WHAT IS THE CLOUD?
Where does the “cloud” come from? As webopedia puts it, it’s just a metaphor for the Internet. In cloud computing, you access applications and services via the Web rather than your hard drive. In other words, you use a network of remote servers accessible through the Internet (the cloud) to store, manage, and process data, rather than a local server or a personal computer.
With cloud computing, the cloud provider maintains all the servers and other infrastructure, and you typically pay “rent” for whatever service or storage space you are using. With an application, for example, you will need to store the programs and data, such as general ledger transactions and account balances. Even though you are sharing the program, the data is specific to your company.
Most of us use cloud computing in one form or another. When you store data over the Internet using Microsoft OneDrive or Google Drive, you’re in the clouds. When you run programs such as Facebook or LinkedIn on the Internet, you’re also in the clouds. In these cases, you don’t pay “rent” for the service as the provider’s revenue is derived from other sources such as advertising or additional paid-for services.
TYPES OF CLOUDS
There are different kinds of clouds including:
- Software as a Service (SaaS): here, a vendor or third party hosts a software application. Examples include Microsoft Office 365, Google Apps, NetSuite and Salesforce. SaaS is usually less expensive in the first few years than licensed applications because you typically pay a monthly or annual fee – often calculated according to the number of users. In the long run, however, it can end up being more expensive. SaaS has become extremely popular; according to Forbes, the global SaaS market is projected to grow from US$49B in 2015 to US$67B in 2018.
- Platform as a Service (PaaS): a vendor or third party hosts a platform for customers to develop their own applications or extend the existing one. For example, Salesforce and NetSuite provide tools for developers to create add-on programs to extend their base product for unique requirements not met out of the box.
- Infrastructure as a Service (IaaS): a provider such as Amazon EC2, Windows Azure, Rackspace or Google Compute Engine hosts servers, storage and networking that could be used for any purpose. No need for your company to have rooms full of expensive equipment with technical people to care for it. IaaS is expected to reach US$16.5B this year, an increase of 32.8% from 2014, Forbes
PUBLIC AND PRIVATE CLOUDS
SaaS, PaaS and IaaS can also be public or private.
Public: the platform or application is shared by multiple organizations. Examples include NetSuite and Salesforce. You can tell you have a public cloud when your software is updated automatically by the vendor.
Private: the platform or application is dedicated to a single organization. This gives the company more control over enterprise and customer data. For example, many ERP systems don’t offer a public cloud approach but are on a private cloud.
Typically, public clouds cost less to maintain, while private clouds provide more control and flexibility. You can also have both private and public clouds called hybrids, where some data is deployed on a private cloud or even on the premises (local server), with the rest on a public cloud.
Popular as it is, cloud computing has its limitations. Companies might decide not to go that route for many reasons, such as:
- The company’s data could be hosted in another country where the laws might not provide sufficient security and confidentiality.
- The company might not want to have its data/crown jewels stored off site.
- There might be fewer systems to choose from, because not all systems are cloud ready.
- Cloud solutions depend on the availability of the Internet, which can be a problem in some locations.
- It might not be possible to customize the software inside the source code if other organizations are using the same system.
- Costs can sometimes accumulate over a period of time to the point where they exceed a licence based/on premises approach.
The results are in from our 2016 survey with CPA Canada on cloud computing with almost 100 responses from accountants working in a wide variety of industries but about 30% in professional services. As well about 90% of the respondents were from small and mid sized organizations.
The key findings are:
- The cloud has clearly been accepted by accountants as a way of doing business. About 40% are in the clouds now with more than 60% planning to do so in the next couple of years.
- Most cloud deployments today are private. Today 56% of ERP cloud deployments are on private clouds with 32% on public clouds with the remaining 12% on hybrid deployments. In the next couple of years that should change to 42% on public clouds and 46% on private clouds. Time and Billing is even more significant. Today about 40% are on public clouds and 57% on private. In a few years, 55% will be on public clouds and 27% on private clouds. Why the change to public over private? The reason for this change is mostly explained by the vendors offering more public cloud solutions in the future. Today many vendors are not able to offer public cloud deployments because of a big change to their system. Some vendors will tout the advantages of the private cloud but as the public cloud becomes acceptable and significantly less costly all things considered.
- We also asked about cloud satisfaction and was surprised to see the high ratings with 5 (very satisfied, 4 (satisfied), 3 (neutral), 2 (unsatisfied) and 1(very unsatisfied).
Return on investment had the lowest rating which is interesting. There could be many explanations for a lower return on investment such considering a NPV calculation over many years or unexpected setup costs. But the score is still high.
There were a few comments worth noting. One respondent explained that “Cannot use cloud because of security/confidentiality of client data”. But only one respondent had this view and most respondents were satisfied with cloud security. Small and mid-sized companies don’t have the expertise to deploy secure computer systems and look to the cloud for protection. At the same time, there are massive security breaches almost every month with large organizations such as Ebay, Home Depot and Target. Hackers can potentially make a fortune on confidential information such as leaked credit cards from these large organizations or use it for blackmail such as in the case of the Ashley Madison breach. However, we don’t hear of security breaches for small companies which may be partly explained by a lack of profit in hacking a small company’s data. Or perhaps we don’t hear about security breaches for small companies as they are not newsworthy or the small company would prefer not to let anyone know about it. We are considering a follow-up story about security risks in the clouds for small and mid-sized companies. Another interesting comment was “We were able to have features we could not afford under a standard license arrangement. It’s easier to plan for the annual license fee than a large upfront cost.
One way to measure cloud acceptance is by following the money. In a recent article by Business Insider (http://www.businessinsider.com/microsoft-azure-vs-aws-revenue-2016-1), it is reported that “AWS (Amazon Web Services) revenues grew about 69% between Q4 2015 and the year-ago quarter, going from $1.42 billion to $2.41 billion. AWS is also profitable, and profits nearly tripled, from $240 million to $687 million.” In the same article, it was reported that “Microsoft is growing its cloud revenue faster than Amazon.”