InformationWeek 2011 01 17

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THE BUSINESS VALUE OF TECHNOLOGY
JAN. 17, 2011
PLUS Oracle should (not) buy Dell >> Teradata enters marketing analytics >> Feds move farther into cloud >> Ballmers big shake-up >> Cloud computing pioneers tell of their successes, but also of lightning strikes, tornadoes, and other disasters. Learn from their experiences. IT spending: What really matters >> CIO prole: Avons Donagh Herlihy >> Table of contents >>
4 companies getting results >> 6 ways to fail with cloud >> 11 factors essential to an ROI calculation >>
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CONTENTS
THE BUSINESS VALUE OF TECHNOLOGY Jan. 17, 2011 Issue 1,288 This all-digital issue of InformationWeek is part of our 10-year strategy to reduce the publications carbon footprint
19 6 Ways To Fail
Take your eye off any of these, and you could have serious problems with your cloud strategy
24 Clouds True Costs

An incomplete financial analysis will end up biting you
COVER STORY
11 Cloud Results
Some companies are way beyond testing the cloudtheyre actively looking for whats next
2 Research And Connect

Reports, events, video, and more
4 Global CIO
Yes, there are even worse notions than Oracle buying Dell
6 CIO Profiles QUICKTAKES 7 Oracles SAP Plan

Oracles new analytic apps go after companies using SAP financial software
9 Feds In The Clouds

Look for more moves like Treasurys cloud-based site
10 Ballmers Shake-Up
As he ousts veteran exec Bob Muglia, look for Microsoft to cozy up to HP
Avons tech chief has an interesting reason for admiring President Kennedy
10
27 Down To Business
IT spending is up, but that isnt as important as what CIOs are doing with that money
8 Marketing Matters
Teradata is moving into analytics for marketing
CONTACTS & FEEDBACK

3 Feedback
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28 Editorial Contacts
29 Business Contacts
Jan. 17, 2011 1
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Oracle Goes After SAP Users >> Cloud Results >> How To Fail In The Cloud >> Clouds True Costs >> Table Of Contents >>
Links
Resources to Research, Connect, Comment

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feedback
Verizons iPhone Secret Revealed After rumors that went on for months, Verizon finally announced its offering the iPhone, ending AT&Ts exclusive. missing here? Ill stick with GSM technology, thank you very much. CDMA is a dead end.
sonicmetalman
Can Steve Ballmer Survive? Less than two weeks into 2011, there are signs that Microsoft learned little from a woeful 2010. Can the CEO keep his job? Paul McDougall
informationweek.com/1288/ballmer
cant expect a company to be nimble enough to compete in a tech environment with a bunch of attorneys looking over its shoulder every minute. Rsburkholder981 SMBs Arent Ready For Disaster One in two small and midsize businesses has no recovery plan in the event of a network outage, data loss, or other IT disaster. Kevin Casey
informationweek.com/1288/recovery
Gina Smith
informationweek.com/1288/iphone
Ive had AT&T wireless service for a long time, and I havent had a dropped call now for years. For most of that time, I had an HTC smartphone, and I just got a new LG. My service is just fine, even though I keep hearing how poor AT&Ts service is in my area and that there are vast spots with no service at all. Ive yet to find these areas. I guess if you must have that shiny new iPhone, you have to pay the price of bad reception. What will be interesting is that well find out if the problem was truly AT&Ts or Apples once we discover the kinds of experiences that Verizon iPhone users have. Anonymous Im not sure what could be so great about the iPhone 4 acting as a hotspot if a phone call terminates the data connection. What am I
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I doubt Microsoft will sack the quarterback at any time in the near future. Despite Ballmers specious business management acumen, he still owns a mess of stock and wields a lot of power. This is not a man the boardor his successorwants to face in a proxy battle.
Perfesser_Bear
Although theres plenty of blame to go around and assign to Microsoft leadership, the real reason for the companys decline is the Department of Justices antitrust proceedings. Our country has a history of destroying its most successful companies. The results of these proceedings brought the legal profession into every aspect of Microsofts internal operations. You
Our small company didnt have a disaster plan when I arrived, and I made one up. Its easy. Just imagine that you came to work one day and the building had burned down. What will you need to get the minimum system running and how quickly can you do it? Off-site backups are probably the biggest part, but what will your company use to read those tapes? What about all the software licenses? Any paper documents needed? We made PDFs of all the paperwork, licenses, and activation codes and stored them on a thumb drive, and it goes in the deposit box with the backup tapes and the spare AIT-5 tape drive. And theres a copy of the whole plan on the thumb drive. Frankd
Jan. 17, 2011 3
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globalCIO
Oracle Should Acquire Dell (And 10 Other Crackpot Ideas)
So a guy with a lot of Dell stock wants its value to go up, and he writes a blog post on The Motley Fools site suggesting that Oracle CEO Larry Ellison buy Dell for $50 billion: Mr. Ellison, critics are starting to doubt the Sun acquisition because of plummeting market share in servers (now at 6.7%). ... And the trend shows no sign of abating. In the third quarter, HP and IBM grew server revenues by 22.2% and 9% year over year, respectively, versus Suns own anemic 0.9% growth. Now, I cant blame this guy for looking for someoneanyone!to step in and bid up the value of a significant portion of his holdings by 250% (Dells market cap is about $19 billion). But pitching Dell to Oracle to boost its commodity server market share makes about as much sense as asking Warren Buffett to acquire Dell because it would diversify his portfolio. As Ellison himself said just a few weeks ago in Oracles most recent earnings call, Our goal is to become No. 1 for both online transaction processing and data warehousingboth of those segments. We are not interested in the low-margin commodity segment of the server business. We are focused on
B O B E VA N S
high-end OLTP, high-end data warehousing, where the margins are good and we can have a highly differentiated product. Seems pretty clear, right? But Motley Fool author Chris Maines gets himself stuck even deeper in the mud by suggesting that Ellison will shell out $50 bil-
Suggesting that Dell would be a perfect fit with Oracle and its singular focus on marginrich high-end systems is, well, foolish.
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lion for Dell because it would allow Oracle to get into thewait for itPC hardware business! Maines says Oracle president Mark Hurd could spend all his time fixing Dells PC business, but heres how Hurd himself described Oracles hardware focus: Weve got 295,000 database customers that can run their Oracle workloads orders of magnitudes faster by deploying Exadata. Customers are seeing 15 to 50 times the improvement. ... There are 150,000 [OrJan. 17, 2011 4
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globalCIO
acle] middleware customers, many of them using our market-leading WebLogic app server, that ultimately are prospects for Exalogic. Dells a great company with lots of potential, but trying to suggest that it would be a perfect fit with Oracle and its singular focus on margin-rich high-end systems is, well, foolish. And to show just how foolish the Oraclebuys-Dell notion is, here are 10 acquisitions that would make more sense for Oracle: 1) The Pennsylvania portion of Interstate 80. Oracle could cover all related costs by imposing a 22% annual support fee on all drivers. 2) The Borders bookstore chain. Oracle could turn the cash-starved stores into combinations of (a) briefing centers for customers and prospects and (b) retail outlets for Americas Cup merchandise. 3) IBM. The Justice Department would never allow it, but thats not my concern hereIm just trying to come up with a list of 10 ideas that arent as bad as Oracle buying Dell. 4) General Motors. GM could provide Oracle with a unique entre into the mobile and lucrative federal government IT markets. 5) U.S. Postal Service. If Oracle president Safra Catz can turn Sun into a highly profitable business, then she could do the same thing with the USPS. 6) The NBAs New Orleans Hornets. The Oracle-Borders retail chain can add Hornets gear to stuff from Oracle-GM Racing and Americas Cup. 7) SCO Group. Oracle has proven its legal prowess, and thats just what SCO needs to revive its core strategy of suing customers and partners. 8) San Francisco. Unconventional, sure, but Catz could fix the citys massive financial problems while Ellison reshapes the waterfront for the next Americas Cup. 9) University of California, Berkeley. Oracle gets a pipeline of bright computer science students, and Ellison gets the granola-andBirkenstocks persona that some image consultants claim he lacks. 10) HP. Could be a tough fit if IBMs already in the bag, but this deal would make it tougher for HP CEO Lo Apotheker to avoid subpoenas relating to litigation involving Oracle and either HP or SAP. Sorry, Mr. Baines, but your Dellapalooza ships just not coming in until after all of these more rational deals get done. Bob Evans is senior VP and director of InformationWeeks Global CIO unit. For more Global CIO perspectives, check out informationweek.com/global-cio, or write to Bob at bevans@techweb.com.
Jan. 17, 2011 5
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CIO profiles
CAREER TRACK
DONAGH HERLIHY
Senior VP and CIO, Avon Products
Colleges/degrees: Dublin Institute of Technology, BSc in engineering Leisure activities: Tennis, travel, reading Favorite president: John F. Kennedy: His family came from my home town area of Wexford in Ireland, and I grew up in an environment where he was deeply respected Best book read recently: The Big Short, by Michael Lewis If I werent a CIO, Id ... own a vineyard
financial support. I figured that Id How long at current company: complete it later but never did. Two and a half years Later in my career, I completed the executive program at the UniverCareer accomplishment Im most sity of Michigan, and realized how proud of: Developing three of my much I had missed by not comdirect reports at my last company, pleting my MBA earlier. Wrigley, so that they could become CIOs, one as my successor and the ON THE JOB Size of IT team: More than 1,000 other two at different companies. Most important career influencer: Ian Pepe, a former boss in the U.K. He ran IT at Lucas Industries, but he also understood the business operations and took the lead on a number of business issues. This posturean IT leader as both a business leader and a technology leaderhas impacted how I view my role and myself. Top initiatives: >> Customer Connect is series of technology-enabled solutions to capture customer data, track relationships between each customer and her Avon representative, and reattach customers whose reps have left to other suitable people.
program investment for us over the next three years. >> Were working on a number of programs to bring our direct selling model fully online to make it easier for our representatives to manage their businesses.
VISION
Advice for future CIOs: Work outside IT for at least three years in a function thats critical to revenue growth for your business. Become an expert in that area and become perceived as a business leader who happens to have tech expertise. Best way for CIOs to cope with the economic downturn: Find the growth levers for your business, and create relevant capabilities to enable growth. Moving from a primary focus on efficiency to a focus on growth is critical right now.
Jan. 17, 2011 6
Ranked No. 42 in the 2010
>> Todays customers and reps expect to place an order online and get it delivered at home within 24 Decision I wish I could do over: When I was 25, I dropped out of an hours. Our Service Model Transformation initiative addresses this exexecutive MBA program because my employer at the time halted its pectation, and it will be a major IT
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10 Bad Ideas For Oracle >> Cloud Results >> How To Fail In The Cloud >> Clouds True Costs >> Table Of Contents >>
Quicktakes
INTEGRATION AS DIFFERENTIATOR
Oracle Aims For SAP Financial Apps

Oracle talks a good game about the appeal of an optimized, all-Oracle stack. But the company also recognizes that we live in a predominantly heterogeneous IT world. Witness Oracle Financial Analytics for SAP, a new prebuilt application aimed at companies using financial apps from one of Oracles biggest rivals. The software joins a line of prebuilt analytic applications built on the vendors Oracle Business Intelligence Enterprise Edition (OBIEE) platform. Oracle Financial Analytics for SAP is based on a nearly identical existing app designed for Oracle softwareOracle E-Business Suite, PeopleSoft, and JD Edwards. The key difference is the data integration technology used; the app for SAP uses Oracles Data Integrator Enterprise Edition, while its other BI applications use Informatica software. In other respects, the SAP version delivers the same financial metrics, key performance indicators, and dashboards served up by the original Oracle Financial Analytics. Oracle could have simply added an SAP data integrator to its Financial Analytics App, but it apparently sees value in marketing a separate product to enterprises using SAP for financials. Oracle plans to eventually consolidate the Financial Analytics Apps into one product spanning Oracle, SAP, and perhaps other financial apps. SAP and Oracle want businesses to choose their respective BI platforms as the companywide standard. SAP had a head start; BusinessObjects was the top-selling BI vendor and boasted integration with leading enterprise apps before SAP acquired it in 2007. SAP BusinessObjects has a long list of integrations into Oracle products, including direct connections, and ETL-style data integration for PeopleSoft, JD Edwards, Siebel, and Oracle Enterprise. To deliver the kind of analysis provided by Oracles new prebuilt Financial Analytics, SAP can point to its own financial analytic apps and in-memory technology, as featured in the Business Warehouse Accelerator, SAP BusinessObjects Explorer, and new Hana appliance. But OBIEE now exploits Essbase, the popular
Oracles New App

>> PAYABLES Assess cash management, operational effectiveness >> RECEIVABLES Monitor days sales outstanding, cash cycles >> GENERAL LEDGER Manage nancial performance of locations, customers, products >> PROFITABILITY Identify most protable customers, products
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OLAP financial analysis engine acquired with Hyperion in 2007, plus techniques such as optimized caching to deliver speedy what-if analysis, says Paul Rodwick, VP of product management for Oracle BI. Teamed with Oracle Exadata, its integrated hardware-database appliance, OBIEE delivers performance, scalability, and speed-ofthought responsiveness, Rodwick says. Prebuilt apps, appliances, and playing well in heterogeneous environments are all essential to successno matter what anybody says about the vision (fantasy?) of single-vendor stacks in the enterprise. Doug Henschen (dhenschen@techweb.com)
Jan. 17, 2011 7
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Quicktakes
INTEGRATED MARKETING MANAGEMENT
QUICKFACT
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$525M What Teradata pays for Aprimo
Teradata Acquisition Signals New Focus For Analytics

Teradatas $525 million acquisition of Aprimo at the end of last year may well be a hint of where analytics is headed this year. Aprimo specializes in integrated marketing managementa fast-growing software segment some estimate to be as large as $5 billion. These products have management and analysis capabilities that cut across channels Web sites, call centers, direct mail, and, increasingly, social networks. They also work across the full life cycle of customer interactions, from e-mail and direct mail campaigns to long-term analysis of product satisfaction. Whats driving this heightened interest in marketing automation platforms? Its about more than improving marketing and sales. When companies use analytics to better understand their customers, the insight can change everything from product, manufacturing, and supply chain strategies to their approaches to distribution, retailing, and customer communications. Aprimo offers two software-as-a-service applications: Business to Consumer and Business to Business. It claims a customer base that includes more than 150,000 individual users and 36% of the Fortune 100, with Bank of America, U.K. utility E.ON, and Warner Bros. as notable examples. Marketing is frequently where Teradata gets in the door with customers, whether theyre in banking, telecommunications, or retail, according to Teradata CEO Mike Koehler. The companys data warehouse technology helps marketing departments get a grip on their data, using raw analytics, but it has lacked management and analysis capabilities akin to what Aprimo offers. Once the acquisition is completed, expected to happen in the first quarter, Teradata will be able to cross-sell and up-sell Aprimo services that might have otherwise gone to competitors. The acquisition follows IBMs $480 million purchase of Unica in August. Unica also specializes in cross-channel campaign management and measurement software, offered both on-premises and SaaS style. And just as IBM retained Unicas name for marketing purposes, Teradata plans to continue to use the Aprimo name for the marketing services. If the consolidation trend in integrated mar-
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Jan. 17, 2011 8
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keting management continues, two software companies that might be next are Marketo and Eloqua. Both companies offer SaaS-based marketing capabilities, and both have hundreds of customers. Oracle and SAP should take a look. Marketos client base is dominated by technology-focused companies, and its services are integrated and frequently paired with Salesforce.com. Eloquas customers include media and sports entertainment companies such as Comcast, the TD Garden arena in Boston, and the Miami Heat. Consolidation has redrawn lines of competition within the analytics community. SAS, for instance, is a leading provider of marketing analytics software, so the recent acquisitions by longtime partners IBM and Teradata cant sit too well there. IBM had already crossed several lines with its purchases of Cognos in BI, SPSS in analytics, and Coremetrics in online marketing analytics. But the Aprimo deal marks Teradatas first real move into analytic offerings that are independent of the data warehouse. SAS also expanded its market reach when it announced last year that it would introduce SAS-powered analytic appliances based on Hewlett-Packard hardwarea clear shot at Oracle, IBM, and Teradata. Look for continued acquisitions and steppedup competition in marketing analytics as the big vendors reach into each others pockets. Doug Henschen (dhenschen@techweb.com)
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CLOUD FIRST AT WORK
Treasury Moves Sites To Amazons EC2

In the latest milestone in government cloud computing use, the Department of Treasury will use Amazon.coms pay-as-you-go cloud computing infrastructure to host a revamped Web site for the agency, as well as migrate four existing sites to Amazons service. The move marks the first time a cabinet-level federal agency is using Amazons Elastic Compute Cloud to host a Web site. A team of vendors led by Smartronix worked with Microsoft and Amazon Web Services to redesign the Treasury site on a Microsoft SharePoint 2010 platform hosted on EC2. They also moved the agencys SIGTARP.gov, MyMoney.gov, TIGTA.gov, and IRSOversightBoard .treasury.gov to the Amazon cloud. Last year saw the federal governments first major cloud deployments, including migration of the Recovery.gov site, set up to monitor all federal agencies spending of economic stimulus funds, to EC2. In December, U.S. CIO Vivek Kundra laid down a cloud first policy for federal agencies as part of an IT reform implementation plan aimed at cutting costs and creating more efficient IT operations. The policy requires that all agencies move at least one system to a hosted environment within a year. NASA recently moved the daily activity-planning software for its Mars Rover to Amazons cloud, and the Army will use a cloud hosted by the Defense Information Systems Agency to consolidate its e-mail systems. The path to cloud computing hasnt always been smooth. The Department of Interiors plan to move 88,000 employees to Microsofts cloudbased e-mail service was recently blocked by a court injunction, after Google claimed the contract broke federal procurement rules and favored Microsoft in the departments rush to get a hosted e-mail and collaboration suite. Elizabeth Montalbano (iwletters@techweb.com)
Jan. 17, 2011 9
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EXECUTIVE SHAKE-UP
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[
and Oracle, and in part by SAP. The new tack will be Microsofts own version of the stack wars, in which Azure, fueled by the Dynamics ERP products and partners enterprise software and services, becomes the leading edge of an increasing focus on direct sales to the enterprise, writes Greenbaum. This wont obliterate the thousands of partners from the mix, but it will create a major shift in how Microsoft goes to market, particularly with respect to the large enterprise: much more direct and more in line with what IBM, SAP, and Oracle are able to do with their stack offerings. Greenbaums idea makes a great deal of sense. And if Ballmer is indeed taking Microsoft into the stack wars, then its going to need some alliesand I think its No. 1 wingman is going
Ballmer: Stack attack
Microsoft Says Goodbye, Mr. MugliaHello, HP?

In a striking move with huge implications, Microsoft CEO Steve Ballmer is jettisoning longtime senior executive Bob Muglia from atop the companys core enterprise products business. Saying changing times and opportunities require different talent and visions, Ballmer made clear that he believes Microsofts disjointed enterprise software strategy no longer meets the needs of forward-looking CIOs. One of the most intriguing interpretations Ive heard on thisfrom Josh Greenbaum, principal at software consultancy Enterprise Matterssays that Ballmer plans to recombine some of Microsofts disparate enterprise products and marketing into a more highly focused effort to match the broad and unified enterprise-stack approaches offered by IBM to be Hewlett-Packard. Exactly one year ago, Microsoft and HP, with significant fanfare, agreed to collaborate to the tune of $250 million in the joint development of enterprise technologies that the companies said would span from infrastructure to applications. I wouldnt be surprised to see a formal announcement of those big plans from HP and Microsoft very, very soonthis month, perhaps? That would work well for HP, too, given that its longtime strategic alliance with Oracle has for all practical purposes completely unraveled and left the door open for other big-time software partners such as Microsoft (and also SAP) to step in and fill the void left by Oracle. Bob Evans (bevans@techweb.com)
Click here for a longer version of this analysis.
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Jan. 17, 2011 10
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Avon CIO At Your Door >> How To Fail In The Cloud >> Clouds True Costs >> IT Spending: What Matters >> Table Of Contents >>
These companies are way past testing the cloud. Theyre looking to whats next. By Charles Babcock
loud computing, once an object of skepticism, even taunts, is taking center stage at a handful of companies. Theres InterContinental Hotels Group, which is building a private cloud environment to move its core CRM systems off mainframes and onto industry-standard equipment. Its using public cloud infrastructure for application development and testing, and also to host Web content closer to customers worldwide. And its evaluating moving key proprietary systems such as room reservation software into the cloud RehabCare Group, a 28-year-old provider of therapeutic services, is using hosted software and an unlikely devicethe Apple iPod Touchto make its field workforce of 11,000 physical therapists more effective. Then there are startups such as ServiceMax and NVoicePay that might not exist if not for cloud infrastructure, on which theyve built their businesses growth plans. Why are they moving to the cloud? Rarely because its considered cheaper. In
Jan. 17, 2011 11
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CLOUD COMPUTING RESULTS
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Outlook 2011 Report

Our Outlook 2011 report is available free for a limited time from InformationWeek Analytics. This report includes 28 pages of action-oriented analysis, including 18 charts from our survey of 552 business technology pros. What youll find: > Research on IT spending and why its looking up in 2011 > Data on data center investment, which is trending up > Analysis on ITs high skepticism about tablet computers
some cases, the cloud represents a faster, more flexible way to get a new system up and running. Oftentimes, its the ease of integration afforded by the cloud servers, using standard Web service practices, that lets a company launch a new mobile application faster or run a business process that cuts across many partners more efficiently. These companies understand the clouds shortcomings, whether its Amazons weak service-level agreements, Microsofts less-thancomplete Azure service, or their own companies inexperience with managing cloud resources. Nevertheless, as a group, they show the real-world potential of cloud computing. InterContinental: Cloud True Believers InterContinental Hotels Group, with more than 600,000 hotel rooms under seven brands, including Holiday Inn and InterContinental, laid the foundation in 2010 for greater use of software as a service, infrastructure as a ser-
What Share Of Your IT Services Will Be Delivered From The Cloud In 24 Months?
None; we hate the cloud 75% or more; IT is a four-letter word to us
10%
5% 13%
50% to 74%; if it can be outsourced, were looking to do it
1% to 9%; very limited usage
28% 17%
25% to 49%; our core business isnt IT, so were happy to use services
27%
10% to 24%; some tasks are better done by others
Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionals, October 2010
vice, and, ultimately, hybrid cloud computing that blends an in-house cloud data center with public cloud services from providers such as Amazon. We are massive believers in the cloud, all versions of it, says Bryson Koehler, senior VP of revenue and guest information. IHG uses Salesforce.com CRM. It conducts
much of its software development and testing on Amazon Web Services Elastic Compute Cloud infrastructure, letting developers access pay-as-you-go servers in minutes. Its in the process of moving its core room reservation system off a mainframe by rewriting it as a distributed Java system. That move will
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Jan. 17, 2011 12
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give it the option of running the system on third-party cloud infrastructure thats physically closer to travelers around the world, making the Web site more responsive. (IHG is the largest Western supplier of hotel rooms in China.) And its developing a private cloud in its own data center. That will let it run on industry-standard hardware, which means, among other advantages, IHG wont have to hunt for increasingly scarce mainframe talent. It runs branded Web sites such as HolidayInn.com from two vendors data centers Verizons in Washington, D.C., and Savvis in Santa Clara, Calif. The two highly virtualized data centers also run InterContinentals call center. InterContinentals on-premises systems still run the room reservation systems that feed information to the large aggregate travel sites, such as Travelocity and Expedia. The room look-up systems running at Savvis and Verizon are a hot/hot environment for each other, Koehler says, so theyre production servers capable of also acting as failover and disaster recovery sites for each other. The company speeds responses to inquiries by distributing the room lookup systems to Web sites in data centers 3,000 miles apart, so content can come from the facility closer to the
customer. IHG wants to extend this mode of operation, using cloud providers rather than building new data centers worldwide. IHG considers these highly virtualized Savvis and Verizon data centers cloud resources, but theres a key distinctionin reliability and guaranteesfrom standard pay-as-you-go resources such as Amazons. IHG has tested Amazon EC2s Singapore data center, to see if its faster to serve Chinese customers from there. (Koehler declined to disclose the result.) While IHG conducts much of its software testing and development in the Amazon cloud, it wouldnt yet be comfortable moving something like the reservation system, which generates 50 million to 60 million transactions a month, into EC2. An outage that led to an hour of downtime would bring revenue losses in the millions of dollars, but Amazons SLA offers only credit toward more hours of computing on EC2, not penalties tied to lost business. We view infrastructure as a service as a besteffort business model, says Koehler. For the dot-com startup, its fine. But for a company like ours, we need to know a heck of a lot more about how its being operated. Nevertheless, IHG expects the cloud to keep improving, and its building its next-generation data center capacity in a way thatll make
it possible to connect to Amazon or a similar public cloud for additional capacity. IHG is building a private cloud it calls Camelot, using an Hewlett-Packard BladeSys-
We encouraged them to put their personal stuff on the [company iPod Touch]. We believe theyll take better care of the device if they do. DICK ESCUE, REHABCARE CIO
tem Chassis and VMware virtual machines and management tools. IHGs loyalty program, its analysis of current guest activity information and historical records, and its system for pushing out promotions suited to individual guests run on Camelot. Also slated for Camelot is IHGs core revenue management and room yield system that determines room rates. All of those systems involve highly proprietary information that IHG isnt willing to risk in the public cloud at this stage. But Koehler says he can see executing PCI-compliant credit and debit card transactions one day soon in the public cloud. (Amazon recently said EC2 is capable of PCI-compliant transactions.) And all the private cloud workloads are designed so
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that they could be shipped over to Amazons infrastructure as a service. IHGs private cloud is built with Eucalyptus Systems software as well as VMware. Eucalyptus supplies open source APIs compatible with EC2, so an internal call for a VM server or cloud storage wont need to be changed if IHG deploys the same application in Amazonor if it mixes private cloud and external clouds. We are educating ourselves to become experts in this space, Koehler says. Although IHG is using at least three cloud delivery methodsSaaS, infrastructure as a service, and a private cloudKoehlers well aware of the shortcomings of each. While its satisfied with Salesforces cloud-based CRM, Koehler expressed skepticism that Salesforce could be more than a specialized application provider. From his point of view, the companys Force.com platform makes some sense for developers, but hes not convinced it will work for large, ongoing loads on the platform. The ROI doesnt pencil for me, he says. In terms of online infrastructure, so far the cloud isnt a big cost saver, though Koehler thinks the economies of scale will make it cheaper over the long haul. Today, the savings come in other ways, he says, such as improved flexibility and the ability to deliver a more tailored experience to end users. And there are his doubts about public cloud SLAs.
IHGs own private cloud needs work as well, to become more responsive. The development teams have been happy with it, Koehler says, but the big challenge has been providing the right management user interface to it so developers can feel they get the same speed as [directly using] EC2. EC2 can give developers access to a VM in minutes; internally, there are hoops to jump through that make it take much longer. With us, theres the matter of crosscharging: Who do I bill this usage to? What approvals do I need so the financial reconciliation is right? Koehler says. We still have a lot of issues related to paperwork to fix. RehabCare: Going Mobile RehabCare Group, founded in 1982, has grown to be the third largest supplier of acute care rehabilitation services in the U.S. Its staff includes 11,000 physical, occupational, and workplace therapists providing services to patients in 1,270 care facilities in 42 states. With such a distributed workforce, it struggled to provide a reliable system for capturing the details of treatmentssuch as the therapies used and the time they tookto supply the necessary reports and claims to health care insurers. The evolution of enduser devices alongside cloud-based software turned RehabCares traditional business into one where ITs now at the heart of its services. It started out in 2000 trying to run an individual therapists simple time and
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treatment app on a Palm Pilot, with data uploaded via PCs in local hospitals to central servers. The upload step was cumbersome, and lines of therapists would often form around the PCs at the end of the day. Its now running its own custom-built software on the iPod Touch, which it delivers through Apples App Store. It syncs data using servers and software provided by a thirdparty vendor, Casamba, with which it co-developed the software. RehabCare CIO Dick Escue remembers when he first pushed the idea of bringing Apple devices into the company, and how that thinking helped forged an alliance with CEO John Short. It turned our CEO into a mad man, Escue recalls, laughing. He said, Now we can put a computer into the hands of every employee. This is how we create stickiness to the therapist so he never, never leaves you. Over the past four years, RehabCare has equipped each of 7,000 therapists with a $300 iPod Touch, to run an application called Point of Care that captures the time spent on a treatment, which it periodically uploads to servers run by Casamba. A therapist pushes the applications start button as a patient session begins and a stop button at the end; the time and rate of billing is captured in a stan-
Cloud Cautions
WATCH OUT FOR THESE AREAS, CLOUD VETERANS SAY
1. Data Security Infrastructure-as-aservice users very often keep some of their datathe most sensitive, the most regulatedout of the cloud and in their own data centers. 2. Performance Cloud computing, from
infrastructure to software, has a pretty strong track record. What it doesnt have is a lot of guarantees that share the risk of an outage. Credit for free service doesnt help if you lost millions in revenue.
3. Complexity Youre developing on a

cloud platform, allowing online mobile OS updates, and integrating with a third SaaS service. Dont underestimate the management and governance required.
4. Mobile Devices IT sees the opportunity in getting software out to mobile devices. But which devices? Users expect native apps, not browser-based SaaS, so picking the right device is a high-stakes call.
dard report for loading into any claims that are prepared. The app also captures details of the therapy, such as medicines and equipment used, along with related billings.
Beyond the 7,000 iPod Touch users, 800 therapists use the same Point of Care software on the iPhone, since theyre more mobile and need cellular connections; and another 140 therapists use the iPad, because they need the larger screen to read documents or take notes. Capturing billing details on a standard claims form is a time and money saver. Modules in the application now handle patient scheduling and capture a therapists notes written during a treatment. This approach has eliminated the daily crunch where multiple therapists tried to finish their workday by filling out reports on their facilities limited number of PCs. Escue also sees anecdotal evidence of another gain: fewer rejected claims, because the application consistently captures treatment data as care is being administered. RehabCare also gives therapists Googles cloud-based e-mail and productivity suite, Google Apps, for which it pays $50 a year per user, instead of buying Microsoft Office. The Apple devices were easy enough to use that the transition from Palms went quickly. Far from shunning the consumer aspects of the iPod Touch and iPhone, we encouraged them to put their personal stuff on the device, Escue says. We believe theyll take
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better care of the device if they do. As RehabCare looks to expand its mobile software, cloud-based development platforms are at the centerin particular, Salesforces Force.com platform. RehabCare is working on a pre-admission screening application that should require less paperwork to add a new patient. The application will have an iTouch/iPhone front end written in Objective C capable of running on the Apple de-
vices, and a Force.com back end to manage data capture and manipulation. Recognizing Apples growing importance in business IT, Salesforce added a software development kit last summer that lets applications be developed in Objective C, using an object wrapper to issue SOAP calls to Force.com. Bottom line: Applications that run on Apples iOS can be hosted by Force.com. RehabCare thinks it will be able to let therapists use other smartphones eventually as well. RehabCares also planning to use Force.com for a new Apple device application to let therapists collect information on how a patient was referred. Referrals are the most important feeder to all the other services that RehabCare provides, and Escue wants to know why some healthcare providers are consistent referrers and others are intermittent or nonreferrers. Relying on a cloud provider can have its setbacks, Escue admits, whether the servers are in a Casamba, Salesforce, or even Apple data center. Recently, an update to iOS disabled the clock that RehabCares software used to record treatment times. Wed tell people, dont take that update yet, Escue says. Some download it anyway. Likewise, RehabCare may want to add functionality to its custom
client app that Casamba isnt ready to support in its server-side software. Cloud-based software as a service promised to remove complexity, letting the SaaS provider take care of all the maintenance. But the software many companies, like RehabCare, want to use is too specialized to be delivered as one-size-fits-all SaaS. RehabCare shows how companies are blending the model, using pure SaaS such as Google Apps where it fits, but also using cloud-based platforms like Force.com for custom development. This approach adds some complexity for the IT organization, Escue says, as software changes now involve more external parties and more coordination. Yet when Escue thinks back on the decision to give every therapist an iPod Touch, with cloud-connected software fine-tuned to their jobs, he sees it as the beginning of a fundamental change at RehabCarewhere IT, instead of continuing as a supplier of traditional data center services, became an agent to grow the business, he says. Startups: ServiceMax And NVoicePay Unlike established companies such as InterContinental and RehabCare that add cloud computing onto their businesses, startups
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are built on it. Startups ServiceMax (on Force.com) and NVoicePay (on Microsoft Azure) rely on the cloud as their primary architecture, while running as little of their own data center infrastructure as possible. NVoicePay wants to help small businesses automate invoice payment, something thats still a paper check process at many small companies. It looks a bit like an individuals online bill payment from a bank, though with links to the accounts receivable system in QuickBooks and Great Plains accounting software, and integration with other software for tracking which vendors accept electronic payment. When an NVoicePay customer pays a vendor, the actual transaction, by credit card or direct funds transfer, is executed in a small data center run by NVoicePay. Those in-house servers store customer information and execute the actual transaction between businesses. NVoicePay says that approach keeps transactions PCI-compliant, because it never puts customer identity and other sensitive information into a cloud infrastructure. But it relies on the Microsoft SQL Azure cloud platform for the rest of its computing horsepower, such as notifying parties of payments and updating their customers accounting systems.
NVoicePay uses the Azure cloud as an accounting hub that handles only an encoded version of the customers identity, so even if the information were to be intercepted, the
We view infrastructure as a service as a best-effort business model. For the dot-com startup, its fine.BRYSON KOEHLER, IHG SENIOR VP
customer couldnt be identified. It also uses Azure to do accounting updates through the synchronized database services that Azures AppFabric service bus supports. To get started, NVoicePay is targeting auto dealerships. NVoicePay is certified to work with the ADP dealership management software, which is used by 25,000 dealers. The NVoicePay system eliminates the need for a costly integration of a local accounting system with an electronic payments system, an expense that most small and midsize businesses have avoided, sticking to their checkbooks. CTO Shaun McAravey predicts NVoicePay will be handling $250 million in annual invoice payments by the end of this year. To
grow, NVoicePay needs to develop payment apps tuned to more industries. Using cloud infrastructure lets McAravey and his team focus on development rather than infrastructure. I dont want to manage servers, he says. I want to build a whole class of payment applications [for different vertical markets] and push them out into the cloud. That approach has its limits, given the immaturity of cloud platforms. McAravey says hes administering NVoicePays virtual machines in the cloud as if they were a part of the companys own data center, but the database services in the cloud still lack some of the reporting capabilities that he has on premises. Also, he thinks NVoicePay must, for compliance reasons, keep sensitive client information on the companys own servers. Still, he doesnt worry about the reliability or availability of the virtual cloud servers NVoicePay does use, relying on that cloud infrastructure for uptime and low capital costs. Were an always-on hub for payments, McAravey says. The future of ServiceMax, a startup that provides SaaS for managing field technicians, faces a different challenge. Its survival could hinge on how well it adapts to new devices, particularly tablet computers. CEO David Yarnold sees tablets as ideal for its cusJan. 17, 2011 17
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tomerstechnicians who work on anything from a hospitals ultrasound device to a supermarkets refrigeration systems. The venture-backed companys SaaS manages tasks such as scheduling appointments, documenting work orders, building the parts lists needed for a job, and recording time spent on a visit. Its first iteration runs on Force.com (and integrates with Salesforce CRM) and is geared for laptops and smartphones, mostly the BlackBerry. But laptops are bulky and slow to boot up, while smartphone screens are too small for documents. With the iPad, Yarnold sees field staff instantly booting up to get easy-to-read documentation with detailed steps on a repair, perhaps even with video illustrating it. An iPad app is a front end that lets a user access ServiceMaxs cloud-based functionality. ServiceMax customers are just beginning to consider tablets; the company cites a food processing company and security systems provider as two early adopters. The iPad offers a controlled mechanism to distribute and update software through the Apple App Store, but emerging tablet computers are likely to run Android or some other operating system. That means ServiceMax IT may need to offer its own remote distribution and management
mechanisms if the companys users adopt such devices. If Android keeps surging in popularity, Salesforce may add support for it to Force.com. Field service is a profession waiting for better mobile support, and the iPad, while not designed as a field service tool, shows promise (though durability could prove a problem). For ServiceMax, Yarnolds betting that tablets will bring wider acceptance of his firms services. Were excited by how quickly its moving to the business audience, he says. Todays early cloud adopters are finding an always-on utility that lets them concentrate on core business development, while the clouds scale-out capabilities let them reach more customers over the Web. Having established a host in the cloud, companies are sometimes finding it easier to integrate partners into that cloud rather than their own onpremises systems. At the same time, major problems remain unresolved. How do you coordinate database services that are on premises and in the cloud? Nearly all cloud users find they still need on-premises systems, particularly for sensitive information. Also, given the rapid evolution of consumer devices, how do you know which one, and which operating sys-
tem, to adopt as part of your long-term platform? The cloud hasnt made us device agnostic, and making the wrong choice could prove expensive. Will the cloud really be a secure computing environment, as Amazon and others predict? The trust boundary between a customer and the cloud supplier is certainly in motion, but where, exactly, has it landed? This year will bring PCI-compliant credit card transactions to the cloud, providing a symbol, at least, of the clouds improved security. Yet providers such as Amazon, Microsoft, and Salesforce still havent satisfied would-be enterprise customers when it comes to running betthe-business production systems and data in the cloud. Cloud computing is being driven on many fronts simultaneously. Theres the power of the hosts in the Internet data center, and the power of the device in the end users hands, which is begging to be filled with online content. Creative businesses will find ways to harness that power for competitive advantage. IT leaders may offer the cloud their benign neglect, if they choose, but theyll wake up one day to a changed world. Write to Charles Babcock at cbabcock@techweb.com.
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Oracle Goes After SAP Users >> Cloud Results >> Clouds True Costs >> IT Spending: What Matters >> Table Of Contents >>
Ways
Become an InformationWeek Analytics subscriber and get our full report on the cloud in 2011. This report includes 37 pages of action-oriented analysis, packed with 17 charts. What youll find: > 7 areas that must be included in your cloud-usage policy > Special section on calculating cloud ROI, including a customizable worksheet
6
To
Our latest survey shows double-digit increases in cloud adoption. But ignore integration, management and monitoring at your peril.
By Michael Healey
Fail
ur 2011 InformationWeek Analytics State of Cloud Computing Survey shows a 67% increase in the number of companies using cloud services, up from 18% in February 2009 and 30% in October 2010. IT now has a choice: Grab ownership of whats poised to be a core part of the enterprise technology toolset, or shortchange key functions and set ourselves up for disaster. This shouldnt be a hard call, yet over and over we see CIOs underfund or ignore six major areas: integration, security, connectivity, monitoring, continuity planning, and long-term staffing. Only 29% of companies using or planning to use the cloud have evaluated its impact on their architectures. Just 20% implement monitoring of applications and throughput; 40% dont have any monitoring in place. Talk about blind trust. Theres a misperception that its smaller companies driving the cloud usage upswing. But dont write off management shortfalls as an SMB problem; we saw almost the same rates of use and planned use regardless of company size, once we delved into the data. There are now viable cloud options for almost every layer of the technology stackfrom raw computing, storage,
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databases, and utilities to e-mail to the spectrum of enterprise applications, all with a point, click, go functionality that has maverick business units everywhere rejoicing. Ignore management at your peril. Integration: New Twists Cloud vendors Boomi, Cast Iron, and Jitterbit are focused solely on offering integration services for less money and in less time, and theyre shaking up established firms like Informatica and Oracle-SAP as well as EDI players like Ariba, Hubspan, and Sterling Commerce. Boomi and Cast Iron have been acquired by Dell and IBM, respectively. Both buyers cited the benefits of offering streamlined integration connections across the enterprise. Earlier last year, IBM, acknowledging gaps in its cloud integration, also bought Sterling, one of the larger EDI players. This is a new twist to interoperability that is available only within the cloud. Previously,
What Are Your Companys Plans For Cloud Computing?

2010 2009
Receiving services today from a cloud provider
18%
Planning to use services from a cloud provider within the next 12 months
30%
9%
Considering using services from a cloud provider
13%
24% 25% 33% 48%
No plans to use services from a cloud provider
Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionals in October 2010 and 547 in February 2009
there just wasnt scale to build multitenant integration services. But now, integration ser vices have become clouds themselvesmiddleware as a service, if you will. The more options and connections they have, the more competitive they become and the more monthly subscriptions they get. Will they make it? Yes. Theres a fortune in margins in
integration, especially if you have scale, and the financial performance of these vendors is impressive. Security: Safety First We wont be involving our security team in this project until the last possible moment, because the answer will be no. That
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from a VP at one of the largest retailers in the world. Hes evaluating a cloud-centric initiative that could dramatically improve the companys operations and went on to say that bringing the CISO in without building
the entire plan beforehand is a death knell for any project. Think this isnt going on in your shop? Keep sipping the happy juice. This VP guaranteed that end runs are standard practice among
What Are Your Top Concerns Related To Cloud Services?

2010 2009
Security defects in the technology itself
53% 50% 49% 47% 32% 32% 28% 30% 22% 26%
57%
Unauthorized access to or leak of our proprietary information
53%
Unauthorized access to or leak of our customers information
Application and system performance
Business viability of provider; risk company will fail
Business continuity and disaster recovery readiness of provider
Vendor lock-in
17%
Features and general maturity of technology
23%
17% 19%
Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionals in October 2010 and 547
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his peers. And the standard mantra of its against compliance rules wont only make you seem out of touchyou may well be wrong. PCI 2.0, the rules that govern the security of credit and debit card data, was just released and has little specific guidance for cloud computing per se, but it does lay out clearer rules relating to off-premises transactions. In addition, Amazon recently announced that its Elastic Compute Cloud is certified for conducting Level 1 transactions; the company will begin offering that service this year. The next official PCI standard will likely have in-depth rules for cloud computing, but it wont be released until 2013. Security teams take note: Theres a new set of guidelines, and a major cloud vendor has a platform certified for some level of transactions that are subject to PCI rules. If you think saying Wait until 2013 is a good move for your business, consider polishing up your resum. The better answer is providing forwardthinking security and connectivity guidelines that people outside IT can understand and use. Make sure your guide covers all the policies youve established and explains the outside compliance areas youre forced to adhere to. We discuss the seven key areas
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that must be included in a cloud policy in our full Analytics Report. Connectivity: The Right Connections Just 29% of those using or planning to use a cloud service have scoped out the architectural impact on their Internet infrastructures. You should be running these numbers before engaging any cloud provider. Its the biggest miss we see, says Tom Elowson, president of virtualization cloud
provider Acxess. We have the bandwidth conversation with potential clients every day. If they havent analyzed their existing usage and started to calculate the potential impact, we usually push back. Start with the outbound volume to reach the resource, and take into account back-end traffic to update data. Bandwidth calculations also need to factor in data and user growth over a five-year period, same as ROI calculations. Get solid trending stats on usage and volume over the course of several weeks. If you dont, you could be looking at a major fumble. Monitoring: Watch And Learn Thirty-nine percent of poll respondents say they dont monitor their cloud vendors, while an additional 40% rely on basic up/down tools that are no better than a periodic ping. The latter groups sole advantage is theyll have a 30-second warning before the complaints start rolling in. How to stay on track? First, invest in data flow monitoring internally. Less than 15% of respondents have systems in place that monitor application and transactional throughput. Basic status alerting is nice, but you need to be watching your network data flows and have established performance levels for every
application before you add an external cloud. Once your house is in order, connect with your bandwidth provider and establish ground rules around monitoring of traffic, your lines, and how you share data. Set up remote monitoring points outside of your main office. Assemble a set of cloud-based monitoring tools. Yes, a cloud app to watch your cloud apps. Go beyond the basic utilities that Amazon, GoGrid, Google, and others provide to add overall monitoring of all Internet traffic. Continuity: Get Backup All companies ask their cloud vendors, Do you back up our data? The answer is always some variant of yes. However, the majority of cloud designs focus on backup and point-intime failovernot archiving. Always establish a cloud service backup and archiving schedule the same way you would for any internal resource. Start with your current vendor. Many, like CommVault and Symantec, are working to establish options for extending internal backup and archiving systems to manage cloud-based data. All systems have outages, whether theyre in house or in the cloud. Focus on what vendors will agree to in their service-level agreements vs. what your internal teams will commit to for
Jan. 17, 2011 22
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their in-house SLAs. The five-nines mantra (99.999%) that dominates discussion among Tier 1 data vendors simply isnt heard in the cloud. At best, your uptime will be between 99.9% and 99.95%. Decide: What is the plan for the business if theres an outage? When do you implement the failover plan? Who makes the call? These are all familiar themes to business continuity pros, but with an external twist. Software as a service should have, at minimum, manual processes documented for users. In the case of a CRM or project management application, you may want a separate cloud or in-house system that could be activated in the event of a major failure. For high-volume services, such as e-mail or EDI transactions, design a system that not only queues ongoing transactions for short outages but has the ability to fail over completely. These arent small projects; plan to devote engineering time and funding. Staffing: Build Your Bench IT as a profession is at a turning point. While the cloud may be hot, there hasnt been a boom in hiring by these vendors, according to the most recent U.S. Department of Labor stats. Cloud and related hosting services companies have had flat job growth for the past year. Blame economies of scale. But just because the
Clouds Impact On Internet-Facing Architecture

Have you examined the potential impact of a cloud service on your Internet-facing architecture?
Yes Dont know
29% 8%
No, and we have no plans to do so
6%
Not yet, but we will before adopting any new services
27%
30%
Not yet, but we plan to
Data: InformationWeek Analytics 2011 State of Cloud Computing Survey of 408 business technology professionals using, planning to use, or considering cloud computing services, October 2010
quantity of jobs is down doesnt mean youll easily find IT pros who can deftly manage vendor relationships, not just technology platforms. Our 2010 State of Outsourcing Survey showed that nearly six of 10 IT shops outsource some critical functionmanagement, engineering, or development. So you can see the staffing challenge CIOs face. This is a major gap that wont necessarily go away through market forces attracting additional talent to meet your needs. You need to start building your own talent bench.
Get ready for a wild ride. Capital expenditures used to provide a brake, regulating the pace of internal service adoption. Thats come off with the cloud, so IT teams need to build new policies and platform models that will protect the company as business activity gets rolling. Thats because, once cloud apps become part of the fabric, therell be no slowing down to make adjustments. Michael Healey is president of consulting firm Yeoman Technologies. Write to us at iwletters@techweb.com.
Jan. 17, 2011 23
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Avon CIO At Your Door >> Cloud Results >> How To Fail In The Cloud >> IT Spending: What Matters >> Table Of Contents >>
An incomplete financial analysis will end up biting you. Heres how to calculate the real costs of cloud vs. in-house services. By Michael Healy
Beyond CYA as a Service

Become an InformationWeek Analytics subscriber and get our full Cloud ROI report plus our customizable worksheet. Our ROI report includes 34 pages of action-oriented analysis, packed with 20 charts. What youll find: > Role of ROI in cloud decisions > Methods to quantify risk in an ROI analysis process > The art of capacity planning
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he cloud computing hype machine is in full throttle. Even some rational CIOs we talk with predict that 20% of companies wont own their IT systems in five years. From their perspective, what better way to get off the hook for high capital costs and poor system performance than to outsource? Its the ultimate in blame avoidance. Were not buying that rapid change rate, but two things are clear from our annual InformationWeek Analytics State of Cloud Computing Survey and from the targeted Cloud ROI Survey we fielded in April. First, the movement toward adopting some level of cloud services is close to achieving critical mass. Second, there are gaps in how were architecting, budgeting for, and engineering the services we buy. Think your company isnt jumping in blindly? Dont be so sure. Forty-three percent of our 607 respondents are either using or plan to use some type of cloud service within 12 months. Thats up from 27% in our last survey. However, 71% say they have no idea whether that cheap cloud service will end up costing a fortune. Theyre making cloud decisions in a vacuum, bypassing the review that would, as
Jan. 17, 2011 24
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a matter of course, happen for an internal IT initiative. Yes, were talking about the checklist gauntlet: How much does it cost up front? How much to maintain? How does it connect? How do we monitor it? How do we back it up? How do we secure it? How does it impact everything else? What do we do if it goes down? The driving factor for many cloud decisions is cash flow, says Jeff Solomon, head of the emerging technology group at CPA firm Levine, Katz, and Solomon. For many industries, the capital limitations are so dire theyre willing to move to the cloud based on a cash flow comparison alone. They simply arent doing a proper ROI analysis. The up-front cost differences between cloud and in-house are so dramatic on rudimentary analysis that businesses are lulled into feeling savings are inevitable; its the truthiness factor, if you will. As we discuss in more depth in our full 2011 State of Cloud Computing report, its not that we dont like the cloud; in many cases, providers can deliver a superior-quality service for less money. That said, you dont have to look back too far to see an example of how poor financial justifications hamper long-term initiatives. A case in point is virtualization. The 2006 pitches to CFOs were based on a pure hardware vs. virtual platform analysis and left out the cost of staff retraining and systems management software. And lets be honest: Those omissions werent just be-
cause neither area was fully developed yet. Including them would have weakened the savings argument. Flash forward to 2011, and many companies are struggling to manage complex mixed physical and virtual data centers because they lack the funds to get the management tools and staff training they need. Integrating cloud services into your enterprise has an even more knotty set of challenges. Simply comparing the recurring monthly operating expenditures vs. capital expenditures with some net present value thrown in for good measure will bite you in the long run. Crunch The Numbers Before approving a plan to run any IT service in the cloud, there are 11 areas where you need to calculate costs. We delve into those more in our customizable spreadsheet, but start with a five-year baseline of comparison. Yes, this may seem like a long time frameespecially when considering hardware costsbut we think its fair. Not only does it give a more accurate representation of the true average life of hardware and software, but it also forces you to address longer-term investments in bandwidth, monitoring, and failover. Every comparison needs to include the following: > Hardware: Include router or WAN appliance upgrades vs. server or storage hardware purchases. > Software: Not usually a factor on the cloud side of the ledger, but internally, include upgrade costs.
Jan. 17, 2011 25
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> Recurring licensing and maintenance: Typically monthly for cloud, yearly internally. > Bandwidth: In the cloud column, assess a portion of your current Internet charges plus planned upgrades. > Staffing allocation: Even cloud-centric shops require some staff for ongoing administration and engineering. Its likely to be a rough estimation, but include operations and application development allocations. > Monitoring: In-house apps typically get a no-additional-chargeback status, if youve invested in enterprise monitoring. Cloud initiatives probably will require an expansion of your monitoring system, most likely adding Web triggers or purchasing a third-party cloud app. > Backup and archiving: A major miss for manyyou need a plan for backing up and archiving data stored in the cloud. This may end up being an additional cloud provider for storage, but it needs to be included. > Failover and redundancy: Your business continuity plan should have an allocation formula for various systems. If the service becomes unavailable, what is your alternative? Figure it out and budget for it. Period. > Security audit and compliance: Budget time and resources for adding the cloud initiative to the compliance officers stack of au-
What Top Factors Are Likely To Be In Your Cloud Computing ROI Study?
Initial capital expenses or savings Future capital expenses or savings Operational expenses for lifetime of project Reduced or increased staffing requirements Time savings for business unit employees or IT staff
71% 64% 63% 56% 49%
Data: InformationWeek Analytics Cloud ROI Survey of 256 business technology professionals at companies likely to evaluate cloud computing ROI, April 2010
ditable items. Make no mistake: Sensitive data in the cloud is still your responsibility. > Integration: This is especially critical for software-as-a-service and core database initiatives. Calculate development, maintenance, and licensing as separate line items. > Training: Yes, you need to factor in training, regardless of whether youre adding software, infrastructure, or platform as a service. The claim that a service is self-explanatory is almost always bogus. Finally, we suggest you add one other factor into the equation: speed to implementation. Whats it worth to be able to add and integrate a project management system in 120 days, not 220? Is there a competitive value you can place on off-loading batch processing jobs to
the cloud in three weeks? Chances are youll end up with an arbitrary number, but the exercise forces the businessnot ITto place a dollar value on speed. Even if your five-year numbers favor in-house, you may still opt for the cloud due to cash flow constraints. But at least youll have the longerterm costs laid out for the CFO. Even if cash flow isnt an issue, theres still a benefit: licensing discounts from cloud vendors of up to 30% for paying on an annual basis. The entire tech industry is transitioning to or adding a cloud-based revenue model, says Solomon, from Levine, Katz, and Solomon. They need cash, too. Michael Healey is president of consulting firm Yeoman Technologies. Write to us at iwletters@techweb.com.
Jan. 17, 2011 26
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IT Spending Going Up, But Is It Headed In The Right Direction?
Based on conventional metrics, the tech economy is poised to continue its recovery in 2011. Researchers predict strong single-digit growth in IT spending, and the financial markets appear more receptive to initial public offerings of technology companies. Tech venture capital spending is also trending upward. But the true measure of enterprise IT vitality will be whether CIOs get brutally serious about rebalancing their spending mix, devoting a larger percentage of their budgets to areas of high business growth and innovation and a smaller percentage to ongoing operations and maintenance. Without that strategic reprioritization of IT spending, the additional budget dollars will go only so far. Our InformationWeek Analytics Outlook Survey of 552 IT pros finds that 55% of respondents say their companies will increase IT spending this year, while only 19% plan to cut it and 26% plan to keep it flat. Overall, IT spending will increase 7.5% in the U.S. this year, 7.1% globally, Forrester Research predicts. Meantime, 87% of investment bank executives surveyed by BDO USA, an accounting and consulting firm, predict an increase in the number of tech IPOs in 2011. In fact, of all the sectors those execs follow, theyre most bullish on information technology. And while the latest MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association noted that third-quarter 2010 VC spending dipped in most tech sectors compared with the second quarter, VC spending was up in software, semiconductors, and IT services compared with the 2009 third quarter. (The fourth-quarter MoneyTree report is due later this week. ) Despite all those uplifting numbers, theres reason for pause. Our Outlook survey indicates that IT organizations remain way too tactical. Less than 10% of survey respondents say their organizations excel at driving innovation or revenue growth, and only 20% see themselves as a business driver. Respondents say theyre better at providing high-quality systems and services and running efficient operations. Theres another name for that kind of proficiency: cost center. IT spending skewed toward operations and maintenance is the business equivalent of empty calories.
from the editor

ROB PRESTON
Most CIOs who have had success reversing their 80/20 or 70/30 legacy/innovation spending mix have shaken funds free with big data center and application consolidation programs. The goal of one of them, Hewlett-Packard CIO Randy Mott, is to spend only 20% of his IT staffs time on operations and maintenance and 80% on growth initiativesflipping the old 80/20 rule on its ear. The first step, he says, is for IT organizations to document what their people work on, not what theyre assigned toweek to week, project by project. If you dont have good information on what people are doing, I dont know how you make decisions to take an organization in a new direction, he told my colleague Chris Murphy two years ago, when HP was completing its IT overhaul. Its long past time for this to be just a rallying point for consultants. Every CIO, in concert with their CEOs and CFOs, must be moving to restructure their IT spending mix, setting explicit timelines and goals. Rob Preston is VP and editor in chief of InformationWeek. You can write to Rob at rpreston@techweb.com.
Jan. 17, 2011 27
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