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Cloud Computing Has A Future With Businesses

Posted on: Monday, 22 December 2008, 07:55 CST

The next big step in satisfying the computing needs of businesses may come from so-called “cloud computing.”

Cloud computing allows a group to use the IT-related capabilities via the Internet without having to control the technology infrastructure that supports them.

While once it was considered to be a distant concept, cloud computing has become a more feasible option for businesses. Cloud computing has already hit an estimated $36 billion market this year, representing roughly 13 percent of global software sales.

Genentech Inc., for example, recently decided not to rely entirely on business software from Microsoft, IBM or another long-established supplier for software. Instead, Todd Pierce, Vice President of Corporate Information Technology chose to use cloud computing services from Internet search leader Google Inc.

In return, Google provides Genentech with e-mail, word processing, spreadsheet and calendar applications – all through an online connection.

Google hopes the new experimental service will give them an added edge over perennial rival Microsoft Corp.

After lengthy internal testing, Pierce became convinced that Google can be trusted to provide critical software programs for Genentech as adeptly as it deciphers Internet search requests to sell ads.

"You don't want to get caught clinging to the past," said Pierce. "I feel like we are surfing in front of the wave instead of the back of it."

The big question now is whether cloud computing can gain enough traction to overshadow Microsoft, who has home field advantage when it comes to supplying businesses with these common services.

After studying cloud computing trends, Sanford Bernstein analyst Jeffrey Lindsay predicted Google's applications will rake in revenue of about $1.5 billion by 2012, a small share next to the estimated $18 billion for Microsoft's desktop office software.

Even Genentech, the biggest U.S. company to buy Google's applications package so far, isn't ready to abandon Microsoft entirely. It's still licensing Microsoft programs like Word for writing documents and Excel for creating spreadsheets.

Cloud computing lets companies have someone else run their software remotely for a monthly or annual fee, with users accessing the programs over live Internet connections.

The idea has won over small business owners, government agencies and schools, and now larger companies are taking a closer look, particularly as they look for ways to save money during a brutal recession.

"Almost everyone already runs a lot of their personal life on the Internet and there is no doubt that the future of business applications will be there too," said Zachary Nelson, head of cloud computing specialist NetSuite Inc. "It's just a matter of when companies are ready to make the move."

Almost a decade ago, former Oracle executive Marc Benioff began the cloud computing movement when he claimed "the end of software."

Benioff started San Francisco-based Salesforce.com Inc., which sells subscriptions for a customer-management program accessed over the Internet. The company now holds a market value of $4 billion.

However, slim profit margins of these companies show just how much money they are forced to spend up front too build big data centers and hire the engineers to run their software applications, while they charge relatively modest fees to use their service.

Amazon.com Inc. is among the other prominent backers of cloud computing. The Seattle-based retailer runs a Web services arm that leases data storage space and computing power to businesses much like a utility dispenses electricity, as needed, to its customers. The initiative has attracted hundreds of thousands of business users during the past two years, but analysts say it has been a financial flop so far. Amazon.com doesn't break out the unit's results.

Microsoft is angling to protect its position as the world's largest software maker by planning what it calls a new operating system for cloud computing, called "Azure," that is supposed to make it easier to toggle between programs stored on a hard drive and on the Web.

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On the Net:

• Genentech Inc.
• Google Inc.
• Microsoft Corp.
• Sanford Bernstein
• NetSuite Inc.
• Salesforce.com Inc.
• Amazon.com Inc.

Source: redOrbit Staff & Wire Reports

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