The typical way applications are designed and implemented is to purchase computer hardware and install the applications on servers in a data center to run the applications. Critical applications are hosted on dedicated server farms and in-house teams who built the applications have full ownership of their systems and are responsible for uptime, upgrades, load balancing, bcp, etc. The capacity was designed for peak load (which occurs a few times a day at best) and hence the average utilization of the servers is extremely low (on average 8 percent to 10 percent of server capacity is used). All this adds up to a high upfront investment and ongoing operational expenses. Security, DR/Business Continuity plans have to be in place and maintained at all times. These costs are very high for mission critical applications which require a dedicated backup site such as found in the DR plans of many large financial institutions.

Technology Evolution: The last decade has seen a tremendous evolution on the technology front with hardware commoditization, maturity of the Internet as a platform, virtualization, open source, Rich Internet Applications (RIA), Software as a Service (SaaS), improved security products and processes. These technology trends are revolutionizing IT departments by separating computing power from hardware. Virtualization allows servers to be split into multiple “virtual machines” where each virtual instance can run it own applications — IT departments need not add new machines each time a new application is needed or to cater to peak loads. RIA supports desktop like functionality within a browser and SaaS allows access to application when needed on a subscription basis. These trends along with the increased focus on Green IT and overall cost reduction policies have lead to IT departments looking at an utility-based model with the ability to tap into computing power on the Web and pay for the computing power consumed.

What is Cloud Computing? The term Cloud Computing probably comes from (at least partly) the use of a cloud image to represent the Internet or some large networked environment. Simply put, computing is done in a remote location and applications tap into that computing power over an Internet connection from any type of connected device. Cloud Computing is a potentially cost-efficient model for provisioning processes, applications and services (computation services, storage services, networking services and such) and delivered on demand regardless of where the user is or the type of device they're using. In this emerging computing model, users access their applications from anywhere through any connected device and pay by usage. The applications reside on scalable remote data centers and computational resources can be dynamically provisioned and are shared to achieve economies of scale. Users are abstracted from the complexity of the underlying infrastructure.

Is Cloud Computing the ultimate form of globalization presenting new opportunities for services firms? Cloud Computing represents a virtualized computing power — provisioning processes, applications and services regardless of where the user is and where the computing power is delivered from (with Internet as delivery platform). Cloud Computing will help Small to Medium-sized Enterprises’ (SMEs) world over particularly from developing countries access world class applications and services without large investments in IT infrastructure. It also opens up application developers in developing countries to build applications and distribute them on the Cloud Computing platform at minimal cost and compete with the best — an option not available until this point. Cloud Computing will clearly change the economics of the business and services firms, which will need to adapt to the platform shift.