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Transcript: Cloud Computing - Impacting IT and the Bottom Line

Deloitte Insights Podcast

Host: Welcome to another edition of Deloitte Insights, a production of Deloitte LLP. Deloitte Insights is an audio news podcast that looks at important business issues. Today we will discuss Cloud Computing, Impacting IT and the Bottom Line.

The hype curve for Cloud Computing is at an all-time high, for pretty good reasons. The convergence of Internet technologies, virtualization, and large scale data centers, has created a powerful new way to deliver IT services, with many companies already putting clouds to work.

Because cloud computing can have such a profound impact on a company’s IT model, as well as its business model, technology and business leaders need to understand its broader impact on their organizations. So, today, we’re joined by Mark White, Principal and Chief Technology Officer of Deloitte Consulting LLP, to talk about a framework [designed to] help companies understand just that. Welcome to the program.

Mark White: Thanks, Greg.

Host: There’s a lot of hype around cloud computing these days, with some people predicting that the world will never be the same. How should [organizations] be thinking about this opportunity?

Mark White: Well, Greg, you’re right. There is hype, but not without reason. The technologies you mentioned in the introduction are important, however the point we’d like to make is that they’re evolutionary in nature. It’s the next logical progression of capabilities [organizations] have now, or had in the past. The important part is [that] the deployment of those technologies against business opportunities, or business problems, has the potential to be disruptive, that is, to create revolutionary change, or capability, or opportunity, in business models and the business landscape.

Host: How would an organization know if they needed cloud services versus some other kind of computing service?

Mark White: Greg, it’s a very good question, and in fact, the right question to ask first. Industry has begun to converge around a set of five characteristics that, when a business problem or a proposed technology implementation indicate all five of those characteristics, or perhaps four of the five, it makes sense to look at cloud architecture and cloud services.

Without those – if you’re looking at only three, or perhaps even two – it may make more sense to look at utility computing, or grid computing, to look at managed services – managed IT services – or even straightforward IT outsourcing.

So, those five capabilities, then, right? The first of them is on-demand self-service, so that the subscriber can go to the cloud, offer a basic transaction, generally information about themselves and some payment information, and gain access to the cloud service. So that’s on-demand self-service.

The second is that they can get to that service, where ever, whenever, as long as they have access to the network. So, that’s actually formally called ubiquitous network access. So, I can get it on-demand; I can get it where ever there’s a network access.

The third is that I don’t care how that service is being provided, or the term commonly used, “provisioned,” I don’t care if the data center happens to be in the United States or outside the United States. I don’t care if it's running on one computing server, or multiple computing servers. So that’s called location independence and resource pooling.So, it’s on-demand, it’s where ever there’s a network connection, I don’t care, it’s location independent, right? Resources are pooled.

The fourth is that it has elastic scale, that I can scale up and down on demand. Both directions are important. So, if I need ten units of the service today, I get ten units. If I need a hundred tomorrow, I get a hundred. If I need a thousand next month, I can get a thousand, and back to ten, as my steady-state. So that's called elastic scale.

The fifth one, then, is very similar, but it’s elastic price, in terms of contract. So, when I only need ten today, I only pay for ten today. When I need a hundred tomorrow, I pay for the hundred. And then if I need back to ten as my daily steady-state, I only pay for the ten again.

So, it’s on-demand, self-service, it’s where ever there’s network access, it’s location independent resource pooling, it’s elastic scale up and down, and it’s elastic price and contract terms.

Host: So, an organization decides to move to cloud. What are they actually getting?

Mark White: Another good question. So, they’d be getting, obviously, access to an IT service or business service with the five characteristics we’ve just described. Now, those are commonly classified into one of four layers.

At the bottom-most layer, from a technology standpoint, is infrastructure as a service. That’s computing capability or storage capability subscribed through the cloud.

The next level up, then, is called platform as a service. Those are platform capabilities like development and test environments, or email messaging platforms, or perhaps backup and recovery enterprise services, subscribed through the cloud.

The next level up, then, and I say up from a technology layering standpoint, if you will, is software as a service. So, I’m subscribing software. I haven’t had to license or buy the software. I don’t have a platform on which it runs, and I don’t have to worry about the infrastructure that it’s running. I just go and subscribe the software as a service.

The final, then, level of that – and it takes it to the sort of ultimate level – is what we call business as a service, where I don’t even have to worry about software. I just subscribe a business service through the cloud that can be delivered by the cloud. So, to give a little context to that, a classic example is the idea of payroll processing. I send off timesheets; they send back paychecks, right? I didn’t use any software. I didn’t have a development platform. I didn’t have any infrastructure running, and I just sent off timesheets and I got back payments. That’s actually a great candidate and is implemented on the cloud now because payments, etc., are all electronically friendly, right?

Host: That’s very interesting. Does this mean that organizations will get their infrastructure, or their software as a service, through the Internet?

Mark White: Cloud services can be delivered in many modes, and in fact, in blends of modes. Some of those definitely involve the public Internet. And so that’s the commonly called public cloud. So, if you go to the public cloud, as a subscriber, some service provider will then use the public Internet to deliver that service to you. However, it’s perfectly possible that you take those same cloud technologies and operational disciplines and implement those inside your shop, inside your data centers and IT organization. That’s called a private cloud, logically enough. Right? So, public cloud and private cloud.

The third one is very straightforward. It’s just the blend of those two, where I have some internal cloud capabilities in my private cloud. I’m subscribing some capabilities from a public cloud. That’s called the hybrid cloud. And that’s probably the most common implementation now, and/or in the near future. There are two more that are actually emerging, and therefore very interesting to us. One is called community cloud, where there’s a community of interests where a collection of private clouds get together commonly for the purpose of economies of scale. So, they club together, if you will. And because of this, they can achieve economies of scale and efficiency and effectiveness, and then discover that they, in fact, can subscribe and provide one another services.

The fifth one, which is very emergent right now, is called virtual private cloud. So, we talked about public cloud and private cloud to begin with. A virtual private cloud is it looks like it’s all mine, inside my data center, but in fact I’ve gone to a large-scale public cloud provider and they carved off a private piece of their capability or capacity to provide that to me.

Host: Let’s talk a little bit about community cloud. Where can you see this actually happening?

Mark White: Actually, very soon, and very obviously. In fact, as an example, the federal government issued a request for information for cloud services. As a part of that RFI – request for information – they specified community cloud. So we can also look at recent business history, and find examples that, while not cloud based, certainly give us the value proposition for a community. Classic example would be the large automotive provider. They’re surrounded by a set of tier-one suppliers, and in fact there’s another ring after that for tier-two and tier-three providers. And that large automotive manufacturer has created a network, an information network, for very efficient supply and demand – just in time ordering, just in time delivery of car seats, is an actual example that we’ve been involved with. So that’s a trading community using previous technologies, like electronic data interchange, EDI. That will be accomplished within the cloud, perhaps with this tiered model, with a big hub and ring one, ring two, etc., perhaps in a more dynamic fashion with multiple small businesses clubbing together with complimentary services so that they look like a large business to the marketplace.

Host: So there are cloud service providers and cloud service subscribers. Tell us a little bit more about that, and why it’s important.

Mark White: Yeah. So, now we’re talking about the business model, and as you know from my introductory remarks, that’s actually at the heart of the matter to us. So, this is a marketplace, and any marketplace I have providers and buyers, in this case, subscribers, because of the way the contracting is done. So, the cloud service subscriber subscribes the cloud for some IT service or business service. The cloud service provider is in the business of making money by provisioning and providing that to the subscriber. So, it’s just two tiers of the business model.

Now, I want to describe two more tiers to you because – a very logical question – so who sells to the cloud service provider? And that tier is called the cloud service enabler. An example – one of the big telephone companies is a communications service provider. But somebody certainly sells them all of the network equipment and the software for managing that network and managing all of the services, the OSS and BSS capabilities, right? That’s the communications service enabler. So you can find that exact same – and in fact, very close cognate – in the cloud services, the cloud architecture space.

So, that’s the subscriber and provider. And the provider buys from the enabler, right? The fourth tier actually lives between the subscriber and provider. Again, pretty classic, business marketplace. Any time you have a marketplace with providers and subscribers, there’s room in there for the broker. And the cloud services broker is emerging today, and has a very interesting potential future. So, an example. There’s a continuum of broker services, right? At one edge of the continuum is the idea of a storefront. So, a cloud service broker may actually front a storefront for multiple providers on the back end, providing the convenience for the subscriber to come to one place to have access to some collection of, like a mall, right? So that’s sort of the simple end, and we’re seeing those today.

The other end of that spectrum, however, is full on arbitrage. So, in any marketplace where there’s the potential for supply to exceed demand – so there’s more cloud service providers for infrastructure than there are cloud service subscribers for infrastructure as a service. There’s the potential for true brokerage, arbitrage, the idea of reverse options, full Monty on that.

Host: This is all very fascinating and it’s extremely top of mind for a lot of organizations right now. It does sound like it’s very revolutionary. Would that be accurate?

Mark White: Well, so, yes. And I want to make the point that technologically it’s evolutionary. It’s logical progression from the technologies that are deployed today and have been deployed in the recent past. Important, valuable evolution, but evolution, nonetheless.

It’s the deployment of those things to solve business problems to address business opportunities that has the potential to be disruptive, and that’s the revolution – revolutionary business models and revolutionary business landscapes. Actually, that’s the reason why Deloitte and cloud are such a good fit together, because Deloitte is a business consulting firm for whom technology is a major tool set. And we believe the real cloud revolution will be about business revolution that’s technology enabled.

Host: Pretty fascinating topic. Thank you for joining us today.

Mark White: My pleasure, my pleasure.

Host: You’ve been listening to a Deloitte Insights program about cloud computing. 

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