The chances are that your organisation is already using the cloud, most probably by using Software as a Service (SaaS), common examples being Pipedrive and Quickbooks. When looking at investing in a new software solution, often an important factor to consider is whether it should be hosted on premises or on the cloud. In this article we look at the history of the cloud, the different types of cloud services, comparing them to on-premise solutions, and how to choose between the alternatives (see also our article from last year, Why move to the cloud?).
What is the cloud and how did it evolve?
It has taken around sixty years to reach the point where we are today, with cloud technology and usage moving faster than ever before. It started back in the early 1960s, when the US Defence Advanced Research Projects Agency (DARPA) funded a project at MIT to develop a computer to be used by more than one person at the same time. Although not called cloud computing at the time – the term “virtualisation” was used – this is thought to be where the idea originated.
The first prototype of the internet came later in the same decade when ARPANET (Advanced Research Projects Agency Network) was created. The vision was for an “intergalactic computer network”, where everyone would be connected and information could be accessed from anywhere. ARPANET adopted TCP/IP in 1983, a communications model setting standards for data being transmitted between multiple networks and from there the “network of networks” started to be developed, the start of the modern internet, necessary for access to the cloud.
Tim Berners-Lee, currently a Professorial Fellow of Computer Science at the University of Oxford, is credited as having invented the more recognisable World Wide Web in the early 1990s.
In the late 1990s the cloud started to become popular, Salesforce being a good commercial example of it being used successfully, using the internet to deliver software programs to thousands of end users. Software could be purchased when needed, often in a cost effective way without leaving the office.
Amazon Web Services (AWS) was launched in 2006, fundamentally transforming the IT industry and becoming the market leader, in 2020 with a 40.8% share of the IaaS (Infrastructure as a Service) market according to Gartner. Following behind, but growing rapidly, are Microsoft, Google and Alibaba. Gartner predicts worldwide end-user spending on public cloud services will jump from $242.6bn in 2019 to $692.1bn in 2025, attaining a 16.1% compound annual growth rate.
Cloud or on premise – what’s the difference?
How software is deployed constitutes the biggest difference between the two systems.
There are different types of cloud, common terminology being as follows:
Some of the services that are available through the cloud include
• Infrastructure-as-a-Service (IaaS), the provision of data storage and virtual servers, think companies like Amazon Web Services (AWS) and Azure.
• Platform-as-a-Service (PaaS), where a provider delivers hardware and software tools over the internet, often for use in application development where the user avoids having to install in-house hardware and software.
• Software-as-a-Service (SaaS), where the user accesses applications on a pay-per-use basis as opposed to buying a licensed program, examples would include Salesforce, Gmail, Dropbox, QuickBooks and Pipedrive.
Pay-per-use and being able to increase or decrease usage are two of the most significant benefits of a move to the cloud. Probably the biggest concern when deciding to move to the cloud is security – using the cloud means valuable, often sensitive data, is stored outside of an organisation’s offices. Reputable software providers will however have strict standards to ensure that data is protected and it is essential that potential users satisfy themselves in advance that this is the case. In this regard, it probably is fair to say that the security standards of a cloud provider are higher than those of many small to medium sized enterprises – for more information on cybersecurity, the risks and how to reduce them, see our recent article.
MultiCloud, the Omni Cloud and Edge Computing
The multicloud is the use of cloud services from two or more providers – the benefits being to spread risk and take advantage of the best offerings from each provider. It might involve, for example, buying SaaS from different vendors (such as from Intuit and Pipedrive), and at the enterprise level its more commonly understood as an organisation using multiple cloud service providers, such as AWS as well as Azure. A multicloud solution is defined as one that is portable across multiple cloud provider’s infrastructures. In an article published by Gartner in 2019, the observation was made that 81% of respondents when asked said they were working with two or more public cloud providers.
In the Flexera 2022 State of the Cloud Report a multi cloud approach was still the de facto standard amongst organisations, 89% of respondents having a multi cloud strategy.
Security concerns and compatibility across providers has lead to the development and popularity of what is known as a the omni cloud or hybrid cloud. When barriers between different platforms are reduced, when interaction is facilitated, the result is an omni cloud system.
Microsoft’s omni cloud strategy, the Azure-everywhere strategy, could be seen in Satya Nadella’s (Microsoft CEO) comments in response to a question about its “hybrid engagements”:
“Overall, our approach has always been about this distributed computing fabric or thinking about hybrid as not as some transitory phase, but as a long-term vision for how computing will meet the real world needs because if you think about the long-term, compute will migrate to wherever data is getting generated and increasingly there will be data generated in the real world, where just when you think about the cloud, you have to think about the edge of the cloud as a very first-class construct. And so in that context, what we see is a couple of things that you see even in the results today.
… At our Ignite Conference, you will see us even take the next leap forward even in terms of how we think about the architecture inclusive of the application models, programming models on what distributed computing looks like going forward. So we feel well positioned there.”
Edge computing is an alternative approach to the storing and processing of data in the cloud. Localised data centres are used for storage and computation, rather than the use of a centre located possibly thousands of miles away. This reduces latency issues (delays, in other words, how long it takes for a packet of data to travel from one point to another) and increases the performance of applications. Edge computing is particularly useful when there is time sensitive data and attractive to an organisation seeking to improve efficiency – speed of processing increases, latency decreases and often there is enhanced security and greater connectivity.
Cloud computing – growing in popularity
According to Fortune Business Insights, the global cloud computing market size was US$219bn in 2020, showing growth of 13.7% compared to the average year-on-year revenue growth during 2017-19. They project it to reach US$791bn in 2028, a compound annual growth rate of 17.9% during the 2021-28 period. Growth is primarily driven by the use of advanced technology such as AI, machine learning and the rising demand for cloud services by users. The covid epidemic, and with it working from home, saw an increase in the demand for services that were cloud based, such as Netflix, Spotify and Amazon, thus driving demand and the size of the cloud market.
What is leading organisations to make the move to the cloud?
In LogicMonitor’s Cloud Vision 2020: The Future of the Cloud Study the integration of digital technology into all areas of a business was seen to be the leading factor (63%) behind greater cloud adoption, with IT agility coming a close second (62%). The drivers for cloud adoption include the following:
• growth and scalability
• efficiency, and the streamlining of processes to increase productivity
• IT agility, allowing organisations to be more responsive to business needs and market changes
• cost – both reduction in costs and being able to spread them over time
• security – solutions are maintained by providers who have focussed on such competencies when building their businesses
Choosing between cloud and on-premise
If your existing setup meets your needs, is easy to maintain and relatively inexpensive, in other words, everyone seems happy with the current set-up, why change?
To make that decision, particularly when considering a change in software and/or provider, it helps to look at the differences, one of which is the structure of costs. Whilst there are exceptions, cloud software is usually priced using a monthly or annual subscription. Much like a mobile contract that includes a handset, the provider will build the cost of the server into the monthly or annual fee, or show it separately if requested. The cost is therefore known and fixed in advance.
The alternative is for the buyer to incur the cost of investing in an appropriate server should their existing server(s) not have the necessary system requirements. Cloud based solutions are likely therefore to have a lower cost of entry, although over time the total costs of the two options are likely to converge. Alongside the cost of the server may be other software licences, needed to run the new programs, such as MS SQL. Added to this is the unpredictable cost of maintenance and having IT employees available to manage potential issues that may arise.
As a result of these differences, an on premise solution is probably going to have a significant element of capital expenditure, whereas on the cloud, with its monthly or annual fees, the likely classification is as operating expenditure.
In summary, cloud computing shifts IT expenditure to a pay-as-you-go model.
Whilst all companies need to protect their systems and data, some have extra sensitive information, for example government agencies and banks. The level of security they require may therefore lead them to an on premise solution. As mentioned above, with an on premises server, data security is in the hands of the buyer, whereas on the cloud it resides with the provider. Whilst there have been some well publicised data breaches, using Microsoft Azure, AWS or other such reputable services will give cloud users the peace of mind that security along with well-rehearsed measures for disaster recovery are at the highest possible standard.
When changing software or software provider, speed of installation and use can be very different. Using the cloud, companies can make faster progress on projects and in testing ideas by avoiding lead in times for buying hardware along with the associated up front costs.
Only those resources that are used need be purchased. This agility is a significant benefit derived from using the cloud, allowing new services to be launched that much quicker.
Cloud computing often makes sense for a growing business, where scaling resources quickly is challenging, and where keeping up with growing storage needs is difficult and expensive. Where speed of installation and geographical spread are important, this also makes the cloud the preferred choice.
In summary, control, cost, security and ease of deployment are the distinguishing factors between the two alternatives.