Enterprise Cloud Computing – What is it, exactly?

I am often asked to define cloud computing. The overwhelming marketing hype attached to the term at the moment has obscured the benefits, in both technology and economics, that are available if you look closely. My typical response goes something like this: cloud computing does not allow you to do anything you could not do before, but it does allow you to do those things faster, with better response times, and with a different and mostly better cost model. These benefits, when applied to enterprise software deployments, make the deployment and maintenance of enterprise software faster, easier, and less expensive.

For example, a cloud-based virtualization service like Amazon’s Elastic Compute Cloud (EC2) gives you virtual hardware instances that can be provisioned via an API. The virtual hardware, in and of itself, is no different than real hardware running in a data center. However, a new virtual instance in EC2 can be started in minutes, and a new box running in a data center would need to be purchased, installed, and configured over a period that is measured in hours, if not days. The reduction of the capacity provisioning response time to minutes has a profound effect on the ability of an application to scale in response to load, since new capacity can be called up in response to load, rather than in anticipation of it. And this benefit is not limited to cloud-based virtualization services alone; the collection of cloud based services for data, messaging, and applications all benefit from the ability to respond quickly to capacity scaling requests. This is one of the key benefits of cloud computing relative to traditional deployment approaches based on actual hardware.

In economic terms, the value proposition of cloud computing resides in its cost model. Cloud-based services, and cloud-based virtualization services in particular, have adopted a pay-as-you-go pricing model without initial costs. This is fundamentally different from the traditional enterprise software cost model in which the majority of costs are incurred immediately prior to deployment, and it changes the causality relationship between cost and revenue for enterprise application deployments. In a cloud-based service, cost trails revenue, and cost increases only in response to increasing load, rather than in advance of it. Additionally, cloud-based services can scale down in response to decreasing load, and this provides additional cost benefits that are simply unattainable in the traditional enterprise deployment model. The economic benefits of this pricing model will likely become an irresistible force in the marketplace for enterprise applications.