications that can reliably service millions of concurrent users while successfully controllingcosts and efficiency in everything from power and bandwidth to storage and processing power. So when they claimed that anyone can now “build scalable web apps on top of Google’s infrastructure” it received considerable attention.

Cloudy IT: Increase efficiency while innovating

The twin challenges of driving the high costs of information technology down while providing innovative new solutions to improve the business are two forces that often come into direct opposition in the modern IT shop. Businesses must keep costs down to stay competitive while at the same time investing in new ideas that will offer compelling new products and services to those same customers.

These two objectives come into opposition since new spending (on things like R&D) is usually required to successfully innovate while at the same time the pressure is on to provide the same services for less than it cost last year. Companies have come to expect to reap the cost dividend from trends such as Moore’s Law, outsourcing, and year-over-year productivity improvements.

Interestingly, it’s at this very intersection of issues that cloud computing appears especially compelling. By offering easy access to more efficient IT capabilities across computing, storage, and applications while providing direct and immediate access to both external innovation and innovation capability, cloud computing offers an on-demand, scalable, and repeatable resource that can be used the solve two of the major challenges facing IT departments today. We’ll see in a moment how cloud computing can help with these issues in ways that traditional on-premises computing is hard pressed to match.

Aspects of the cloud

Cloud computing significantly changes many aspects of enterprise computing acquisition, operations, and governance, usually though not always for the better. These aspects are:

• Reduced capital expenditures - Upfront costs are dramatically reduced since the onus of initial computing infrastructure investments rests primarily on the cloud computing provider. Ongoing costs are also lower due to economies of scale and multi-tenancy, which allows access to the lower cost of cloud computing resources even for very infrequent tasks.
• Low barrier to entry - Because hardware and software does not have to be acquired, installed, provisioned for every need and resources can be tapped on-demand, often in real-time, cloud computing can be as easy as moving existing applications into a hosted data center, although this depends entirely on the architectural model of the cloud computing provider.
• Multitenancy - Multiple customers share many of the same resources in the cloud computing model. This sharing both distributes cost and enables economies of scale in terms of centralization of resources including real estate, bandwidth, and power. Multitenancy is one of the key enablers of efficiency while at the same time posing certain security issues.
• Security - In theory, cloud computing can be more secure than do-it-yourself computing since shared costs allow larger overall investment in security processes and infrastructure. However, there remain worries about access and control over an organization’s sensitive data, though to-date the security record of cloud computing has been quite good.
• Scalability and performance - Cloud computing can provide access to very high levels of scale without enormous costs of traditional infrastructure. Resources don’t have to kept on hand for peaks that then remain dormant much of the time and their costs stranded during valleys. Performance of cloud computing can also be very good since many providers have data centers around the world to keep the processing reasonably close to those accessing it over the network. However the distances between the business and the services in the cloud are usually greater than from a local data center. The resulting latency can frequently be a bit larger than with local resources though often quite acceptable for many applications.
• Centralization vs. federation - Cloud computing can be centralized such as Amazon and Salesforce or it can be highly distributed using such peer-to-peer capabilities as provided by BitTorrent or Arjuna. Both methods provide access to economies of scale but as Tim O’Reilly observed this week, building on federated computing computing resources often makes more sense than building on a centralized model, despite the former’s rather nascent state at the moment.
• Service-oriented - Cloud computing is a service delivered over the network, but true service-orientation allows such services to be componentized, pluggable, composable, and loosely coupled. OpenID is a good example of such a service that has a well-defined interface and for which there are many providers in the cloud which are essentially interchangeable. Cloud computing has become increasingly service-oriented, with Amazon probably being the farthest along in maturity and breadth of services. In the end, cloud computing is making the Web truly become a Global SOA.

It should be noted that the Web itself is the largest cloud computing resource in existence. Its millions of highly distributed computing nodes have been the most successful model overall in terms of providing value to 3rd party users, and not the walled-garden network providers of yore such as AOL, Prodigy, or MSN. This is likely a crucial hint as to where the ultimate future of cloud computing will lie, with an increasing emphasis on switchable, federated services and less on proprietary, centralized services. Otherwise cloud computing, though invariably based on open source products, could become the next bastion of commercial, platform lock-in.

Clouds of different colors

It’s difficult to have a discussion of cloud computing these days without talking about Platform-as-a-Service (PaaS). Paas, another hot acronym du jour, is essentially a cloud computing service that has been opened up into a platform that others can build upon, similar to the way that Windows orLAMP are platforms designed to be built upon. Utility computing is another common phrase in cloud computing discussions and primarily focuses on the business model of cloud computing with a “pay for what you use” model that reduces the waste and underutilization of traditional corporate data centers. While these are both important aspects of cloud computing, they don’t completely describe the individual types of cloud computing capability available today.

Within cloud computing itself there are a number of distinct types of services that can be provided and current vendors in the space tend to focus on one specific area or another. It should also be noted that by selecting a cloud computing type and vendor, you are also selecting an architecture. This is a significant decision since the architecture of a cloud computing service will dictate what how it can be used, what standards are supported, the amount of lock-in that is being imposed, and the flexibility, security, performance, and just about every other aspect, including ultimately what it’s possible to do.

Here are some of the types of cloud computing services that are emerging today:

• Compute Clouds - Amazon’s EC2, Google App Engine, and Berkeley’sBOINC are all examples of compute clouds, albeit with very different models. Both of these services allow access to highly scalable, inexpensive, on-demand computing resources that run the code they are provided. Compute clouds are the most general purpose cloud computing services and can be used for a variety of purposes. While enterprises can use any of these services today, they are largely absent the standard management, monitoring, and governance capabilities that large organizations would expect and be familiar with. Amazon does offer enterprise-class support today for their compute cloud and its infrastructure and it’s highly open nature allows anyone to run the infrastructure management pieces they choose. There are also an emerging set of enterprise cloud computing offerings such as Terremark’sEnterprise Cloud that are designed for enterprise use.
• Cloud Storage - Storage was one of the first major services to appear in the cloud and remains one of the most popular and well-addressed segments in the cloud computing realm. A list of 100 cloud storage services was recently released showing how crowded this market already is. Security and cost are the top issues and vary widely across offerings with Amazon’s S3 being the market leader at present.
• Cloud Applications - Software applications that rely on infrastructure in the cloud fall into this category. Cloud applications are an off-premises form of Software-as-a-Service (SaaS) and can range from Web apps that are delivered into users entirely via a browser to hybrids like Microsoft Online Services, which is explicitly offloads hosting and IT management into the cloud, and consists of both native and Web clients with application infrastructure hosted elsewhere.

One type of cloud computing tends to defy traditional categorization and that’s harnessing human workers in the cloud, as a service. This is best exemplified by Amazon’s intriguing offering, Mechanical Turk, which plugs thousands of people into its on-demand cloud. This model includes any service which provides a consistent, service-oriented interface over a network to interact with people in a directed, collaborative manner. This is an on-demand form of outsourcing as well a cloud-based form ofcrowdsourcing.

Getting ready for cloud computing in the enterprise

Like so many aspects of Web 2.0, the industry is moving a lot faster than most businesses are currently able to keep up with. Cloud computing, however, may offer such significant and easily accessed economic advantages that it has a good chance of being adopted a bit faster than usual. Particularly as leases come off of data center resources, many IT shops will begin to take a hard look at “cloudsourcing” part of their capabilities and operations in their next round of infrastructure improvements in an incremental fashion.

The first candidate cloud computing pilots will generally be outside of core IT and will be of secondary and tertiary importance to the organization. Forward thinking organizations will begin trying out providers and learning the cloud computing ropes, though certain organizations, like government agencies and others managing extremely vital information, will likely be the last to take the leap. Like any form of outsourcing, fully leveraging the cloud will take some time to get good at as IT departments get clarity around lock-in, security, scalability, reliability, governance, and real-world costs. However, it’s clear that the forecast for enterprise IT is increasingly “cloudy” for the next few years.