Do you visualize cloud computing as a gigantic warehouse full of computers in some unknown location, mysteriously feeding information to the world? As with many misconceptions, there is some truth here. However, cloud computing is much more than just a giant server farm, or 1990s-style managed hosting. Instead, the core of cloud computing is a highly efficient, dynamic infrastructure that ensures essentially uninterrupted services to anyone accessing the cloud.

The primary driver of cloud computing services is the tremendous economies of scale they generate. These greater efficiencies and dramatically lower costs offer a clear strategic advantage compared with single-purpose corporate IT departments. However, the questions then become: How do they do this? How can cloud computing providers, with colossal data centers, create these tremendous efficiencies? Why can they generate IT services at such a low cost?

The answer to these questions is deceptively simple: It is just more financially efficient and energy-efficient to manage a massive number of services through virtualized hardware than just a few services on dedicated backend servers, as in the traditional IT model. Twenty-four hours a day, seven days a week, a traditional data center consumes energy, even when data processing is happening at a greatly reduced rate, such as at night or on weekends. Regardless of processor idle time, electricity is consumed and heat is dissipated around the clock. Disks spin, cooling fans turn, and the computer room air conditioner (CRAC) hums along. Due to high idle time, traditional data centers waste massive amounts of energy.

By contrast, cloud computing providers can manage their workloads in a more efficient way, utilizing many different types of virtualization techniques. Virtualization enables the over-commitment of processor units, physical storage space, and memory to help reduce the overall idle time. This means clouds can derive more useful work from the same amount of electricity consumed by most traditional data centers.

Did you just hear the cash register ring? If you’re like most companies, a huge part of your IT budget is spent on the infrastructure and personnel required to deliver computing services that could just as easily—and much more inexpensively—be cloud-sourced.

Consider this comparison. There was a time when power to run a company’s machinery was generated locally. In the early Industrial Age, companies typically were located near a river, which provided the energy they needed through a water wheel for the companies’ machinery. A substantial operational cost was often associated with maintaining the water wheel and associated infrastructure.... Sound familiar? An entire department was dedicated to maintaining and updating the power plant of early Industrial Age companies.

Then what happened? Economies of scale enabled electric companies to generate and transport electricity at a much lower cost than locally generated power. The same is true today for IT services. Economies of scale allow cloud providers to generate a host of services at a much lower cost—with greater availability—than traditional dedicated IT departments.

The commoditization of hardware and subsequent expansion of traditional data centers has led to something of a paradox. A plethora of traditional “computer farms” now sprawl across developed and emerging countries, each requiring staffing and electrical power. The majority of these boxes are grossly underutilized, with more than 85 percent of the computing capacity sitting idle, wasting precious resources.^[4] The boxes might have been cheap, but the cost to manage them and supply them with power is anything but cheap! To add to the problem of underutilized capacity created by the sprawling data centers and dedicated back-end servers, the dirty little secret of data centers is that traditional IT is one of the most energy-inefficient processes in the world. (Secret, that is, unless you’re the one paying the electricity invoice for your company!)

Consider that for every 100 units of energy mined from coal, only 35 units of useful energy is created and only 33 units of that energy actually make it to the data center. Fifty-five percent of that amount—more than half—is spent just to cool the equipment. The remaining units of energy are used to power the computers, but nearly two-thirds of that energy is lost through heat dissipation. Essentially this means that for every 100 units of energy taken from a coal mine, only approximately 3 units is used to generate meaningful IT work.^[5]

Figure 6.1 illustrates the grim reality about where 97 percent of our energy is wasted. Compelled by this reality, market forces continue to drive adoption of the “utility” model offered by providers of cloud computing, which leverages green technologies and economies of scale to optimize the production of useful IT work.

Figure 6.1. From energy source to IT useful work, the steps of inefficiency are colossal, as illustrated here.^[6]

The complexity and escalating costs of traditional data centers are creating powerful market forces that will accelerate the adoption of cloud computing, maximizing the useful work output per server and lowering the overall cost of IT services. The new generation of IT professionals and CIOs view cloud computing as a strong alternative for achieving business scalability, less business risk with no long-term contracts, and lower up-front costs—a result of the pay-as-you-go utility model for cloud billing. If you are a CIO who has ever signed a multimillion dollar purchase order for new servers, we suspect this resonates with you!

With an understanding of the significant economic advantages of cloud computing, you might wonder how all this happens. What are the components of cloud computing, and how do they all fit together? Where does virtualization come in? Perhaps the best way to think of cloud computing is in terms of three layers—the physical layer, the network layer, and the services layer.

The physical (hardware) layer is heavily virtualized, enabling the cloud to maximize hardware usage by easily swapping workloads and moving them around as needed. This virtualization and highly efficient workload management minimizes idle time. The second layer, the network layer of cloud computing, links many loosely coupled computers. The computers are addressed as part of the same network, even if the physical boxes are located in different parts of the world. You can think of this as network virtualization.

The third layer—the services layer—is perhaps the most important. The services layer encapsulates all the hardware and network dependencies so that the user sees only a simple business interface—only the applications needed to perform required daily tasks. These services are now ubiquitous because of the simplicity and elegance of the cloud computing model.

The layers of the cloud computing model are illustrated in Figure 6.2.

Figure 6.2. The cloud computing model.

WWW: More Than We Asked For

The massive telecommunication cables that constitute the World Wide Web (WWW) provide the network on which cloud computing depends. Data centers are distributed around the world to minimize network latency to their target markets, enabling us to connect to any computer regardless of its location. This network is a literal globe-spanning collection of cables from various telecommunication companies, frantically laid down to over-capacity during the dot-com boom of the late 1990s. In some ways, these huge, over-provisioned “pipes” were something of an embarrassment for a few years and led to the demise of more than one company—they built it, but no one came. Simply put, the bandwidth offered far exceeded demand, driving revenue down, and companies out of business. In the Social Age, however, all that has changed. This worldwide uber-infrastructure now provides the massive network capacity needed to support the insatiable Social Age appetite for video games, YouTube, and many other high-bandwidth social tools to which we have become accustomed.

Care to find out just how massive this network is? Take a look at www.caida.com and prepare to be dazzled at the great tools this site offers to analyze your network infrastructure. Use some of CAIDA’s virtualization tools to see the way networks connect through the primary global network. Figure 6.3 shows how UUNET connected the world. In the 1990s, UUNET was one of the largest network carriers and was acquired first by WorldCom, and then a few years later its network assets were acquired by Verizon Communications. These transactions epitomize the consolidation that has happened throughout the telecommunications industry.

Figure 6.3. Data from CAIDA, UUNET Connections.

Unlike the traditional outsourcing approach, the cloud computing model provides standard services that can be accessed through common open protocols such as web services. In traditional outsourcing models, customers give up control of the IT infrastructure but demand preservation of their proprietary business processes (the “Mess for Less” value proposition).

Unfortunately, efficiencies and cost-savings gained in the mess-for-less model are often diminished by the lack of standardization and the cost of proprietary application maintenance. Social Age companies are becoming acutely aware of the increasing need for rapid, nimble transformation in the face of new business challenges. Embracing cloud computing and transforming business processes to the most-efficient expression can drastically reduce operational IT costs. Cloud computing creates a flexible alternative for businesses that cannot sustain ever-changing IT requirements.

In his “IT Doesn’t Matter” article in the Harvard Business Review in 2003, Nicholas Carr famously predicted that IT departments will eventually disappear.^[10] We respectfully disagree with Mr. Carr and believe that Social Age IT departments will indeed survive and will focus on core competencies that cannot be duplicated by generic cloud computing services. The commoditization of computers and computer services doesn’t mean that the value provided by the IT department is diminished. On the contrary, IT groups will embrace cloud computing to reduce overall IT costs, while acquiring additional services to complement their core competencies. Rather than rendering IT departments obsolete, cloud computing will simplify and accelerate the transformation of IT departments.

The IT department of the Social Age has a fundamentally different charter than the IT department of the Information Age. Instead of painstakingly managing a hodge-podge of applications and hardware, Social Age IT professionals will be developing a diverse skill set focused on leveraging social networking channels and cloud computing services. They’ll mine marketing data, derive intelligence from communities, and focus on business process optimization and employee collaboration. Perhaps most importantly, they’ll manage innovation programs to accelerate the business transformation and keep the business in a leadership position.

In addition to increasing virtualization of services, the Social Age is a time when traditional “geeks”^[11] are slowly losing operational control of the corporate infrastructure. Market forces, including tremendous power inefficiencies, are driving companies to lease IT services through cloud computing—a much more cost-effective alternative to the traditional data center model. As a result, IT departments in the Social Age will transform themselves from IT infrastructure guardians to centers of business transformation. They’ll leverage social networking intelligence and become a sponsor of innovation programs for the business.

As previously discussed, cloud computing providers will be able to provide low cost IT services because of two important competitive advantages: lower energy consumption optimization using economies of scale and green technologies, and virtualization technologies in the cloud that will be used to maximize hardware usage and minimize idle time.

As businesses continue to embrace the cloud computing utility model, the marketplace will push for more standardization and increasingly pervasive services. With cloud computing we’ll soon be connected everywhere and be able to communicate with our communities and customers at any time without having to worry about the IT services that support us. Interoperability of services on cloud computing will enable seamless communication across the rich variety of social tools.

IT groups that embrace cloud computing will also have to think strategically about how to leverage their internal and external social networking communities. In the Social Age, even non-IT business units will be able to create and maintain their own IT solutions. These newly empowered groups, who will be using the latest collaboration and social networking tools, will need to be included in the planning by the IT group. Finally, the Social Age IT group still needs leadership. What does that look like? Well, for an answer we turn to the Social Age CIO.

In the past, IT organizations controlled costs by controlling solutions and by minimizing the number of applications they had to manage. Until recently, the chief information officer had a simple charter:

The Social Age, however, calls for a fresh look at traditional approaches. Increasingly, the CIO is considered a strategic player in the corporation. CIO decisions now touch all parts of the corporation in a much more meaningful way than they ever did before. The CIO of the Social Age, rather than a chief information officer, will become in many ways the chief innovation officer and will take a more active role in the strategic transformation of the company.

Several questions are raised in this context: What is the role of CIOs in the Social Age? How can CIOs leverage the cloud? Should the IT organization trust non-IT groups to create their own solutions in the cloud? What is the control point that ultimately delivers the best efficiencies to IT? What about social tools and communities inside and outside of the company?

The answers to these questions can be complex and will vary company-to-company. In general, businesses benefit first by leveraging cloud computing in their IT strategy. In this new paradigm, it is vital for the CIO to be ready—and willing—to relinquish some level of control. He or she must not only trust the cloud, but also trust emerging social communities and allow non-IT groups with good business insight to build and maintain their own business-unit-specific applications.

Many options are available to the CIO to encourage non-IT groups to contribute to the IT assets of a company. For example, corporate data and applications services can be designed and offered as a “business utility” by leveraging web services. By careful documentation, the services can be made accessible to everyone in the company. This creates a self-service model, lowering overall IT development cost.

Some CIOs may resist a community approach to IT because they suspect it will result in “spaghetti” code, and may even create an array of essentially similar applications they’ll need to maintain. Fortunately, nothing could be further from the reality of the Social Age IT environment. In the self-service model the “control point,” for cost reduction purposes, resides on the web services, and not in the number of IT applications that are generated reusing cloud services.

In this kind of Services Oriented Architecture (SOA), the services are heavily used and reused by a variety of IT applications. SOA services can be used as a control point for IT groups to maintain common services. These can include access to databases, backend transactions, Web 2.0 widgets, connectors to legacy applications, and other valuable and reusable services. SOA and cloud computing complement each other since this combination brings everything as close as the nearest web service.

The key factor for broad acceptance of reusable IT assets is a transparent process making any application available to anyone within the company. Good documentation, including easy examples of how to use the data and services, within the SOA framework, will encourage adoption.

At IBM, my team “primed the pump” by creating some Web 2.0 “mashups.”^[12] Using web services, they created several mashup applications collecting a variety of corporate data, from different data sources, as well as data from outside the firewall. These applications became popular and promoted the use and creation of more Web 2.0 applications.

CIOs are discovering the usefulness of social networking tools and the power of communities to create and maintain solutions to lower IT cost. The CIO of the Social Age embraces cloud computing to lower the IT infrastructure cost. He or she builds an IT self-service model that leverages the power of communities and encourages non-IT groups to build their own applications, reusing well-defined services available in the cloud.