Do the Cloud Guys Get It?

English: Cloud Computing Image

English: Cloud Computing Image (Photo credit: Wikipedia)

I just read an article this week that cites five reasons why cloud computing isn’t taking off as fast as the companies selling the solution were hoping for. The reasons unfortunately make me feel like the cloud industry folks are out of touch with the real world. This is not an uncommon phenomenon in that high-tech industries are run by innovators. Innovators often don’t understand why the rest of the world doesn’t see things with the same clarity as they do.

Following are the five reasons cited in the article about why cloud computing is not selling as fast as hoped, with my observations after each point.

The Organization. Organizations often are structured in a way that does not make the kind of shift to cloud easy. For instance, IT shops are often organized into separate groups for compute, network and storage.

Changes that affect people are never easy for companies. Going to the cloud is supposed to save a lot of labor costs for larger companies, but that is not necessarily the case for smaller companies.  But even larger companies are going to take a while to make sure they are not walking off a cliff. Every old-timer like me remembers a few examples of where major technology conversions went poorly, and nobody wants to be the one blamed if a big conversion goes wrong.

Security. Companies are afraid that the cloud is not going to be as safe as keeping all of their data in-house.

Everything I have read says that if done right that the cloud can be very secure. However, the fear is that not every conversion is going to be done right. You can place your bets with me now, but sometime in the next year or two there is going to be a major ugly headline about a company that converted to the cloud poorly which led to a major breach of customer records. The problem is that everybody is human and not every cloud company is going to do every conversion perfectly.

Legacy Applications. Cloud companies want you to get rid of legacy systems and upgrade to applications made for the cloud.

This is where cloud companies just don’t get it. First, almost every company uses a few legacy systems that are not upgradable and for which there is no cloud equivalent. Every industry has some quirky homegrown programs and applications that are important for their core business. When you tell a company to kill every legacy application most of them are going to rightfully be scared this is going to create more problems than it solves.

Second, nobody wants to be automatically upgraded with the latest and greatest software. It’s a company nightmare to come in on a Monday and find out that the cloud provider has upgraded everybody to some new Microsoft version of Office that is full of bugs and that everybody hates and that brings productivity to a halt. Companies keep legacy systems because they work. I recently wrote about the huge number of computers still running on Windows XP. That is how the real world works.

Legacy Processes. In addition to legacy software, companies have many legacy processes that they don’t want to change.

Honestly this is arrogant. Companies buy software to make what they do easier. To think that you need to change all of your processes to match the software is really amazingly out of touch with what most companies are looking for. Where a cloud salesman sees ‘legacy system’ most companies see something that works well and that they took years to get the way they want it.

Regulatory Compliance. Companies are worried that the cloud is going to violate regulatory requirements. This is especially true for industries such as financial, health and the power industries.  

This is obviously a case-by-case issue, but if you are in one of the heavily regulated industries then this has to be a significant concern.

I hope this doesn’t make me sound anti-cloud, because I am not. But I completely understand why many companies are going to take their time considering this kind of huge change. There is no product ever made that should not be taking their customers into consideration. When I see articles like this I feel annoyed, because the gist of the article is, “Why won’t these dumb customers see that what I have is good for them”. That is never a good way to get people to buy what you are selling.

The State of Cloud Services

cloud computing

cloud computing (Photo credit: kei51)

My clients ask me all of the time how they can make money at cloud services. The fact is, for small carriers, there are a few opportunities, but the industry still has a way to go to be ready for prime time for small carriers as a revenue opportunity.

I say this because my average client only has a handful of business customers who can really benefit from using cloud services, and so the small volume they might be able to sell to them does not look like a profitable product line.

What is available today?

First, there is a very robust market in providing data storage and back-up of data. But there is only money to be made in this from business customers because residential customers can get mountains of free web storage if they look around. It’s possible for a residential customer to easily store a terabit or more of data for free.

But businesses don’t want to, and probably should not use cheap or free web storage. There are already horror stories of web storage services that have shut down and that have left people without access to the data they have stored in the cloud. So a business needs to store their data where they know they will always have access to it. This probably means storing it with a vendor that has multiple data centers so that there is a duplicate backup copy of everything to avoid the issue of natural disaster.

And it’s not hard for a small carrier to get into this business themselves and to store some data in their own central office. And if their customers want a second back-up copy there are a number of reputable data centers around the country that are owned by other small carriers and that seem pretty secure and safe. There is even a little money to be made to be the middle man and in sending all of the data to somebody else for your customers.

The other thing that is widely available today as a cloud service is IP Centrex. There are a number of national companies that will sell this service to anybody that has a fast enough data connection.

But one of the catches to this service is that these nationwide sellers do not offer phone numbers everywhere. This means that when they go to sell in rural areas they probably do not have the ability to do number porting to let the customers keep their local numbers. This is a big deal for businesses. We have always assumed that the nationwide sellers work through some other nationwide CLEC to terminate traffic, and those CLECS, like a Level3 have gained the ability to do number portability in RBOC areas, but for the most part they do not have those agreements in place for the rural areas.

But number portability aside, it is possible for anybody to resell the IP Centrex services. If you are competing in a neighboring larger town you could offer these services in the cloud as a reseller of one of the nationwide carriers. The margins are not nearly as good as if you offered this on your own switch, but they are okay.

Finally, the real promise of cloud services is that it could offer the software a business uses everywhere on any device. These are huge advantages to large companies having this ability and many of them have migrated their software to the cloud. But they have done so with a lot of effort. Most companies operate a unique set of programs. While a business may use the standard nationwide software like Microsoft Office or Quickbooks, most companies also run a number of unique and homegrown programs. The real challenge for a company that wants to take its software to the cloud is not getting the big name software to the cloud – because most of that software now has the option of cloud licenses. The issue is in moving all of the home-grown and one-off software that a company uses. As I mentioned yesterday, many companies still operate some PCs with Windows XP. It’s not as automatic to move older legacy systems to the cloud as you would hope and it takes some effort and trial and error to get some things to work in a cloud environment.

And there is no profitable product out there yet for the small carrier who wants to offer cloud software to customers. There are bits and pieces, but no easy platform that just lets you sweep your business customers into the cloud. This is probably coming, but it is not here yet.

So in summary, other than data storage and IP Centrex, there are not a lot of viable, money-making ways for a small provider to make money yet on cloud services. But I think the day when you can is fast approaching. There are bits and pieces already available for offering cloud-based software and the options are growing all of the time.

Old is Not Necessarily Dead

Microsoft Windows XP wordmark official.

Microsoft Windows XP wordmark official. (Photo credit: Wikipedia)

For some reason, last month was a time when I kept running into legacy systems over and over. And by legacy systems I am talking about older technology platforms that everybody assumes are little used or dead and gone.

First, I ran into two separate CPA firms that are still using PCs with Windows XP. They said they are using it because the programs they use don’t require a higher version of Windows, and the XP platform is stable and trouble-free. As it turn out this is a fairly common opinion in the corporate world. It is estimated that one-third of worldwide computers, or 500 million computers still run XP. And this is a 13-year old operating system.

It turns out that Microsoft is going to officially stop supporting XP in April 2014, and that will drive a lot of corporations to upgrade to something newer. But many smaller firms (like these CPA firms) will choose to not upgrade and they will continue to run it without the Microsoft backstop. Their reasoning is that hackers are no longer concentrating on the older operating systems and the platforms will actually get safer over time as fewer and fewer people use them. And let’s face it, upgrading a Windows platform at a company is a lot more of a pain in the butt than doing it at home. I know I have spent a whole day before making my machine work right after an upgrade, and figure that same effort times many machines in an office.

I also ran into XP when we started doing number portability and the NPAC system that everybody uses for number porting is also still on Windows XP.

But then I ran into something even older. One of my clients has recently started using MS-DOS as the software to control external access to his server. He has it set up so that somebody gets only three tries to log in and then the operating system shuts down. He thinks this is hacker-free since most LANs are hacked by programs that try millions of password combinations to get into a system. Many of you reading this are not going to remember the pleasure of turning on your computer and being greeted by a C prompt.

There are other legacy applications that are more telephone related. For example, I know a company who offers a very vanilla voice service where every customer gets a basic line and all of the features in the feature set. The cheapest way they could figure out to do this was to buy an old legacy TDM switch. They picked it up used for almost nothing including a big pile of spares. Since they aren’t trying to do anything unusual it’s easy to provision and it just hums along.

I have a lot of clients who just ditched legacy systems over the last decade. But the reason they ditched these switches was not because they didn’t work, but rather because the maintenance fees charged by the switch vendors was too high. But if you buy these same switches on the gray market you have zero vendor maintenance costs and operating the switch becomes a very different economical proposition.

As someone who is getting a little gray around my own edges I take an odd pleasure in knowing that people are finding uses for things that were used decades ago. I know I am nowhere near to obsolete and it makes me smile to see the value in older but still great technology.