The Economics Of Cloud Computing

Published Date: 02 Nov 2017

Introduction

The objective of this assignment is to present the relevance and an evaluation of Business Intelligence and cloud computing to Small Medium Enterprise (SMEs). Business intelligence (BI) refers to skills, processes, technologies, applications and practices used to support decision making. BI technologies provide historical, current, and predictive views of business operations. Common functions of Business Intelligence technologies are reporting, OLAP (Online analytical processing), analytics, data mining, text mining, predictive analytics, business performance management and benchmarking [1]. In cloud computing, applications are hosted on remote servers and software and services are delivered via the Internet. The deployment of software and applications in a cloud can be implemented on demand and is available in three models, Software as a service, Infrastructure as a service and Platform as a service. By migrating your services, infrastructure or platform to the cloud, SMEs will reduce barriers to entry in new markets and accelerate growth and expansion of businesses because they virtually own IT infrastructure.

Business Intelligence and Cloud Computing

The goal of Business Intelligence (BI) is to provide the enterprise with a repository of "trusted" data – data that can be used in a multitude of applications to answer the questions about customers, products, supply and demand chains, production inefficiencies, financial trends, fraud, and even employees. It can be used to flag ‘weak signals’ via alerts, statistical models and visualization, and predicate and forecast the cause and effects of decisions upon the enterprise. BI is an umbrella term that encompasses tools, architectures, databases, data warehouses, performance management, methodologies, and so forth, all of which are integrated into a unified software suite [2]. And According to Reinnschmidt and Francouise [3], a BI system is "an integrated set of tools, technologies and programmed products that are used to collect, integrate, analyze and make data available." BI systems are assumed to be solutions that are responsible for transformation of data into information and knowledge, and they also create some environment for effective decision-making, strategic thinking, and acting in organizations [4].

SMEs normally run thin budgets and often run thin margins but with the emergent of BI, it can make a significant change to productivity and pursue viable business strategies. BI tools can do far more than standard reporting packages. BI tools can identify exactly where it happened and why it happened, and support an organization decisions making framework. Also BI can identify events or signals using historical or real time data, and events or strategies which are the most profitable, and what impact a particular event or promotion may have on cash flow and profits.

Using traditional methods such as spreadsheets could take even the most competent manager days, or even weeks analysis this type of information, which is simply not viable in these economic times.

The maturity of web applications and networking and the ubiquity of computing systems have provided a fundamentally different model of operation for businesses; SMEs can improve businesses process and systems in the value chain by taking advantage of IT services in the cloud. Cloud computing is an online service model by which hardware and software services are delivered to customers depending upon their requirements and pay as an operating expense without incurring high cost [5]. The ownership hardware, development applications and software belong to the providers of cloud services.

There are different cloud vendors specializing in particular applications and services, business can take advantage of the technical support and assistance, allow the service providers manage application upgrades, scheduled backups, disaster recovery plans, and handle downtime functions efficiently. The potential of cloud computing, businesses and organizations can predicate, forecast and monitor current business needs and make adjustments to increase or decrease supply of services and products or enter new markets and expansion service range. Aside from the potential to lower costs, SMEs can benefit from the easiness of being able to react fast to requests for new services by acquiring via the cloud.

Finally, cloud computing allows organizations and IT service to pay services on usage and costs transparent, thus matching consumption with usage of services [6].

SMEs and Cloud Computing Models

SMEs are said to be the lifeblood of any vibrant economy. They are known to be the silent drivers of a nation’s economy. SMEs are leading the way for entering new global markets and for innovations in the emerging economic order.

The diffusion of cloud computing in SMEs remains a challenge because organizations lack awareness and governments in developing countries have no deliberate policies to promote investments in cloud by through incentives, deregulation, taxation and compliance. Therefore, governments in developing countries need pass deliberate legislation to promote and support SMEs to invest. Unfortunately, not many recognize the benefits that cloud computing can bring in terms of scalability, cost effectiveness and operational efficiencies. However, the changes in structure of the markets will result in cost savings and will include the entry of new SMEs, a reduction of mark ups, and an increase in average and total production [7].

There three distinct categories of cloud computing: Software as a Service (Saas), Platform as a Service (Paas) and Infrastructure as a Service (Iaas). Software as a service "software on demand" in this model the concept, software is rented out by a service provider rather than a business having it purchased. Saas is the most popular cloud computing model that business have adopted because it offers great services, which are easily customizable, enhanced scalability and less maintenance. The full functional application and software are available on centralized network servers over the web or intranet. Google docs, Yahoo mail are all instances of SaaS. SaaS provides businesses access to applications effectively keeping costs low because it costs cheaper compared to a revenue based model or a licensed application which is costly due to its recurring monthly fees. With SaaS SMEs need not worry about installation or upgrades the service IT organisations has contractual agreements to provide technical support.

PaaS is provides a platform for developers or organizations that have its own IT expertises or a teams of developers. In this model an organization writes its own code and uploads the code to a provider website and where it will be available and accessible on the web.

An example of Paas is SalesForce.com’s Force.com. PaaS provide developers with an integrated development environment where services to develop, test, deploy, host and maintain applications will be managed. The PaaS returns the responsibility to manage upgrades, fix bugs and other routine system maintenance. IT organizations are metered or purchase a subscription model or payment plan on usage.

The final segment in the cloud computing is the infrastructure. Infrastructure as a Service (IaaS) is the delivery of computing infrastructure as a fully outsourced service. In this model services are hosted and development environment is managed by Iaas providers. The infrastructure are primary determined by the user according to business rules, the organization pays only what their need at a point in time, additional requirements can be added later or removed therefore living the user buying the infrastructure that is relevant and applicable therefore avoiding wastage of resources. IaaS operates on a "Pay as you go" in this model payment is based per usage. In an Iaas model, Virtualization services are available and make cost-effective use of the host hardware that enables providers to offer practically unlimited instances of servers to customers. IaaS offers organizations enterprise grade level IT Infrastructure and resources where businesses benefit and have access hardware that might be exorbitant if purchased individually. The major advantage of an IaaS environment is that Iaas provides a dynamic scalable environment, price per usage, reduction in costs and availability of IT resources and It also provides services offering maximum flexibility and customization plans because unlimited applications can be virtualized on these platforms.

Many of the most popular cloud-based applications are business productivity tools such as email (e.g. Hotmail and Gmail), online productivity software (e.g. Google Docs and Microsoft Office 365), conferencing services (e.g. Microsoft LiveMeeting and WebEx), and customer relationship management software (e.g. Salesforce or Dynamics CRM). These investments in cloud computing allow firms to consolidate their IT infrastructure, reduce energy usage, engage their mobile workforce, and reduce up-front capital investments [8].

Business will pay for a complete application as service or software only when it is used, but will have access to enterprise level technology with lower up-front costs by eliminating the capital expenditure normally is required. By migrating infrastructure to the cloud, a business will gain a presence on the cloud as if it owned the hardware and data center.

"Cloud computing has been advantageous to startups even SMEs can benefit as it reduces their need for capital investments to build, run and maintain [9]."

Economics of Cloud Computing

Total Cost of Ownership – It is important to evaluate and assess the cost associated with an investing in cloud computing, most costs are readily calculated up front and because there various factors that need to be taken into account. The providers of cloud services have pricing models that are based on different usage metrics - bandwidth, RAM, storage among others. The calculations that are done in-house have are likely to overlook costs that are directly incur if a server is run in-house: power utility, server room requirements, storage space, and other IT requirements and operations to efficiently manage IT software, networking, hardware resources and maintenance costs. The costs incurred indirectly of managing and running servers, network resources and infrastructure for storage and other operations to manage the general infrastructure are required for a constant supply and maintenance of IT throughput time. Businesses will gain certainty over what constitutes the actual price and what is available to calculate costs based on different metrics whether it is usage estimates or whether pricing is fixed frequently per unit of time. And all the overhead costs of owning a server: procurement and accounting personnel, not to mention a critical resource in short supply: IT management and will be met effectively [10].

Opportunity costs- are costs organizations have selected or decided a choice among several mutually exclusive choices. In the economics of Cloud Computing, it is an important concept when discussing or deciding because it gives businesses an opportunity evaluate and assess the true cost of any potential action or decision. When faced with a choice of selecting a particular investing for IT spend, there may be no direct cost attached to maintaining the status quo - data centers have already been built, software purchased so the choice remains with businesses whether to go ahead and invest given the benefits. This allows organization and businesses to calculate opportunity costs and get truer comparisons between the various choices to be made in investing in cloud computing.

Cloud Computing offers significant extra value to organizations by merit of the fact that it allows them to focus on their core business. It is remains undisputed that cost savings remain the value side of the equation is now even more compelling than ever before the emergent of cloud [11].

Traditional IT spend has high start-up costs and had to be purchased upfront. This resulted in small to medium enterprises lagging behind in terms of IT spend and the decision making process became rather strenuous on most small businesses.

Risks of Cloud Computing – firstly, plan strategically for cloud computing is an important aspect of a successful adoption of cloud computing. If the organization does not have in-house IT staff, then outsourcing of IT organizations or service providers. Evaluating what options cloud computing can work best for and what a potential project should cost.

Secondly, investing in a network that with sufficient bandwidth to support all of additional activities, and robust enough to withstand increased activity, and which is backed-up by professional customer support and a guaranteed fix-time. Relying on cloud services makes the potential implications of any outage far greater, which means that relying on a home broadband line or other basic levels of connectivity may not be sufficient.

Thirdly, ensuring considering that Service Level Agreements (SLAs) reflect the financial impact that downtime would have on the business, and provide compensation if the targets are missed may prove important to avert potential risks of disruption of services.

The fourth concern is security of data and ownership, cloud computing providers and SMEs enter into service agreements.

Evaluation Cloud Computing

According to a survey conducted among large enterprises by Gartner in 2009, half of the respondents in developing markets either had not heard of or did not know what cloud computing meant [12].

However, governments can take important steps to accelerate cloud computing adoption, and expect increased macroeconomic growth and job creation. Policy makers can maximize the benefits by:

expanding broadband capacity

Easing restrictions on international data transmission

Adoption common settings standards and regulations

For the local and global cloud service providers, success in developing economies rests on having business models that focus on low costs and consider the unique requirements of small-medium business (e.g., SMEs) that need cloud services in small scales. Cloud business models are still evolving, Governments in developing countries can work together with domestic and foreign cloud players to develop software and other products appropriate for the local needs.

Conclusion

This assignment has attempted summarize the current developments in Business Intelligence in relation to cloud computing and have concluded that cloud computing for SMEs may hold promises for solving some of the demanding needs of IT. Changes in the competitive market, upfront investment and economies of scale have hinder small businesses’ implementation of advanced e-commerce applications. In particular, it is thought that notwithstanding technical challenges, cloud computing may help accelerate the uptake of IT within the SMEs mainly because of the pricing models it supports. And, most frameworks for implementation of cloud-based systems and business models are yet far from inclusive of SMEs in the developing world.

SMEs have become an essential sector of the economic, likewise cloud computing has also become an important asset for growth and expansion, the advent of cloud computing have reduced the barriers for entry into markets for SMEs leading to sustainable development and levelling competition with large enterprises.