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Cyril Simmonet, Keross LLC, Why Cloud Computing Cuts Costs and Makes Sense
February 2009 by Cyril Simmonet, Keross LLC
Imagine buying a beautiful new house in Emirates Hills, surrounded by a lush garden and a lovely swimming pool. But there is a catch: you must buy your own power plant to generate electricity, your own treatment plant to provide water, and your own TV station to provide entertainment. Instead of a 5-million-dirham investment, you have to have to spend 500 million to make sure your new house is livable.
Sounds outrageous? Unfortunately this is exactly how many businesses are run today. Instead of focusing on core activities, some businesses are under the false impression that they have no option except outright procurement of hardware and software to make their businesses run. This doesn’t end here: they have to hire the staff to keep the software running, the staff to fix the hardware when it goes down, and the staff to manage all this staff.
Fortunately this need not be the case: just like your new house, which will come with utility connections that deliver electricity, water, and entertainment by subscription, hardware, software, and related services are enabling utilities that you don’t have to acquire, manage, and maintain yourself. Welcome cloud computing.
Cloud Computing
Cloud computing is the current revolution in IT services. The “cloud” (i.e., the Internet) serves as a medium to provide customers with software, services, and even hardware as subscription services delivered securely without incurring capital expenses. Hotmail is one of the earliest successful examples of cloud computing, where you get full email functionality without having to buy hardware or software. “Since Hotmail started in 1996, cloud computing has gone a long way in achieving credibility as a reliable and secure professional service used by enterprises of all sizes,” says Cyril Simonnet, CEO of Keross LLC in Dubai, an international technology services firm. Mr. Simonnet built his career building technology companies around the cloud computing concept, including Qualys Inc. and Symantec. Today, many companies offer cloud computing, particularly software (in this case called Software-as-a-Service, or SaaS) to thousands of small, medium, and large businesses. Applications offered through SaaS include customer relationship management (CRM), enterprise resource planning (ERP), e-commerce, and a multitude of other solutions.
Unlike software and hardware, cloud computing gives you access to IT solutions for which you pay a relatively low, flat subscription (like a magazine), or a usage-based fee (like an electricity connection). The advantages are stark, according to Mr. Simonnet: There are no capital expenditures to incur, operating expenditures are substantially reduced and are a function of your growth, and deployment is a matter of months or even weeks, as opposed to years in the case of in-premise software and hardware. In addition, service levels are dramatically improved.
But the story doesn’t end here. According to Sami Caracand, Head of Operations at Keross, the technical advantages are also very compelling. “With cloud computing, you don’t need to worry about upgrades and maintenance of software and hardware, since your service provider typically extends service guarantees that include continuous upgrades that are transparent and non-interruptive to end users,” says Mr. Caracand.
Cloud Computing in the Gulf
In the UAE, a growing number of companies are already using SaaS services successfully. In November 2008, TECOM Investments, a member of Dubai Holding, unveiled a customer service portal that it provides to its customers in a SaaS model. Nakheel, Emaar, and Dubai World Central have recently launched similar initiatives for project management, tenant management, and property management, respectively.
Even General Electric, the company that quite likely would have sold you the power plant to power your villa, last November announced that it has subscribed to a SaaS offering to manage its 500,000 suppliers more efficiently and cost effectively.
However, all is not perfect. Just like with any technology, there are risks associated with cloud computing. According to Mr. Caracand, foremost are the risks associated with data protection and security, since data physically resides with the service provider. Properly managed, these risks are minimal compared to the advantages. In addition, since the service is provided over the Internet, service outages may occur due to Internet outages (such as the recent cable cut in the Mediterranean), or outages related to the service provider’s ability to maintain uninterrupted service. According to Mr. Simonnet, outage risk can be mitigated by contracting with a regional or local service provider, or a service provider that maintains local or regional data center facilities.
Numbers speak for themselves. In an August 2008 press release, Gartner noted that worldwide “organisations are switching from company-owned hardware and software assets to per-use service-based models.” Furthermore, Gartner expects that 2009 worldwide spending on IT services, including SaaS, to be $872 billion, more than the spending on hardware and software combined. In the Gulf, the corresponding figures are inverted and heavily skewed in favor of hardware and software. For example, in the UAE, 67% of total spending goes to hardware alone (Gulf News, “Saudi Arabia top IT spender in region – IDC”, 19 Oct. 2008). But we are seeing the Gulf mature, since IDC noted a “shift towards increased spending on software and services,” a sign of a maturing market. According to IDC, UAE spending on IT services grew a whopping 41% in 2007, compared with a 23.9% growth for the industry as a whole (Gulf News, “IT spending in UAE set to cross $2b with rapid growth of market”, 15 Sep. 2008).
Advice
Where do you start if you’re considering cloud computing as a viable solution? Mr. Simonnet has plenty of advice to offer: The first step is to take a look at your non-core businesses. For example, if you are a property developer, your core business is to develop, market, and sell developments. You should not be sinking time and resources into rolling out and administering enterprise technology systems, such as CRMs. In this case, you might consider subscribing into a CRM system, an invoicing system, and a project management system offered through the SaaS model. A consulting partner might offer you integration services so that all three systems are interconnected. You will be up and running after a few weeks, with little or no upfront investment and a fully-customized service.
According to Mr. Caracand, the most important decision is the choice of service provider. There are a several important factors to consider when selecting cloud computing service providers. You must choose a partner that preferably hosts data and systems within regional proximity of your physical offices; this minimizes the risks of service unavailability due to Internet outages. You should only consider partners that offer contractual performance guarantees, typically through service-level agreements that specify the guaranteed uptime (e.g., 99.9%) and the data protection and regulatory compliance guarantees (e.g., physical backup of data and secure user access.). You need also to have a reversibility clause that you would use if you have find a better service at a lower cost.
