The Small Business Forecast for Cloud Computing

(Originally published October 5, 2011 in Small Business Computing)

What’s changed about cloud computing since 2009, when I wrote What is Cloud Computing, and Why Should You Care? In terms of the basic definition and benefits of cloud computing, not much. But in terms of market trends and adoption, the landscape has changed considerably.

Status Quo: Cloud Computing Basics

Here’s the definition that I provided in 2009: Cloud computing is a computing model in which you access software, server, storage, development and other computing resources over the Internet, in a self-service manner, as illustrated in Figure 1.

Figure 1: An illustrated depiction of cloud computing. (Click for larger image).

The benefits that drive cloud computing adoption remain the same as well; instead of having to buy, install, maintain and manage these resources on your own servers, you access and use them through a Web browser.

Since many small and medium businesses (SMBs) lack the time, money and/or resources required to buy, deploy and manage the increasingly complex array of applications and infrastructure they need to run their businesses, this is a huge plus.

Cloud computing lets you access these resources as a service, without having to worry about the care and feeding of them. You can expand or shrink services as your needs change, and do it all on a pay-as-you-go subscription basis instead of forking over capital to buy hardware and software.

The concerns that people raise about cloud computing haven’t changed much either. They continue to revolve around reliability, security and support questions, such as how do providers protect your data? What happens if a service goes down, and you can’t access the application or your data?

Even highly reputable cloud providers — including Amazon, Google, Intuit and Microsoft — have experienced outages. Customers still need to do their homework and get details from providers on uptime guarantees, data protection, service levels and other policies and practices.

Cloud Computing Adoption Becoming Mainstream

Cloud computing has been around since 1997– albeit under different labels. But cloud adoption was more evolutionary than revolutionary for a long time. In the early going, many of the technologies required to effectively take advantage of cloud computing — such as ubiquitous high-speed Internet access — weren’t ready.

Equally important, people tend to be creatures of habit, and they felt no need to rush away from packaged software to the cloud. Finally, many IT people were reluctant to go to the cloud for fear it might put them out of a job.

But in the last 2 or 3 years, studies from both researchers and vendors indicate that cloud computing is becoming a more mainstream choice, especially in categories such as online marketing, collaboration and contact and customer management, as shown in Figure 2.

What’s Driving the Change?

Several factors that have coalesced to create the right conditions for cloud computing’s increased popularity. To begin with, cloud computing providers have grown up. NetSuite was founded in 1998, and Salesforce.com was founded in 1999.

Figure 2: Small business adoption of cloud-based software-as-a-service solutions in selected application categories. Source: SMB Group 2010 SMB Routes to Market Study. (Click for larger image).

Meanwhile, “old guard” players including IBM, Microsoft and SAP have also created rich portfolios of cloud solutions. Cloud vendors continue to address reliability, security and performance concerns with more redundant services and controls.

Many are also providing more visibility into performance. For instance, Trust.salesforce.com is Salesforce.com’s site for real-time information on system performance and security. Zoho Service Health Status provides a similar service.

Customers have also learned that they like many things about the cloud model. They like the responsibility being on a vendor 24/7 — and that it’s easier to switch to another provider if their expectations aren’t met. They like what I call the “virtuous feedback loop,” which means that when a cloud provider fixes a problem for one customer, it gets fixed for everyone.

Meanwhile, a funny thing happened on the way to the cloud — an explosion of mobile and social technologies. In both cases, the adoption curve has been truly revolutionary.  In contrast to cloud computing, these revolutions didn’t require IT managers or business decision-makers to take off.

Individuals could drive adoption, which in turn required businesses to interact more effectively with these newly empowered customers, employees, constituents, etc. — when, where and how they wanted.

This has had a profound effect on cloud computing. Although it has been on a slower trajectory than social and mobile technologies, cloud is increasingly the critical enabler for both mobile and social solutions. It provides the:

• Economies of scale and skill that developers need to create, reiterate and reinvent.
• Continuous customer-feedback loop and data aggregation required to spot trends, identify opportunities and get a leg-up on the competition.
• Real-time collaborative environment that’s necessary to accelerate new ideas, launch new solutions and solve problems.

Finally, the curve to take advantage of new technologies and new ways of using technology is getting steeper. Most individual companies can’t tap into these opportunities on their own, however. They need IT solutions that will empower the business without draining it — and they are more likely to get this with cloud computing than with traditional on-premises software.

The net-net is that we’ve reached a tipping point. Increasingly, small businesses that want to use technology to move their businesses ahead will need to move to the cloud — or risk falling behind the competition.