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Next >>

Oracle should (not) buy Dell >>

Teradata enters marketing analytics >>

Feds move farther into cloud >>

Ballmer’s big shake-up >>

IT spending: What really matters >>

CIO profile: Avon’s Donagh Herlihy >>

Table of contents >>

JAN. 17, 2011

PLUS

informationweek.com

THE BUSINESS VALUE OF TECHNOLOGY

Cloud computing pioneers tell of their successes, but also of lightning strikes, tornadoes, and other disasters. Learn from their experiences.

4 611

companies getting results >>

ways to fail with cloud >>

factors essential to an ROI calculation >>

Next

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CONTENTSTHE 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 publication’s carbon footprint

11 Cloud ResultsSome companies areway beyond testingthe cloud—they’reactively looking forwhat’s next

QUICKTAKES7 Oracle’s SAP Plan

Oracle’s new analytic apps go after companies usingSAP financial software

8 Marketing MattersTeradata is moving intoanalytics for marketing

9 Feds In The CloudsLook for more moves likeTreasury’s cloud-based site

10 Ballmer’s Shake-UpAs he ousts veteran exec BobMuglia, look for Microsoft tocozy up to HP

2 Research And ConnectReports, events, video, and more

4 Global CIOYes, there are even worse notions thanOracle buying Dell

6 CIO ProfilesAvon’s tech chief has an interestingreason for admiring President Kennedy

27 Down To BusinessIT spending is up, but that isn’t as important as what CIOs aredoing with that money

CONTACTS & FEEDBACK3 Feedback 28 Editorial Contacts 29 Business Contacts

19 6 Ways To FailTake your eye off any of these, andyou could have serious problemswith your cloud strategy

24 Cloud’s True Costs An incomplete financial analysiswill end up biting you

10

Jan. 17, 2011 1informationweek.com

Previous Next

COVER STORY

6

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Resources to Research, Connect, CommentLinks

Trends In Cloud ComputingWant to get the best ROI in thecloud? Think about security andredundancy, Michael Healey advises.informationweek.com/video/cloudplan

WATCH IT NOW

Calculate TCO In 10 Steps Just releasedApplication Mobilization Just releasedManage Your Own Certificate Authority Just releasedHow To Determine Your APM Costs Just releasedTrust, Context, And Data Overload Coming Jan. 245 Steps To Managing Risk Coming Jan. 31

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Beating Cloud Lock-InMake informed decisions on adoptingcloud services so that changing yourmind doesn’t put your business at risk. informationweek.com/analytics/cloudlock

Eliminate App Vulnerabilities Most hacks that compromise enterprisesecurity exploit flaws in applications.Find out how to stay safe.informationweek.com/analytics/entvulnerable

State Of Enterprise StorageThe recession didn’t put a damper on thegrowth of enterprise data. informationweek.com/analytics/storagereport2010

Hardening Next-Gen Web Apps Slick interactive appshave opened upoppor tunities forbus inesses—and for attackers who wantto make off with data. Find out how tonavigate the challenges around securedynamic apps .informationweek.com/analytics/hardenapps

Health Information Exchanges Today’s HIEs are succeeding whereprevious ones failed. Here’s how four ofthem are getting doctors to share patientdata to improve care and cut costs. informationweek.com/analytics/exchange

INFORMATIONWEEK ANALYTICS

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Oracle Goes After SAP Users >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Jan. 17, 2011 2informationweek.com

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Jan. 17, 2011 3informationweek.com

Verizon’s iPhone Secret RevealedAfter rumors that wenton for months, Verizon finally announced it’s

offering the iPhone, ending AT&T’s exclusive.—Gina Smith informationweek.com/1288/iphone

I’ve had AT&T wireless service for a long time,and I haven’t 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&T’sservice is in my area and that there are vastspots with no service at all. I’ve yet to find theseareas. I guess if you must have that shiny newiPhone, you have to pay the price of bad recep-tion. What will be interesting is that we’ll findout if the problem was truly AT&T’s or Apple’sonce we discover the kinds of experiences thatVerizon iPhone users have. —Anonymous

I’m not sure what could be so great about theiPhone 4 acting as a hotspot if a phone callterminates the data connection. What am I

missing here? I’ll 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 signsthat Microsoft learned little from a woeful 2010.Can the CEO keep his job? —Paul McDougallinformationweek.com/1288/ballmer

I doubt Microsoft will “sack the quarterback”at any time in the near future. Despite Ball -mer’s specious business management acu-men, he still owns a mess of stock and wieldsa lot of power. This is not a man the board—orhis successor—wants to face in a proxy battle.—Perfesser_Bear

Although there’s plenty of blame to go aroundand assign to Microsoft leadership, the real rea-son for the company’s decline is the Depart-ment of Justice’s antitrust proceedings. Ourcountry has a history of destroying its most suc-cessful companies. The results of these proceed-ings brought the legal profession into everyaspect of Microsoft’s internal operations. You

can’t expect a company to be nimble enoughto compete in a tech environment with a bunchof attorneys looking over its shoulder everyminute. —Rsburkholder981

SMBs Aren’t Ready For Disaster One in two small and midsize businesses has norecovery plan in the event of a network outage,data loss, or other IT disaster. —Kevin Casey informationweek.com/1288/recovery

Our small company didn’t have a disaster planwhen I arrived, and I made one up. It’s easy. Justimagine that you came to work one day andthe building had burned down. What will youneed to get the minimum system running andhow quickly can you do it? Off-site backups areprobably the biggest part, but what will yourcompany use to read those tapes? What aboutall the software licenses? Any paper docu-ments needed? We made PDFs of all the paper-work, licenses, and activation codes and storedthem on a thumb drive, and it goes in the de-posit box with the backup tapes and the spareAIT-5 tape drive. And there’s a copy of thewhole plan on the thumb drive. —Frankd

IN THIS ISSUE

Oracle Goes After SAP Users >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Previous Next feedback

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Jan. 17, 2011 4informationweek.com

So a guy with a lot of Dell stock wants its value togo up, and he writes a blog post on The Motley Fool’ssite suggesting that Oracle CEO Larry Ellison buyDell for $50 billion:

“Mr. Ellison, critics are starting to doubt the Sun ac-quisition because of plummeting market share inservers (now at 6.7%). ... And the trend shows no signof abating. In the third quarter, HP and IBM grewserver revenues by 22.2% and 9% year over year, re-spectively, versus Sun’s own anemic 0.9% growth.”

Now, I can’t blame this guy for looking for some-one—anyone!—to step in and bid up the value of asignificant portion of his holdings by 250% (Dell’s mar-ket cap is about $19 billion). But pitching Dell to Oracleto boost its commodity server market share makesabout as much sense as asking Warren Buffett to ac-quire Dell because it would diversify his portfolio.

As Ellison himself said just a few weeks ago in Or-acle’s most recent earnings call, “Our goal is to be-come No. 1 for both online transaction processingand data warehousing—both of those segments.We are not interested in the low-margin commoditysegment of the server business. We are focused on

high-end OLTP, high-end data warehousing, wherethe margins are good and we can have a highly dif-ferentiated product.”

Seems pretty clear, right? But Motley Fool authorChris Maines gets himself stuck even deeper in themud by suggesting that Ellison will shell out $50 bil-

lion for Dell because it would allow Oracle to getinto the—wait for it—PC hardware business!

Maines says Oracle president Mark Hurd couldspend all his time “fixing” Dell’s PC business, buthere’s how Hurd himself described Oracle’s hard-ware focus:

“We’ve got 295,000 database customers that canrun their Oracle workloads orders of magnitudesfaster by deploying Exadata. Customers are seeing 15to 50 times the improvement. ... There are 150,000 [Or-

Oracle Should Acquire Dell(And 10 Other Crackpot Ideas)

IN THIS ISSUE

Oracle Goes After SAP Users >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

BOB EVANS

globalCIOPrevious Next

Historic Copyright Trial

Oracle recently won its landmarkcopyright infringement caseagainst SAP in a landslide, and InformationWeek’s Fritz Nelsonwatched the whole thing unfold.Get the scoop in this report, freefor a limited time.

DownloadDownload

Suggesting that Dell would be a perfect fit

with Oracle and its singular focus on margin-

rich high-end systems is, well, foolish.

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Jan. 17, 2011 5informationweek.com

acle] middleware customers, many of them us-ing our market-leading WebLogic app server,that ultimately are prospects for Exalogic.”

Dell’s a great company with lots of potential,but trying to suggest that it would be a per-fect fit with Oracle and its singular focus onmargin-rich high-end systems is, well, foolish.

And to show just how foolish the Oracle-

buys-Dell notion is, here are 10 acquisitionsthat would make more sense for Oracle:

1) The Pennsylvania portion of Interstate80. Oracle could cover all related costs by im-posing a 22% annual “support” fee on alldrivers.

2) The Borders bookstore chain. Oraclecould turn the cash-starved stores into com-binations of (a) briefing centers for customersand prospects and (b) retail outlets for Amer-ica’s Cup merchandise.

3) IBM. The Justice Department would neverallow it, but that’s not my concern here—I’mjust trying to come up with a list of 10 ideasthat aren’t as bad as Oracle buying Dell.

4) General Motors. GM could provide Ora-cle with a unique entrée into the mobile andlucrative federal government IT markets.

5) U.S. Postal Service. If Oracle presidentSafra Catz can turn Sun into a highly profitablebusiness, then she could do the same thingwith the USPS.

6) The NBA’s New Orleans Hornets. TheOracle-Borders retail chain can add Hornetsgear to stuff from Oracle-GM Racing andAmerica’s Cup.

7) SCO Group. Oracle has proven its legalprowess, and that’s just what SCO needs to re-vive its core strategy of suing customers andpartners.

8) San Francisco. Unconventional, sure, butCatz could fix the city’s massive financial prob-lems while Ellison reshapes the waterfront forthe next America’s Cup.

9) University of California, Berkeley. Ora-cle gets a pipeline of bright computer sciencestudents, and Ellison gets the granola-and-Birkenstocks persona that some image con-sultants claim he lacks.

10) HP. Could be a tough fit if IBM’s already inthe bag, but this deal would make it tougher forHP CEO Léo Apotheker to avoid subpoenas re-lating to litigation involving Oracle and eitherHP or SAP.

Sorry, Mr. Baines, but your Dellapaloozaship’s just not coming in until after all of thesemore rational deals get done.

Bob Evans is senior VP and director of InformationWeek’s Global CIO unit. For more Global CIO perspectives, check out informationweek.com/global-cio, or write to Bob at [email protected].

IN THIS ISSUE

Oracle Goes After SAP Users >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

globalCIOPrevious Next

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Jan. 17, 2011 6informationweek.com

CAREER TRACKHow long at current company:Two and a half years

Career accomplishment I’m mostproud of: Developing three of mydirect reports at my last company,Wrigley, so that they could becomeCIOs, one as my successor and theother two at different companies.

Most important career influencer: Ian Pepe, a formerboss in the U.K. He ran IT at LucasIndustries, but he also understoodthe business operations and tookthe lead on a number of businessissues. This posture—an IT leaderas both a business leader and atechnology leader—has impactedhow I view my role and myself.

Decision I wish I could do over:When I was 25, I dropped out of anexecutive MBA program becausemy employer at the time halted its

financial support. I figured that I’dcomplete it later but never did.Later in my career, I completed theexecutive program at the Univer-sity of Michigan, and realized howmuch I had missed by not com-pleting my MBA earlier.

ON THE JOBSize of IT team: More than 1,000

Top initiatives:>> Customer Connect is series oftechnology-enabled solutions tocapture customer data, track rela-tionships between each customerand her Avon representative, andreattach customers whose repshave left to other suitable people.

>> Today’s customers and reps ex-pect to place an order online andget it delivered at home within 24hours. Our Service Model Transfor-mation initiative addresses this ex-pectation, and it will be a major IT

program investment for us overthe next three years.

>> We’re working on a number ofprograms to bring our direct sell-ing model fully online to make iteasier for our representatives tomanage their businesses.

VISIONAdvice for future CIOs: Work out-side IT for at least three years in afunction that’s critical to revenuegrowth for your business. Becomean expert in that area and becomeperceived as a business leader whohappens to have tech expertise.

Best way for CIOs to cope withthe economic downturn: Findthe growth levers for your busi-ness, and create relevant capabili-ties to enable growth. Movingfrom a primary focus on effi-ciency to a focus on growth iscritical right now.

DONAGH HERLIHYSenior 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 camefrom my home town area ofWexford in Ireland, and I grewup in an environment wherehe was deeply respected

Best book read recently: TheBig Short, by Michael Lewis

If I weren’t a CIO, I’d ... own avineyard

Ranked No. 42 in the 2010

CIOprofilesIN THIS ISSUE

Oracle Goes After SAP Users >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Previous Next

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Oracle talks a good game about the appealof an optimized, all-Oracle stack. But the com-pany also recognizes that we live in a predom-inantly heterogeneous IT world.

Witness Oracle Financial Analytics for SAP, anew prebuilt application aimed at companiesusing financial apps from one of Oracle’sbiggest rivals. The software joins a line of pre-built analytic applications built on the vendor’sOracle Business Intelligence Enterprise Edition(OBIEE) platform.

Oracle Financial Analytics for SAP is based ona nearly identical existing app designed for Or-acle software—Oracle E-Business Suite, People-Soft, and JD Edwards. The key difference is thedata integration technology used; the app forSAP uses Oracle’s Data Integrator Enterprise Edi-tion, while its other BI applications use Informat-ica software. In other respects, the SAP versiondelivers the same financial metrics, key perform-ance indicators, and dashboards served up bythe original Oracle Financial Analytics.

Oracle could have simply added an SAP data

integrator to its Financial Analytics App, but it ap-parently sees value in marketing a separateproduct to enterprises using SAP for financials.Oracle plans to eventually consolidate the Finan-cial Analytics Apps into one product spanningOracle, SAP, and perhaps other financial apps.

SAP and Oracle want businesses to choosetheir respective BI platforms as the company-wide standard. SAP had a head start; Business -Objects was the top-selling BI vendor andboasted integration with leading enterpriseapps before SAP acquired it in 2007. SAP Busi-nessObjects has a long list of integrations intoOracle products, including direct connections,and ETL-style data integration for PeopleSoft,JD Edwards, Siebel, and Oracle Enterprise.

To deliver the kind of analysis provided byOracle’s new prebuilt Financial Analytics, SAPcan point to its own financial analytic apps andin-memory technology, as featured in the Busi-ness Warehouse Accelerator, SAP BusinessOb-jects Explorer, and new Hana appliance.

But OBIEE now exploits Essbase, the popular

OLAP financial analysis engine acquired with Hy-perion in 2007, plus techniques such as opti-mized caching to deliver speedy what-if analysis,says Paul Rodwick, VP of product managementfor Oracle BI. Teamed with Oracle Exadata, its in-tegrated hardware-database appliance, OBIEEdelivers performance, scalability, and “speed-of-thought” responsiveness, Rodwick says.

Prebuilt apps, appliances, and playing well inheterogeneous environments are all essentialto success—no matter what anybody saysabout the vision (fantasy?) of single-vendorstacks in the enterprise.

—Doug Henschen ([email protected])

Jan. 17, 2011 7informationweek.com

INTEGRATION AS DIFFERENTIATOR

Oracle Aims For SAP Financial Apps

IN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

QuicktakesPrevious Next

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Teradata’s $525 million acquisition of Ap-rimo at the end of last year may well be a hintof where analytics is headed this year. Aprimospecializes in integrated marketing manage-ment—a fast-growing software segment someestimate to be as large as $5 billion.

These products have management andanalysis capabilities that cut across channels—Web sites, call centers, direct mail, and, increas-ingly, social networks. They also work acrossthe full life cycle of customer interactions, frome-mail and direct mail campaigns to long-termanalysis of product satisfaction.

What’s driving this heightened interest inmarketing automation platforms? It’s aboutmore than improving marketing and sales.When companies use analytics to better un-

derstand their customers, the insight canchange everything from product, manufac-turing, and supply chain strategies to theirapproaches to distribution, retailing, and cus -tomer communications.

Aprimo offers two software-as-a-service ap-plications: Business to Consumer and Busi-ness to Business. It claims a customer basethat includes more than 150,000 individualusers and 36% of the Fortune 100, with Bankof America, U.K. utility E.ON, and Warner Bros.as notable examples.

Marketing is frequently where Teradata getsin the door with customers, whether they’rein banking, telecommunications, or retail, ac-cording to Teradata CEO Mike Koehler. Thecompany’s data warehouse technology helps

marketing departments get a grip on theirdata, using raw analytics, but it has lackedmanagement and analysis capabilities akin towhat Aprimo offers.

Once the acquisition is completed, expectedto happen in the first quarter, Teradata will beable to cross-sell and up-sell Aprimo servicesthat might have otherwise gone to competi-tors. The acquisition follows IBM’s $480 mil-lion purchase of Unica in August. Unica alsospecializes in cross-channel campaign man-agement and measurement software, offeredboth on-premises and SaaS style. And just asIBM retained Unica’s name for marketing pur-poses, Teradata plans to continue to use theAprimo name for the marketing services.

If the consolidation trend in integrated mar-

Jan. 17, 2011 8informationweek.com

INTEGRATED MARKETING MANAGEMENT

Teradata Acquisition Signals New Focus For Analytics

QuicktakesIN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Previous Next

$525M What Teradata pays for Aprimo

QUICKFACT

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keting management continues, two softwarecompanies that might be next are Marketoand Eloqua. Both companies offer SaaS-basedmarketing capabilities, and both have hun-dreds of customers. Oracle and SAP shouldtake a look.

Marketo’s client base is dominated by tech-nology-focused companies, and its services areintegrated and frequently paired with Sales-force.com. Eloqua’s customers include mediaand sports entertainment companies such asComcast, the TD Garden arena in Boston, andthe Miami Heat.

Consolidation has redrawn lines of competi-tion within the analytics community. SAS, forinstance, is a leading provider of marketing an-alytics software, so the recent acquisitions bylongtime partners IBM and Teradata can’t sittoo well there.

IBM had already crossed several lines with itspurchases of Cognos in BI, SPSS in analytics,and Coremetrics in online marketing analytics.But the Aprimo deal marks Teradata’s first realmove into analytic offerings that are independ-ent of the data warehouse.

SAS also expanded its market reach when itannounced last year that it would introduceSAS-powered analytic appliances based on

Jan. 17, 2011 9informationweek.com

QuicktakesIN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Previous Next

In the latest milestone in government cloudcomputing use, the Department of Treasurywill use Amazon.com’s pay-as-you-go cloudcomputing infrastructure to host a revampedWeb site for the agency, as well as migrate fourexisting sites to Amazon’s service.

The move marks the first time a cabinet-levelfederal agency is using Amazon’s Elastic ComputeCloud to host a Web site. A team of vendors ledby Smartronix worked with Microsoft and Ama-zon Web Services to redesign the Treasury site ona Microsoft SharePoint 2010 platform hosted onEC2. They also moved the agency’s SIGTARP.gov,MyMoney.gov, TIGTA.gov, and IRSOversightBoard.treasury.gov to the Amazon cloud.

Last year saw the federal government’s firstmajor cloud deployments, including migrationof the Recovery.gov site, set up to monitor allfederal agencies’ spending of economic stim-ulus funds, to EC2.

In December, U.S. CIO Vivek Kundra laid downa “cloud first” policy for federal agencies as partof an IT reform implementation plan aimed atcutting costs and creating more efficient IT op-erations. The policy requires that all agenciesmove at least one system to a hosted environ-ment within a year. NASA recently moved thedaily activity-planning software for its MarsRover to Amazon’s cloud, and the Army will usea cloud hosted by the Defense Information Sys-tems Agency to consolidate its e-mail systems.

The path to cloud computing hasn’t alwaysbeen smooth. The Department of Interior’s planto move 88,000 employees to Microsoft’s cloud-based e-mail service was recently blocked by acourt injunction, after Google claimed the con-tract broke federal procurement rules and fa-vored Microsoft in the department’s rush to geta hosted e-mail and collaboration suite.

—Elizabeth Montalbano ([email protected])

Hewlett-Packard hardware—a clear shot atOracle, IBM, and Teradata.

Look for continued acquisitions and stepped-

up competition in marketing analytics as the bigvendors reach into each others’ pockets.

—Doug Henschen ([email protected])

‘CLOUD FIRST’ AT WORK

Treasury Moves Sites To Amazon’s EC2

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Jan. 17, 2011 10informationweek.com

QuicktakesIN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

Previous Next

In a striking move with huge implications, Mi-crosoft CEO Steve Ballmer is jettisoning long-time senior executive Bob Muglia from atopthe company’s core enterprise products busi-ness. Saying changing times and opportunitiesrequire different talent and visions, Ballmermade clear that he believes Microsoft’s dis-jointed enterprise software strategy no longermeets the needs of forward-looking CIOs.

One of the most intriguing interpretationsI’ve heard on this—from Josh Greenbaum,principal at software consultancy EnterpriseMatters—says that Ballmer plans to recom-bine some of Microsoft’s disparate enterpriseproducts and marketing into a more highlyfocused effort to match the broad and unifiedenterprise-stack approaches offered by IBM

and Oracle, and in part by SAP. “The new tack will be Microsoft’s own version

of the stack wars, in which Azure, fueled by theDynamics ERP products and partners’ enter-prise software and services, becomes the lead-ing edge of an increasing focus on direct salesto the enterprise,” writes Greenbaum. “Thiswon’t obliterate the thousands of partners fromthe mix, but it will create a major shift in howMicrosoft goes to market, particularly with re-spect to the large enterprise: much more directand more in line with what IBM, SAP, and Oracleare able to do with their stack offerings.”

Greenbaum’s idea makes a great deal ofsense. And if Ballmer is indeed taking Microsoftinto the stack wars, then it’s going to need someallies—and I think its No. 1 wingman is going

to be Hewlett-Packard. Exactly one year ago, Mi-crosoft and HP, with significant fanfare, agreedto collaborate to the tune of $250 million in thejoint development of enterprise technologiesthat the companies said would span from infra-structure to applications. I wouldn’t be sur-prised to see a formal announcement of thosebig plans from HP and Microsoft very, verysoon—this month, perhaps?

That would work well for HP, too, given thatits longtime strategic alliance with Oracle hasfor all practical purposes completely unraveledand left the door open for other big-time soft-ware partners such as Microsoft (and also SAP)to step in and fill the void left by Oracle.

—Bob Evans ([email protected])Click here for a longer version of this analysis.

EXECUTIVE SHAKE-UP

Microsoft Says Goodbye, Mr. Muglia—Hello, HP?

Ballmer: Stack attack[

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Jan. 17, 2011 11informationweek.com

These companies are way

past testing the cloud. They’re

looking to what’s next.

By Charles Babcock

loud computing, once an object of skepticism, even taunts, istaking center stage at a handful of companies.

There’s InterContinental Hotels Group, which is building a pri-vate cloud environment to move its core CRM systems off main-frames and onto industry-standard equipment. It’s using public

cloud infrastructure for application development and testing, and also to hostWeb content closer to customers worldwide. And it’s evaluating moving keyproprietary systems such as room reservation software into the cloud

RehabCare Group, a 28-year-old provider of therapeutic services, is usinghosted software and an unlikely device—the Apple iPod Touch—to make itsfield workforce of 11,000 physical therapists more effective.

Then there are startups such as ServiceMax and NVoicePay that might notexist if not for cloud infrastructure, on which they’ve built their businesses’growth plans.

Why are they moving to the cloud? Rarely because it’s considered cheaper. In

[COVER STORY]IN THIS ISSUE

Avon CIO At Your Door >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

IT Spending: What Matters >>

Table Of Contents >>

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some cases, the cloud represents a faster, moreflexible way to get a new system up and run-ning. Oftentimes, it’s the ease of integration af-forded by the cloud servers, using standardWeb service practices, that lets a companylaunch a new mobile application faster or runa business process that cuts across many part-ners more efficiently.

These companies understand the cloud’sshortcomings, whether it’s Amazon’s weakservice-level agreements, Microsoft’s less-than-complete Azure service, or their own com -panies’ inexperience with managing cloudre sources. Nevertheless, as a group, they showthe real-world potential of cloud computing.

InterContinental: Cloud True BelieversInterContinental 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 ofsoftware as a service, infrastructure as a ser -

vice, and, ultimately, hybrid cloud computingthat blends an in-house cloud data center withpublic cloud services from providers such asAmazon. “We are massive believers in thecloud, 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 test-ing on Amazon Web Services’ Elastic Com-pute Cloud infrastructure, letting developersaccess pay-as-you-go servers in minutes. It’sin the process of moving its core room reser-vation system off a mainframe by rewritingit as a distributed Java system. That move will

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionals, October 2010

5%10%

13%

17%

27%

28%

25% to 49%; our core business isn’t IT,so we’re happy to use services

50% to 74%; if it can be outsourced,we’re looking to do it

75% or more; “IT” is a four-letter word to us

1% to 9%; very limited usage

None; we hate the cloud

10% to 24%; some tasks are better done by others

What Share Of Your IT Services Will Be Delivered From The Cloud In 24 Months?

5%10%

13%

17%

27%

28%

Outlook 2011 Report

Our Outlook 2011 report is avail-able free for a limited time fromInformationWeek Analytics.

This report includes 28 pages ofaction-oriented analysis, includ-ing 18 charts from our survey of552 business technology pros.

What you’ll find:

> Research on IT spending andwhy it’s looking up in 2011

> Data on data center invest-ment, which is trending up

> Analysis on IT’s high skepticismabout tablet computers

DownloadDownload

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give it the option of running the system onthird-party cloud infrastructure that’s physi-cally closer to travelers around the world,making the Web site more responsive. (IHGis the largest Western supplier of hotelrooms in China.) And it’s developing a pri-vate cloud in its own data center. That will letit run on industry-standard hardware, whichmeans, among other advantages, IHG won’thave to hunt for increasingly scarce main-frame talent.

It runs branded Web sites such as Holi-dayInn.com from two vendors’ data centers—Verizon’s in Washington, D.C., and Savvis’ inSanta Clara, Calif. The two highly virtualizeddata centers also run InterContinental’s callcenter. InterContinental’s on-premises sys-tems still run the room reservation systemsthat feed information to the large aggregatetravel sites, such as Travelocity and Expedia.The room look-up systems running at Savvisand Verizon are “a hot/hot environment foreach other,” Koehler says, so they’re produc-tion servers capable of also acting as failoverand disaster recovery sites for each other. Thecompany speeds responses to inquiries bydistributing the room lookup systems to Websites in data centers 3,000 miles apart, so con-tent can come from the facility closer to the

customer. IHG wants to extend this mode ofoperation, using cloud providers rather thanbuilding new data centers worldwide.

IHG considers these highly virtualized Savvisand Verizon data centers cloud resources, butthere’s a key distinction—in reliability andguarantees—from standard pay-as-you-goresources such as Amazon’s. IHG has testedAmazon EC2’s Singapore data center, to see ifit’s faster to serve Chinese customers fromthere. (Koehler declined to disclose the result.)

While IHG conducts much of its softwaretesting and development in the Amazoncloud, it wouldn’t yet be comfortable movingsomething like the reservation system, whichgenerates 50 million to 60 million transactionsa month, into EC2. An outage that led to anhour of downtime would bring revenue lossesin the millions of dollars, but Amazon’s SLA of-fers only credit toward more hours of comput-ing on EC2, not penalties tied to lost business.“We view infrastructure as a service as a best-effort business model,” says Koehler. “For thedot-com startup, it’s fine. But for a companylike ours, we need to know a heck of a lot moreabout how it’s being operated.”

Nevertheless, IHG expects the cloud to keepimproving, and it’s building its next-genera-tion data center capacity in a way that’ll make

it possible to connect to Amazon or a similarpublic cloud for additional capacity.

IHG is building a private cloud it callsCamelot, using an Hewlett-Packard BladeSys-

tem Chassis and VMware virtual machines andmanagement tools. IHG’s loyalty program, itsanalysis of current guest activity informationand historical records, and its system for push-ing out promotions suited to individual guestsrun on Camelot. Also slated for Camelot is IHG’score revenue management and room yield sys-tem that determines room rates.

All of those systems involve highly propri-etary information that IHG isn’t willing to riskin the public cloud at this stage. But Koehlersays he can see executing PCI-compliant creditand debit card transactions one day soon inthe public cloud. (Amazon recently said EC2 iscapable of PCI-compliant transactions.) And allthe private cloud workloads are designed so

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

“We encouraged them to put their

personal stuff on the [company

iPod Touch]. We believe they’ll

take better care of the device if

they do.” —DICK ESCUE, REHABCARE CIO

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that they could be shipped over to Amazon’s infra-structure as a service.

IHG’s private cloud is built with Eucalyptus Systemssoftware as well as VMware. Eucalyptus suppliesopen source APIs compatible with EC2, so an internalcall for a VM server or cloud storage won’t need tobe changed if IHG deploys the same application inAmazon—or if it mixes private cloud and externalclouds. “We are educating ourselves to become ex-perts in this space,” Koehler says.

Although IHG is using at least three cloud deliverymethods—SaaS, infrastructure as a service, and aprivate cloud—Koehler’s well aware of the short-comings of each.

While it’s satisfied with Salesforce’s cloud-basedCRM, Koehler expressed skepticism that Salesforcecould be more than a specialized applicationprovider. From his point of view, the company’sForce.com platform makes some sense for develop-ers, but he’s not convinced it will work “for large, on-going loads on the platform. The ROI doesn’t pencilfor me,” he says.

In terms of online infrastructure, so far the cloudisn’t a big cost saver, though Koehler thinks theeconomies of scale will make it cheaper over thelong haul. Today, the savings come in other ways, hesays, such as improved flexibility and the ability todeliver a more tailored experience to end users. Andthere are his doubts about public cloud SLAs.

IHG’s own private cloud needs work as well, to be-come more responsive. The development teamshave been happy with it, Koehler says, but “the bigchallenge has been providing the right manage-ment user interface to it so developers can feel theyget the same speed as [directly using] EC2.” EC2 cangive developers access to a VM in minutes; internally,there are hoops to jump through that make it takemuch longer. “With us, there’s the matter of cross-charging: Who do I bill this usage to? What approvalsdo I need so the financial reconciliation is right?”Koehler says. “We still have a lot of issues related topaperwork to fix.”

RehabCare: Going MobileRehabCare Group, founded in 1982, has grown to

be the third largest supplier of acute care rehabilita-tion services in the U.S. Its staff includes 11,000 phys-ical, occupational, and workplace therapists providingservices to patients in 1,270 care facilities in 42 states.

With such a distributed workforce, it struggled toprovide a reliable system for capturing the details oftreatments—such as the therapies used and the timethey took—to supply the necessary reports andclaims to health care insurers. The evolution of end-user devices alongside cloud-based software turnedRehabCare’s traditional business into one where IT’snow at the heart of its services. It started out in 2000trying to run an individual therapist’s simple time and

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

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treatment app on a Palm Pilot, with data up-loaded via PCs in local hospitals to centralservers. The upload step was cumbersome, andlines of therapists would often form around thePCs at the end of the day.

It’s now running its own custom-built soft-ware on the iPod Touch, which it deliversthrough Apple’s App Store. It syncs data usingservers and software provided by a third-party vendor, Casamba, with which it co-de-veloped the software.

RehabCare CIO Dick Escue remembers whenhe first pushed the idea of bringing Apple de-vices into the company, and how that thinkinghelped forged an alliance with CEO JohnShort. “It turned our CEO into a mad man,”Escue recalls, laughing. “He said, ‘Now we canput a computer into the hands of every em-ployee. This is how we create stickiness to thetherapist so he never, never leaves you.’ ”

Over the past four years, RehabCare hasequipped each of 7,000 therapists with a $300iPod Touch, to run an application called Pointof Care that captures the time spent on atreatment, which it periodically uploads toservers run by Casamba. A therapist pushesthe application’s start button as a patient ses-sion begins and a stop button at the end; thetime and rate of billing is captured in a stan-

dard report for loading into any claims thatare prepared. The app also captures details ofthe therapy, such as medicines and equip-ment used, along with related billings.

Beyond the 7,000 iPod Touch users, 800therapists use the same Point of Care soft-ware on the iPhone, since they’re more mo-bile and need cellular connections; and an-other 140 therapists use the iPad, becausethey need the larger screen to read docu-ments or take notes.

Capturing billing details on a standardclaims form is a time and money saver. Mod-ules in the application now handle patientscheduling and capture a therapist’s noteswritten during a treatment. This approach haseliminated the daily crunch where multipletherapists tried to finish their workday by fill-ing out reports on their facilities’ limited num-ber of PCs. Escue also sees “anecdotal evi-dence” of another gain: fewer rejected claims,because the application consistently capturestreatment data as care is being administered.

RehabCare also gives therapists Google’scloud-based e-mail and productivity suite,Google Apps, for which it pays $50 a year peruser, instead of buying Microsoft Office. TheApple devices were easy enough to use thatthe transition from Palms went quickly. Farfrom shunning the consumer aspects of theiPod Touch and iPhone, “we encouragedthem to put their personal stuff on the device,” Escue says. “We believe they’ll take

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

1. Data Security Infrastructure-as-a- service users very often keep some of theirdata—the most sensitive, the most regu-lated—out of the cloud and in their owndata centers.

2. Performance Cloud computing, frominfrastructure to software, has a prettystrong track record. What it doesn’t have is alot of guarantees that share the risk of anoutage. Credit for free service doesn’t help ifyou lost millions in revenue.

3. Complexity You’re developing on acloud platform, allowing online mobile OSupdates, and integrating with a third SaaSservice. Don’t underestimate the manage-ment and governance required.

4. Mobile Devices IT sees the opportu-nity in getting software out to mobile de-vices. But which devices? Users expect na-tive apps, not browser-based SaaS, so pick-ing the right device is a high-stakes call.

4 Cloud CautionsWATCH OUT FOR THESE AREAS,CLOUD VETERANS SAY

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better care of the device if they do.”As RehabCare looks to expand its mobile

software, cloud-based development plat-forms are at the center—in particular, Sales-force’s Force.com platform. RehabCare isworking on a pre-admission screening appli-cation that should require less paperwork toadd a new patient. The application will havean iTouch/iPhone front end written in Objec-tive C capable of running on the Apple de-

vices, and a Force.com back end to managedata capture and manipulation. RecognizingApple’s growing importance in business IT,Salesforce added a software development kitlast summer that lets applications be devel-oped in Objective C, using an object wrapperto issue SOAP calls to Force.com. Bottom line:Applications that run on Apple’s iOS can behosted by Force.com. RehabCare thinks it willbe able to let therapists use other smart-phones eventually as well.

RehabCare’s also planning to use Force.comfor a new Apple device application to let ther-apists collect information on how a patientwas referred. Referrals are the most importantfeeder to all the other services that RehabCareprovides, and Escue wants to know why somehealthcare providers are consistent referrersand others are intermittent or nonreferrers.

Relying on a cloud provider can have its set-backs, Escue admits, whether the servers arein a Casamba, Salesforce, or even Apple datacenter. Recently, an update to iOS disabled theclock that RehabCare’s software used torecord treatment times. “We’d tell people,don’t take that update yet,” Escue says. “Somedownload it anyway.” Likewise, RehabCaremay want to add functionality to its custom

client app that Casamba isn’t ready to supportin its server-side software.

Cloud-based software as a service promisedto remove complexity, letting the SaaS pro -vider take care of all the maintenance. But thesoftware many companies, like RehabCare,want to use is too specialized to be deliveredas one-size-fits-all SaaS. RehabCare shows howcompanies are blending the model, using pureSaaS such as Google Apps where it fits, but alsousing cloud-based platforms like Force.com forcustom development. This approach addssome complexity for the IT organization, Escuesays, as software changes now involve moreexternal parties and more coordination.

Yet when Escue thinks back on the decisionto give every therapist an iPod Touch, withcloud-connected software fine-tuned to theirjobs, he sees it as the beginning of a funda-mental change at RehabCare—where IT, in-stead of continuing as a supplier of traditionaldata center services, became an agent “togrow the business,” he says.

Startups: ServiceMax And NVoicePayUnlike established companies such as Inter-

Continental and RehabCare that add cloudcomputing onto their businesses, startups

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

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are built on it. Startups ServiceMax (onForce.com) and NVoicePay (on MicrosoftAzure) rely on the cloud as their primary ar-chitecture, while running as little of their owndata center infrastructure as possible.

NVoicePay wants to help small businessesautomate invoice payment, something that’sstill a paper check process at many smallcompanies. It looks a bit like an individual’sonline bill payment from a bank, though withlinks to the accounts receivable system inQuickBooks and Great Plains accountingsoftware, and integration with other soft-ware for tracking which vendors accept elec-tronic payment.

When an NVoicePay customer pays a ven-dor, the actual transaction, by credit card or di-rect funds transfer, is executed in a small datacenter run by NVoicePay. Those in-houseservers store customer information and exe-cute the actual transaction between busi-nesses. NVoicePay says that approach keepstransactions PCI-compliant, because it neverputs customer identity and other sensitiveinfor mation into a cloud infrastructure. But itrelies on the Microsoft SQL Azure cloud plat -form for the rest of its computing horsepower,such as notifying parties of payments and up-dating their customers’ accounting systems.

NVoicePay uses the Azure cloud as an ac-counting hub that handles only an encodedversion of the customer’s identity, so even ifthe information were to be intercepted, the

customer couldn’t be identified. It also usesAzure to do accounting updates through thesynchronized database services that Azure’sAppFabric service bus supports.

To get started, NVoicePay is targeting autodealerships. NVoicePay is certified to workwith the ADP dealership management soft-ware, which is used by 25,000 dealers. TheNVoicePay system eliminates the need for acostly integration of a local accounting system with an electronic payments system,an expense that most small and midsizebusinesses have avoided, sticking to theircheckbooks.

CTO Shaun McAravey predicts NVoicePaywill be handling $250 million in annual in-voice payments by the end of this year. To

grow, NVoicePay needs to develop paymentapps tuned to more industries. Using cloud in-frastructure lets McAravey and his team focuson development rather than infrastructure. “Idon’t want to manage servers,” he says. “Iwant to build a whole class of payment appli-cations [for different vertical markets] andpush them out into the cloud.”

That approach has its limits, given the imma-turity of cloud platforms. McAravey says he’sadministering NVoicePay’s virtual machines inthe cloud as if they were a part of the com-pany’s own data center, but the database ser -vices in the cloud still lack some of there porting capabilities that he has on premises.Also, he thinks NVoicePay must, for compli-ance reasons, keep sensitive client informa-tion on the company’s own servers. Still, hedoesn’t worry about the reliability or availabil-ity of the virtual cloud servers NVoicePay doesuse, relying on that cloud infrastructure foruptime and low capital costs. “We’re an al-ways-on hub for payments,” McAravey says.

The future of ServiceMax, a startup that pro-vides SaaS for managing field technicians,faces a different challenge. Its survival couldhinge on how well it adapts to new devices,particularly tablet computers. CEO DavidYarnold sees tablets as ideal for its cus-

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

“We view infrastructure as a

service as a best-effort business

model. For the dot-com startup,

it’s fine.”—BRYSON KOEHLER, IHG SENIOR VP

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tomers—technicians who work on anythingfrom a hospital’s ultrasound device to a super-market’s refrigeration systems.

The venture-backed company’s SaaS man-ages tasks such as scheduling appointments,documenting work orders, building the partslists needed for a job, and recording timespent on a visit. Its first iteration runs onForce.com (and integrates with SalesforceCRM) and is geared for laptops and smart-phones, mostly the BlackBerry.

But laptops are bulky and slow to boot up,while smartphone screens are too small fordocuments. With the iPad, Yarnold sees fieldstaff instantly booting up to get easy-to-readdocumentation with detailed steps on a re-pair, perhaps even with video illustrating it.

An iPad app is a front end that lets a user ac-cess ServiceMax’s cloud-based functionality.ServiceMax customers are just beginning toconsider tablets; the company cites a foodprocessing company and security systemsprovider as two early adopters. The iPad offersa controlled mechanism to distribute and up-date software through the Apple App Store,but emerging tablet computers are likely torun Android or some other operating system.That means ServiceMax IT may need to offerits own remote distribution and management

mechanisms if the company’s users adoptsuch devices. If Android keeps surging in pop-ularity, Salesforce may add support for it toForce.com.

Field service is a profession waiting for bet-ter mobile support, and the iPad, while not de-signed as a field service tool, shows promise(though durability could prove a problem).For ServiceMax, Yarnold’s betting that tabletswill bring wider acceptance of his firm’s ser -vices. “We’re excited by how quickly it’s mov-ing to the business audience,” he says.

Today’s early cloud adopters are finding analways-on utility that lets them concentrateon core business development, while thecloud’s scale-out capabilities let them reachmore customers over the Web. Having estab-lished a host in the cloud, companies aresometimes finding it easier to integrate part-ners into that cloud rather than their own on-premises systems.

At the same time, major problems remainunresolved. How do you coordinate databaseservices that are on premises and in thecloud? Nearly all cloud users find they stillneed on-premises systems, particularly forsensitive information. Also, given the rapidevolution of consumer devices, how do youknow which one, and which operating sys-

tem, to adopt as part of your long-term plat-form? The cloud hasn’t made us device ag-nostic, and making the wrong choice couldprove expensive.

Will the cloud really be a secure computingenvironment, as Amazon and others predict?The trust boundary between a customer andthe cloud supplier is certainly in motion, butwhere, exactly, has it landed? This year willbring PCI-compliant credit card transactionsto the cloud, providing a symbol, at least, ofthe cloud’s improved security. Yet providerssuch as Amazon, Microsoft, and Salesforcestill haven’t satisfied would-be enterprisecustomers when it comes to running bet-the-business production systems and data inthe cloud.

Cloud computing is being driven on manyfronts simultaneously. There’s the power ofthe hosts in the Internet data center, and thepower of the device in the end user’s hands,which is begging to be filled with online con-tent. Creative businesses will find ways to har-ness that power for competitive advantage. ITleaders may offer the cloud their benign neg-lect, if they choose, but they’ll wake up oneday to a changed world.

Write to Charles Babcock at [email protected].

[COVER STORY]CLOUD COMPUTING RESULTSPrevious Next

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Our latest survey shows double-digit increases incloud adoption. But ignore integration, management

and monitoring at your peril.

By Michael Healey

ur 2011 InformationWeek Analytics State of Cloud ComputingSurvey shows a 67% increase in the number of companies usingcloud services, up from 18% in February 2009 and 30% in October2010. IT now has a choice: Grab ownership of what’s poised to be a

core part of the enterprise technology toolset, or shortchange key functionsand set ourselves up for disaster.

This shouldn’t be a hard call, yet over and over we see CIOs underfund orignore six major areas: integration, security, connectivity, monitoring, continu-ity planning, and long-term staffing. Only 29% of companies using or planningto use the cloud have evaluated its impact on their architectures. Just 20%implement monitoring of applications and throughput; 40% don’t have anymonitoring in place. Talk about blind trust.

There’s a misperception that it’s smaller companies driving the cloud usageupswing. But don’t write off management shortfalls as an SMB problem; wesaw almost the same rates of use and planned use regardless of companysize, once we delved into the data. There are now viable cloud options for al-most every layer of the technology stack—from raw computing, storage,

O

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What you’ll find:

> 7 areas that must be includedin your cloud-usage policy

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databases, and utilities to e-mail to the spec-trum of enterprise applications, all with a“point, click, go” functionality that has mav-erick business units everywhere rejoicing. Ig-nore management at your peril.

Integration: New TwistsCloud vendors Boomi, Cast Iron, and Jitterbit

are focused solely on offering integrationservices for less money and in less time, andthey’re shaking up established firms like Infor-matica and Oracle-SAP as well as EDI playerslike Ariba, Hubspan, and Sterling Commerce.Boomi and Cast Iron have been acquired byDell and IBM, respectively. Both buyers citedthe benefits of offering streamlined integra-tion connections across the enterprise. Earlierlast year, IBM, acknowledging gaps in its cloudintegration, also bought Sterling, one of thelarger EDI players.

This is a new twist to interoperability that isavailable only within the cloud. Previously,

there just wasn’t scale to build multitenant in-tegration services. But now, integration ser -vices have become clouds themselves—mid-dleware as a service, if you will. The moreoptions and connections they have, the morecompetitive they become and the moremonthly subscriptions they get. Will theymake it? Yes. There’s a fortune in margins in

integration, especially if you have scale, andthe financial performance of these vendors isimpressive.

Security: Safety First“We won’t be involving our security team

in this project until the last possible mo-ment, because the answer will be ‘no.’ ” That

[CLOUD PERFORMANCE]Previous Next

13%9%

24%25%

33%48%

Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionalsin October 2010 and 547 in February 2009

2010 2009

Receiving services today from a cloud provider

Planning to use services from a cloud provider within the next 12 months

Considering using services from a cloud provider

No plans to use services from a cloud provider

30%18%

What Are Your Company’s Plans For Cloud Computing?

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from a VP at one of the largest retailers in theworld. He’s evaluating a cloud-centric initia-tive that could dramatically improve thecompany’s operations and went on to saythat bringing the CISO in without building

the entire plan beforehand is a death knellfor any project.

Think this isn’t going on in your shop? Keepsipping the happy juice. This VP guaranteedthat end runs are standard practice among

his peers. And the standard mantra of “it’sagainst compliance rules” won’t only makeyou seem out of touch—you may well bewrong. PCI 2.0, the rules that govern the se-curity of credit and debit card data, was justreleased and has little specific guidance forcloud computing per se, but it does lay outclearer rules relating to off-premises transac-tions. In addition, Amazon recently an-nounced that its Elastic Compute Cloud iscertified for conducting Level 1 transactions;the company will begin offering that servicethis year. The next official PCI standard willlikely have in-depth rules for cloud comput-ing, but it won’t be released until 2013.

Security teams take note: There’s a new setof guidelines, and a major cloud vendor hasa platform certified for some level of transac-tions that are subject to PCI rules. If you thinksaying “Wait until 2013” is a good move foryour business, consider polishing up your resumé.

The better answer is providing forward-thinking security and connectivity guide-lines that people outside IT can understandand use. Make sure your guide covers all thepolicies you’ve established and explains theoutside compliance areas you’re forced toadhere to. We discuss the seven key areas

[CLOUD PERFORMANCE]Previous Next

53%

Data: InformationWeek Analytics State of Cloud Computing Survey of 607 business technology professionals in October 2010 and 547

57%

50%53%

49%47%

32%32%

28%30%

26%22%

23%17%

17%19%

2010 2009

Security defects in the technology itself

Unauthorized access to or leak of our proprietary information

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

Features and general maturity of technology

What Are Your Top Concerns Related To Cloud Services?

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Oracle Goes After SAP Users >>

Cloud Results >>

Cloud’s True Costs >>

IT Spending: What Matters >>

Table Of Contents >>

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that must be included in a cloud policy inour full Analytics Report.

Connectivity: The Right ConnectionsJust 29% of those using or planning to use

a cloud service have scoped out the architec-tural impact on their Internet infrastructures.You should be running these numbers beforeengaging any cloud provider.

“It’s the biggest miss we see,” says TomElowson, president of virtualization cloud

provider Acxess. “We have the bandwidthconversation with potential clients every day.If they haven’t analyzed their existing usageand started to calculate the potential impact,we usually push back.”

Start with the outbound volume to reach theresource, and take into account back-end traf-fic to update data. Bandwidth calculations alsoneed to factor in data and user growth over afive-year period, same as ROI calculations. Getsolid trending stats on usage and volume overthe course of several weeks. If you don’t, youcould be looking at a major fumble.

Monitoring: Watch And LearnThirty-nine percent of poll respondents say

they don’t monitor their cloud vendors, whilean additional 40% rely on basic “up/down”tools that are no better than a periodic ping.The latter group’s sole advantage is they’llhave a 30-second warning before the com-plaints start rolling in.

How to stay on track? First, invest in dataflow monitoring internally. Less than 15% ofrespondents have systems in place that mon-itor application and transactional throughput.Basic status alerting is nice, but you need tobe watching your network data flows andhave established performance levels for every

application before you add an external cloud. Once your house is in order, connect with

your bandwidth provider and establishground rules around monitoring of traffic, yourlines, and how you share data. Set up remotemonitoring points outside of your main office.Assemble a set of cloud-based monitoringtools. Yes, a cloud app to watch your cloudapps. Go beyond the basic utilities that Ama-zon, GoGrid, Google, and others provide to addoverall monitoring of all Internet traffic.

Continuity: Get BackupAll companies ask their cloud vendors, “Do

you back up our data?” The answer is alwayssome variant of yes. However, the majority ofcloud designs focus on backup and point-in-time failover—not archiving.

Always establish a cloud service backup andarchiving schedule the same way you wouldfor any internal resource. Start with your cur-rent vendor. Many, like CommVault andSymantec, are working to establish options forextending internal backup and archiving sys-tems to manage cloud-based data.

All systems have outages, whether they’re inhouse or in the cloud. Focus on what vendorswill agree to in their service-level agreementsvs. what your internal teams will commit to for

[CLOUD PERFORMANCE]Previous Next

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IN THIS ISSUE

Oracle Goes After SAP Users >>

Cloud Results >>

Cloud’s True Costs >>

IT Spending: What Matters >>

Table Of Contents >>

informationweek.com

their in-house SLAs. The “five-nines” mantra(99.999%) that dominates discussion amongTier 1 data vendors simply isn’t heard in thecloud. At best, your uptime will be between99.9% and 99.95%. Decide: What is the plan forthe business if there’s an outage? When do youimplement the failover plan? Who makes thecall? These are all familiar themes to businesscontinuity pros, but with an external twist.

Software as a service should have, at mini-mum, manual processes documented for users.In the case of a CRM or project managementapplication, you may want a separate cloud orin-house system that could be activated in theevent of a major failure. For high-volume serv-ices, such as e-mail or EDI transactions, designa system that not only queues ongoing trans-actions for short outages but has the ability tofail over completely. These aren’t small projects;plan to devote engineering time and funding.

Staffing: Build Your BenchIT as a profession is at a turning point. While

the cloud may be hot, there hasn’t been aboom in hiring by these vendors, according tothe most recent U.S. Department of Labor stats.Cloud and related hosting services companieshave had flat job growth for the past year.Blame economies of scale. But just because the

quantity of jobs is down doesn’t mean you’lleasily find IT pros who can deftly manage ven-dor relationships, not just technology platforms.

Our 2010 State of Outsourcing Surveyshowed that nearly six of 10 IT shops out-source some critical function—management,engineering, or development. So you can seethe staffing challenge CIOs face. This is a major gap that won’t necessarily go awaythrough market forces attracting additionaltalent to meet your needs. You need to startbuilding your own talent bench.

Get ready for a wild ride. Capital expendi-tures used to provide a brake, regulating thepace of internal service adoption. That’s comeoff with the cloud, so IT teams need to buildnew policies and platform models that willprotect the company as business activity getsrolling. That’s because, once cloud apps be-come part of the fabric, there’ll be no slowingdown to make adjustments.

Michael Healey is president of consulting firm Yeoman Tech-nologies. Write to us at [email protected].

[CLOUD PERFORMANCE]Previous Next

Have you examined the potential impact of a cloud service on your Internet-facing architecture?

Yes

Don’t know

No, and we have no plans to do so

Not yet, but we plan toNot yet, but we will beforeadopting any new services

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

29%

30%

8%

6%

27%

Cloud’s Impact On Internet-Facing Architecture

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IN THIS ISSUE

Avon CIO At Your Door >>

Cloud Results >>

How To Fail In The Cloud >>

IT Spending: What Matters >>

Table Of Contents >>

informationweek.com

An incomplete financial analysis will end up biting you. Here’s how to calculate the real costs of cloud vs. in-house services.

By Michael Healy

he cloud computing hype machine is in full throttle. Evensome rational CIOs we talk with predict that 20% of com-panies won’t own their IT systems in five years. From theirperspective, what better way to get off the hook for highcapital costs and poor system performance than to out-

source? It’s the ultimate in blame avoidance.We’re not buying that rapid change rate, but two things are clear

from our annual InformationWeek Analytics State of Cloud ComputingSurvey and from the targeted Cloud ROI Survey we fielded in April.First, the movement toward adopting some level of cloud services isclose to achieving critical mass. Second, there are gaps in how we’rearchitecting, budgeting for, and engineering the services we buy.

Think your company isn’t jumping in blindly? Don’t 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. That’s up from27% in our last survey. However, 71% say they have no idea whetherthat “cheap” cloud service will end up costing a fortune. They’re mak-ing cloud decisions in a vacuum, bypassing the review that would, as

T

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Get This And All Our Reports

Become an InformationWeek Analytics subscriber and get our full Cloud ROI report plus ourcustomizable worksheet. Our ROI report includes 34 pages of action-oriented analysis, packedwith 20 charts.

What you’ll find:

> Role of ROI in cloud decisions

> Methods to quantify risk in anROI analysis process

> The art of capacity planning

DownloadDownload

Beyond CYA as a Service

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IN THIS ISSUE

Avon CIO At Your Door >>

Cloud Results >>

How To Fail In The Cloud >>

IT Spending: What Matters >>

Table Of Contents >>

informationweek.com

a matter of course, happen for an internal IT initia-tive. Yes, we’re talking about the checklist gauntlet:How much does it cost up front? How much tomaintain? How does it connect? How do we moni-tor it? How do we back it up? How do we secure it?How does it impact everything else? What do wedo if it goes down?

“The driving factor for many cloud decisions iscash flow,” says Jeff Solomon, head of the emergingtechnology group at CPA firm Levine, Katz, andSolomon. “For many industries, the capital limita-tions are so dire they’re willing to move to the cloudbased on a cash flow comparison alone. They simplyaren’t doing a proper ROI analysis.”

The up-front cost differences between cloud andin-house are so dramatic on rudimentary analysisthat businesses are lulled into feeling savings are in-evitable; it’s the “truthiness” factor, if you will.

As we discuss in more depth in our full 2011 Stateof Cloud Computing report, it’s not that we don’t likethe cloud; in many cases, providers can deliver a su-perior-quality service for less money. That said, youdon’t have to look back too far to see an example ofhow poor financial justifications hamper long-terminitiatives. A case in point is virtualization. The 2006pitches to CFOs were based on a pure hardware vs.virtual platform analysis and left out the cost of staffretraining and systems management software. Andlet’s be honest: Those omissions weren’t just be-

cause neither area was fully developed yet. Includingthem would have weakened the savings argument.

Flash forward to 2011, and many companies arestruggling to manage complex mixed physical andvirtual data centers because they lack the funds to getthe management tools and staff training they need.Integrating cloud services into your enterprise has aneven more knotty set of challenges. Simply comparingthe recurring monthly operating expenditures vs. cap-ital expenditures with some net present value thrownin for good measure will bite you in the long run.

Crunch The NumbersBefore approving a plan to run any IT service in the

cloud, there are 11 areas where you need to calcu-late costs. We delve into those more in our customiz-able spreadsheet, but start with a five-year baselineof comparison. Yes, this may seem like a long timeframe—especially when considering hardwarecosts—but we think it’s fair. Not only does it give amore accurate representation of the true average lifeof hardware and software, but it also forces you toaddress longer-term investments in bandwidth,monitoring, and failover. Every comparison needs toinclude the following:

> Hardware: Include router or WAN appliance up-grades vs. server or storage hardware purchases.

> Software: Not usually a factor on the cloud sideof the ledger, but internally, include upgrade costs.

[CLOUD ROI]Previous Next

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IN THIS ISSUE

Avon CIO At Your Door >>

Cloud Results >>

How To Fail In The Cloud >>

IT Spending: What Matters >>

Table Of Contents >>

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> Recurring licensing and maintenance:Typically monthly for cloud, yearly internally.

> Bandwidth: In the cloud column, assess aportion of your current Internet charges plusplanned upgrades.

> Staffing allocation: Even cloud-centricshops require some staff for ongoing admin-istration and engineering. It’s likely to be arough estimation, but include operations andapplication development allocations.

> Monitoring: In-house apps typically get ano-additional-chargeback status, if you’ve in-vested in enterprise monitoring. Cloud initia-tives probably will require an expansion of yourmonitoring system, most likely adding Webtriggers or purchasing a third-party cloud app.

> Backup and archiving: A major miss formany—you need a plan for backing up andarchiving data stored in the cloud. This mayend up being an additional cloud provider forstorage, but it needs to be included.

> Failover and redundancy: Your businesscontinuity plan should have an allocation for-mula for various systems. If the service be-comes unavailable, what is your alternative?Figure it out and budget for it. Period.

> Security audit and compliance: Budgettime and resources for adding the cloud ini-tiative to the compliance officer’s stack of au-

ditable items. Make no mistake: Sensitive datain the cloud is still your responsibility.

> Integration: This is especially critical forsoftware-as-a-service and core database ini-tiatives. Calculate development, maintenance,and licensing as separate line items.

> Training: Yes, you need to factor in train-ing, regardless of whether you’re adding soft-ware, infrastructure, or platform as a service.The claim that a service is “self-explanatory” isalmost always bogus.

Finally, we suggest you add one other factorinto the equation: speed to implementation.What’s it worth to be able to add and integratea project management system in 120 days, not220? Is there a competitive value you canplace on off-loading batch processing jobs to

the cloud in three weeks? Chances are you’llend up with an arbitrary number, but the ex-ercise forces the business—not IT—to place adollar value on speed.

Even if your five-year numbers favor in-house,you may still opt for the cloud due to cash flowconstraints. But at least you’ll have the longer-term costs laid out for the CFO. Even if cash flowisn’t an issue, there’s still a benefit: licensing dis-counts from cloud vendors of up to 30% for pay-ing on an annual basis. “The entire tech industryis transitioning to or adding a cloud-based rev-enue model,” says Solomon, from Levine, Katz,and Solomon. “They need cash, too.”

Michael Healey is president of consulting firm Yeoman Tech-nologies. Write to us at [email protected].

[CLOUD ROI]Previous Next

71%

64%

63%

56%

49%Data: InformationWeek Analytics Cloud ROI Survey of 256 business technology professionals at companies likely to evaluate cloud computingROI, April 2010

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

What Top Factors Are Likely To Be In Your Cloud Computing ROI Study?

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Jan. 17, 2011 27informationweek.com

Based on conventional metrics, the techeconomy is poised to continue its recovery in2011. Researchers predict strong single-digitgrowth in IT spending, and the financial mar-kets appear more receptive to initial public of-ferings of technology companies. Tech ven-ture capital spending is also trending upward.

But the true measure of enterprise IT vitalitywill be whether CIOs get brutally seriousabout rebalancing their spending mix, devot-ing a larger percentage of their budgets to ar-eas of high business growth and innovationand a smaller percentage to ongoing opera-tions and maintenance. Without that strategicreprioritization of IT spending, the additionalbudget dollars will go only so far.

Our InformationWeek Analytics Outlook Surveyof 552 IT pros finds that 55% of respondentssay their companies will increase IT spendingthis year, while only 19% plan to cut it and 26%plan to keep it flat. Overall, IT spending will in-crease 7.5% in the U.S. this year, 7.1% globally,Forrester Research predicts.

Meantime, 87% of investment bank execu-tives surveyed by BDO USA, an accounting and

consulting firm, predict an increase in the num-ber of tech IPOs in 2011. In fact, of all the sectorsthose execs follow, they’re most bullish on infor-mation technology. And while the latest Mon-eyTree report from PricewaterhouseCoopersand the National Venture Capital Associationnoted that third-quarter 2010 VC spendingdipped in most tech sectors compared with thesecond quarter, VC spending was up in soft-ware, semiconductors, and IT services comparedwith the 2009 third quarter. (The fourth-quarterMoneyTree report is due later this week. )

Despite all those uplifting numbers, there’sreason for pause. Our Outlook survey indicatesthat IT organizations remain way too tactical.Less than 10% of survey respondents say theirorganizations excel at driving innovation orrevenue growth, and only 20% see themselvesas a “business driver.” Respondents say they’rebetter at providing high-quality systems andservices and running efficient operations.

There’s another name for that kind of profi-ciency: cost center. IT spending skewed towardoperations and maintenance is the businessequivalent of empty calories.

Most CIOs who have had success reversingtheir 80/20 or 70/30 legacy/innovation spend-ing mix have shaken funds free with big datacenter and application consolidation programs.The goal of one of them, Hewlett-Packard CIORandy Mott, is to spend only 20% of his IT staff’stime on operations and maintenance and 80%on growth initiatives—flipping the old 80/20rule on its ear. The first step, he says, is for IT or-ganizations to document what their peoplework on, not what they’re assigned to—weekto week, project by project. “If you don’t havegood information on what people are doing, Idon’t know how you make decisions to take anorganization in a new direction,” he told mycolleague Chris Murphy two years ago, whenHP was completing its IT overhaul.

It’s long past time for this to be just a rallyingpoint for consultants. Every CIO, in concertwith their CEOs and CFOs, must be moving torestructure their IT spending mix, setting ex-plicit timelines and goals.

Rob Preston is VP and editor in chief of InformationWeek. Youcan write to Rob at [email protected].

IT Spending Going Up, But Is It Headed In The Right Direction? ROB PRESTON

Businessdown tofrom the editor

IN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

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Cloud’s True Costs >>

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IN THIS ISSUE

10 Bad Ideas For Oracle >>

Cloud Results >>

How To Fail In The Cloud >>

Cloud’s True Costs >>

Table Of Contents >>

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