Technology & Entrepreneurs                                                                

Cloud Computing: Business and Policy Issues

by Raymond J. Keating

Cloud computing is a growth trend in the high-tech arena, and serves as another choice for small businesses in terms of how they handle data and use software applications.

The Business Software Alliance recently published a handy report titled "Cloud Computing and the Software Industry."

Following are some key points worth highlighting from the report:

• "Cloud computing encompasses several related trends in information technology: Off-premises data centers offering computing services on an industrial scale; ‘Software as a service' (SaaS) delivered to customers via the Internet on an as-needed basis; and Broadband networks connecting a growing number of devices to these services, often wirelessly."

• "Companies that have built large ‘server farms' to offer these services include Microsoft, Amazon, Google, and Yahoo. Such facilities tend to be located where land, electricity, cooling, and labor are less expensive, and they may be located across national borders. Other technical trends driving the adoption of cloud computing include the spread of affordable, high-capacity broadband networks (cable, fiber-optic, satellite, and wireless), and the development of more powerful, low-cost computer processing chips. The combination of these two factors allows a growing number of devices - such as laptops, ‘netbooks,' mobile phones, specialized handhelds, smart meters and appliances - to be embedded with more intelligent, portable, and ‘connected' capabilities."

• "The size of a given organization is one factor. According to a 2008 McKinsey & SandHill Enterprise Software Customer Survey, small companies are most interested in the convenience and cost savings of subscription-based and on-demand applications, while large companies are more interested in on-premise applications and managed hosting."

• "The types of applications and data being handled are another factor. Because cloud computing depends on Internet access -- which may suffer from latency and outages -- applications that are graphics-intensive, require large data flows, or handle business- critical functions are likely to stay on the premises. Also, organizations that handle sensitive data, such as financial and health care services, may face heightened legal and regulatory risks to the extent they transmit such data across various networks and store it with unrelated entities."

• "IDC estimates that of the approximately $383 billion spent in five major IT segments in 2008, $16.2 billion - or just 4% - was consumed as cloud services. From 2009 to 2012, IDC expects spending on cloud services to grow almost threefold to $42.2 billion. This level of spending will still be just 8.5 percent of all worldwide IT spending of $493.7 billion."

So, while not for everyone and still a relatively small share of IT spending, cloud computing is a viable and rapidly growing choice for many businesses and individuals.

The BSA's report touched on some policy issues and implications as well.

For example, it was noted: "The availability of reliable, inexpensive broadband service is another factor affecting the adoption of cloud computing. Government policies to accelerate broadband investment may play an important role in the uptake of cloud computing."

That raises questions about regulatory policies - such as net neutrality - that would discourage investment and innovation in broadband networks.

And regarding government's IT spending, BSA noted: "In procuring IT products and services, the governments' goal should be to acquire the best tools for the job, based on objective criteria such as performance, security, interoperability, and total cost to users. Citizens' interests are ill-served when governments impose rigid mandates on or give preferences to certain technologies over others."

Indeed, it would be wise for governments at the federal, state and local levels to avoid specific mandates, and instead figure out what best fits their specific needs, leaving private market players free to compete, innovate and come up with the best products and services.

Finally, as noted in the BSA report, there could be piracy implications in terms of cloud computing: "Under the cloud computing model, users' gain access to software through an Internet browser, and the software itself resides on the application providers' servers. This raises a number of questions: • Will software be less vulnerable to piracy if it resides on centralized servers, making copying more difficult? • Does cloud computing raise concerns about online theft of services? • Which are the relevant legal theories, e.g., copyright, breach of contract?"

As with any other market, whatever business and industry models develop, the government needs to provide a foundation of protecting property rights and/or enforcing contracts upon which the private sector can build. When government performs those basic duties - as Economics 101 and history show - markets, invention, innovation and growth flourish.

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Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council.