Thanks to cloud computing services, midtown company Designer Pages is almost entirely virtual.

“We have no servers in-house,” says Avi Flombaum, co-founder of the 15-employee business, which provides an online database of products and materials to designers and architects. Instead, Designer Pages uses an array of external cloud vendors to handle its computing needs. Amazon's virtual servers store its more than 1 million images. Sailthru, another external outfit, acts as its e-mail server, and a service provided by 37signals handles work-flow management. For tasks like document sharing and internal e-mail, the firm relies on Google Apps and Google Docs.

Cloud computing technology allows companies to buy computing capacity and software services on an as-needed, outsourced basis from server farms—vast collections of computer servers. It can dramatically reduce information-technology costs and shorten the time it takes to bring new products and services to market. Businesses save money by buying only the computing capacity they need, rather than investing in internal servers designed for infrequently used maximum capacity. It's estimated that New York City companies that use the technology are reaping savings of tens of thousands to hundreds of thousands of dollars annually.
A bargain

Pricing models for cloud computing services vary widely and can be complicated. Generally, charges are based on central processing unit usage or the number of individual users, or can be a flat monthly fee. Technology research firm Gartner estimates that companies that use the cloud for e-mail services typically pay $2 or $3 per user per month, compared with around $10 per user to host the application internally.

Cloud computing services take three primary forms: software as a service, or SaaS, which is the most common offering and includes products such as Salesforce.com, Google Docs and Hotmail; platform as a service, which allows companies to develop and host applications using external servers and programs such as Force.com, Google Apps Engine and Microsoft's Windows Azure; and infrastructure as a service, which includes servers that companies rent for computing capacity. Amazon's EC2 and S3 services make it the leading infrastructure vendor.

Designer Pages takes advantage of each of these types of cloud computing services. Without them, Mr. Flombaum says, he could not have started the company, which was founded in 2006 and has approximately $500,000 in annual revenues. He and partner Jake Slevin launched Designer Pages with about $25,000, spent primarily on developing its website, applications and services. To build an in-house system with equivalent computing power would have cost them about $10 million, Mr. Flombaum says. He also would have had to singlehandedly create the server architecture and handle all programming, taking time and money away from developing his core technology and business. “The technological expertise and time required to build this myself would have been astronomical,” says Mr. Flombaum, a former software developer.

While experts say it's hard to calculate exactly how many New York businesses use cloud computing, they believe most startups—particularly in new media—are taking advantage of it. “Almost every startup we invest in either offers [cloud services] or uses components of platform as a service or infrastructure as a service,” says Habib Kairouz, managing partner of Rho Capital Partners, which has 50 companies in its portfolio.

Fewer Big Businesses

The city's bigger, more traditional companies have proceeded more cautiously. It's estimated that while fewer than 20% of all businesses use the cloud, the number drops to less than 5% for big businesses. This disparity is explained by big companies' desire to take advantage of the huge investments they have already made in internal IT, though security and reliability concerns are also factors.

Some area big businesses are outsourcing parts of their internal operations, like costly storage or new product development that can be fast-tracked on the cloud. Manhattan-based RiskMetrics Group, a publicly traded firm with a $1.5 billion market cap and 1,400 employees, provides risk management, proxy and corporate governance services to large financial institutions. It has vast internal data centers, which help it analyze its clients' financial positions. But it uses the cloud for “burst computing”—handling peak loads or unpredicted spikes in capacity need.

RiskMetrics' peak period typically comes at the end of the day, when it must analyze each client's risk position. At that time, the company's computing demand rolls seamlessly from internal servers to external ones hosted by Microsoft.

RiskMetrics added the burst computing power for between 25% and 45% of the cost of installing servers internally, says Rob Fraser, the company's cloud computing program manager. Now, RiskMetrics can consider adding offerings such as intra-day risk-management services, he says, while only paying for the capacity it needs.

Security risks and shutdowns are typically cited as cloud computing's chief drawbacks. “Big businesses are slower to embrace this technology because they have concerns about security and the best way to integrate it with their internal systems,” says James Staten, a cloud research analyst for Forrester Research.

Outages, like those in May that plagued Google's Gmail and social network Foursquare, which relied on Amazon's servers, have made headlines. But experts say that breakdowns like these also befall businesses that rely on internal servers.

“At many companies, e-mail goes down for two days and no one pays attention, but if Google goes down for two hours, everybody notices,” says Jeff Goldberg, senior analyst for research firm Celent.

Outside Reliance

The cloud's chief drawback, experts contend, is that it forces businesses to rely on external vendors. They can't send their IT chief to the server room to troubleshoot. Experts also say complications could arise from juggling two security systems—your provider's and your own.

Still, these concerns pale when compared with the upside for companies like DreamBuilder Investments, a 15-employee firm near Wall Street that specializes in buying distressed mortgages. DreamBuilder uses 10 cloud vendors to manage everything from its e-mail and PBX systems to complex computational modeling for the mortgages it purchases. The company's chief technology officer, Jonathan Snyder, says that using the cloud frees DreamBuilder to focus on developing the application itself.

“We can get prototypes up very quickly,” he says. Equally important, he estimates that using the cloud saves the company several hundred thousand dollars a year in IT costs.

Source: crain's newyork business.com