Entrepreneurs in the Cloud

Technology entrepreneurs explore cloud computing as a startup resource and a scalable business

by Steven Craig Cloud Computing

You’re a budding entrepreneur. You’ve got an idea that will fundamentally change your industry. Although you’ve done your research and discovered your customers, investors won’t look at your business plan. Your product isn’t proven, your bankroll is limited and you have to move fast. As you ponder your dilemma, you fortuitously see a television commercial for Microsoft… “To the Cloud,” it proclaims. But what is the cloud and why should you go there? Further, can you even take your fledgling business to the cloud without burning through all of your cash? Well, if you use Google Docs or Gmail, you’re already there and might not even know it.

The Basics of Cloud Computing

Essentially, “cloud computing” is computer activity performed through the Internet. A user operating “in the cloud” utilizes software, data and distributed computing power that are remotely shared and managed by cloud computing service providers (CSP) at remote locations. CSPs leverage economies of scale to distribute the costs of their services to users through usage and/or subscription fees. The type of cloud offering varies by provider, but the typical mix includes a combination of applications, platforms and infrastructure.

Cloud applications, often referred to as Software as a Service (SaaS), are software programs that are accessed over the Internet. SaaS applications have a wide variety of uses from accounting software to customer relationship management to social networks. SaaS applications can typically be accessed anywhere with an Internet connection. SaaS providers can offer scalability, reliability and connectivity not always achievable with traditional desktop software.

A cloud platform, or Platform as a Service (PaaS), is an offering that enables the deployment of SaaS applications. In PaaS, the computing platform is hosted and maintained by the CSP in exchange for usage, subscription or revenue-sharing fees. PaaS platforms aggregate computing demands to ensure optimal resource utilization resulting in higher efficiencies in equipment and power usage. These cloud platforms can dramatically reduce operational costs for companies by reducing the capital expenditures required to purchase servers, operational software licenses and connectivity to run and distribute their applications. A PaaS provider can also create a marketplace for distribution of applications from various SaaS developers.

Cloud infrastructure, or Infrastructure as a Service (IaaS), is the outsourcing of a company’s entire computer operating infrastructure. This includes support operations, servers, hardware, software, networking equipment, connectivity, etc. IaaS can also provide desktop virtualization, the process of creating multiple usable workstations on a central computer server.

Collaboration in the Cloud

As an entrepreneur on a budget, where do you start? Well, once you’ve defined your customers, assembled your team, and written your business plan, you will need to communicate, collaborate and complete the first steps in your company’s action plan. Since money is tight, you can’t afford an office. Plus your CFO is an hour drive north, your CTO still has a day job and you can’t seem to get anything done at home. Lucky for you, several companies are hoping to solve your problem.

Google boasts a catalogue of cloud applications called Google Apps. Google’s service includes email, calendar, document and spreadsheet processing and more. Google’s offering is also free up to 50 users – perfect for a startup team. But Google isn’t the only provider of these collaborative services. Microsoft also developed a cloud-enabled version of its Office software. Office 365 is changing the way businesses work by moving old favorites like Word, Excel and PowerPoint to the cloud. Teams of individuals can work together virtually and in real-time.

Maybe word processing and spreadsheets aren’t a pain-point for your growing enterprise. If you need more task-focused applications, Intuit could have the solution. The maker of QuickBooks and TurboTax created its Marketplace App Center platform to allow developers to leverage QuickBooks data and improve the efficiency of third-party applications. Intuit’s cloud offers a solution capable of becoming the equivalent of Apple’s App Store for business.

Agility and Scalability

After successfully collaborating with your team, you finally have a product – it’s running on an old computer in your garage. Your grassroots marketing has started a local buzz, early adopters are trying your product and you’re starting to see traffic increase to your website. Suddenly, your server is crashing, your customers are complaining and you can’t move fast enough to keep up.

Although explosive growth sounds like a nice problem to have, it could be fatal. Your company’s ability to remain agile and scalable can make or break you as early-adopting customers will drive later adoption rates. Looking again to the cloud, there are several solutions. Google’s App Engine is capable of hosting your company’s Web applications in Google-managed data centers. Salesforce.com, the customer relationship management provider, also offers a hosted development platform at Force.com. Both services streamline costs by setting per user fees.

By moving your products to established platforms, you can increase your responsiveness to change. Rather than purchasing, configuring and deploying new equipment as your business grows, you can simply expand your relationship with your CSP (pay them more money).

Infrastructure and Beyond

Your product is starting to gain a lot of momentum. It is now a proven winner in the market, TechCrunch just highlighted your achievements and investors are knocking on your door. Your team has grown in size, you actually have a physical office and your margins are starting to shrink. You’re not quite ready for a round of venture funding, but you want to grow faster. Your business needs infrastructure.

RackSpace’s Cloud Servers provide rapid scalability in both Linux and Windows computing environments. RackSpace offers hourly usage pricing based on the number of servers, server size (memory and disk space) and bandwidth usage. Amazon Web Services, a competing platform also provides infrastructure services through its 20-plus cloud service offerings including the Elastic Compute Cloud. Amazon allows companies to rent virtual servers on-demand, reserved or on spot (idle time). Further, the Amazon Machine Image feature allows for rapid deployment of pre-configured server configurations, making scalability almost instantaneous. Amazon's pricing is based on a number of variables including server hours utilized, bandwidth and load balancing.

Holes in the Cloud

Cloud offerings can provide exponential lift-off to a growing startup. However, operating in the cloud is not without drawbacks. Whether you’re a user, providing a product via a cloud platform or running your entire company on cloud infrastructure, there are several considerations to think about.

Availability

What is your need for time and availability of your software, data or infrastructure? If you’re using cloud-based accounting software to run your business and find yourself without Internet access, or even worse, the provider is down, what do you do? In most cases, you’ll simply be out of business for that period of time. Also, if your company makes a commitment to its customers to be available 24 hours a day, 365 days a year and your cloud provider goes down, you may lose customers. Be sure to analyze the time commitment of your cloud providers and remember that the more complex your cloud interdependence becomes, the more your company is at risk for service outages.

Security and Privacy

Your company’s commitment to its customers should always be to keep their data secure and private. What happens if your cloud provider legally or illegally utilizes your data? Who legally owns that data, the cloud provider, your company or your customer? How do you ensure your data is protected? These are all important questions to think about when evaluating cloud offerings. When selecting a cloud provider, it is important to examine its terms and conditions. Often providers will limit their liability in the event your data is exposed, lost or stolen.

Acceptance of their policies is typically a prerequisite for utilizing their services. Be sure to thoroughly understand the provider’s commitment to privacy, as well as research its reputation and financial stability when possible.

Interoperability

If your company’s mission-critical applications need to communicate, but they run on disparate platforms, your team may be faced with higher costs. In the competitive cloud computing market, interoperability has a long way to go. Cloud computing providers are eager to lock in contracts and block out competitors. Although some providers offer application programming interfaces to generate cross-platform synergies, others may completely reject connectivity to other services. Be sure to evaluate your long-term application and platform needs to ensure interoperability requirements are met.

Portability

Building an entire application catalogue might be quick and easy on a cloud platform, but what happens when you need to migrate? Switching costs could easily exceed redevelopment costs. Once you’re tied in with a cloud provider, it may be difficult (or impossible) to change your system’s architecture. For example, if your team developed code that is specific to Amazon’s cloud platform, you may not be able to dismantle from it without a large financial investment. Be sure to evaluate the pros and cons of various development strategies and their intended lifetimes before getting stuck with a provider forever.

The Silver Lining

As the cloud computing market evolves, new cloud business models will emerge, intensifying competition and causing a decrease in costs. Legislation will catch up with technology and provide better protection for cloud users and their customers. Established companies will begin to make large investments in cloud computing infrastructure to replace their aging legacy infrastructures and to remain operationally nimble and competitive. Open standards in cloud computing will become imperative as vendors seek to appease their customers and to facilitate improved application-to-application integration. One thing is certain, cloud computing is changing the way businesses operate. Businesses that required millions to launch 10 years ago can now launch on a shoestring budget. For today's entrepreneur, the sky’s the limit!

Steven Craig (Rady Full-Time MBA ’12) is president of the Rady Entrepreneur Club and a technology enthusiast. He is also the founder of OpenCentric™, a consulting and professional services firm dedicated to empowering businesses through the use of open source platforms.

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