Anthony Rosier can identify the size and specifications of a bolt, nut or screw at 20 paces. He runs a small hardware wholesale business in Sydney's Sutherland Shire, specialising in the importation and supply of small hardware. After 28 years in business, the company, General Fasteners, is expanding, Rosier is putting on staff and having to think seriously about what would happen if his computer systems went down. "About three months ago, I decided we needed to back up our data offsite because if we lost it we would be out of business," Rosier says. "We don't have an IT guy, it's all basically up to me, and losing our data was always at the back of my mind.”
Rosier could not afford to install the computing equipment he needed or to pay an information technology administrator. Like 2 million other small businesses in Australia, he needed to find a way to expand his business without expanding his costs.
It just so happened that the software he needed was available online. So Rosier took his business into "the cloud". Cloud computing, for most businesses, refers to them using the internet to store data or access software on a pay-per-use basis (the complete definition of cloud computing refers to a collection of technologies that can be accessed via the internet). The term cloud refers to the big billowing shape often used to indicate the internet in technical drawings.
From the time the first Hotmail was sent in July 1996, using the internet to store data and access software has been part of the online experience. The idea of offering business software over the internet has been tried a number of times in the intervening decade-and-a-half, and early attempts often failed because of unreliable internet connectivity and concerns regarding security and risk.
Greater reliability and more confidence in internet security means that cloud computing is now being offered as a way for companies of all sizes to reduce the risks and costs associated with maintaining computing resources in-house. These cost reductions are possible in part because of improvements to internet connectivity, especially in urban and city areas, and in part because of a technology called server virtualisation which enables many different software applications to run on a single server.
A server is a large computer designed to run software. Usually, only one software application can be run on a single server despite the fact that most applications use only about 10 per cent of a server's data storage and processing capacity. When these virtualised servers are linked together in secure data centres with access to multiple power sources and internet connections, they provide significant economies of scale, greatly reducing the cost and risks normally associated with data storage.
To run efficiently, servers need a reliable power supply - spikes and brown-outs will destroy digitally stored data - and servers also need to be kept cold to reduce the risk of damage due to overheating.
These huge, virtualised data centres are the ticking, whirring, beeping and freezing heart of the cloud-computing revolution. As a small-business Telstra customer, Rosier found he had access to a range of software and computing services over the internet through a technology launched in March called T-Suite.
Rather than buying the necessary software and hardware, installing it and running it in his premises, Rosier simply pays to use it on a monthly basis as part of his telephone bill. Telstra runs the software and stores the data in the same way that a bank stores Rosier's money.
"When I needed to put on more staff, we started using a piece of software called Workforce Guardian," he says. "It basically writes our employment contracts for us and it's all available online. We also started backing up our data at night just because it helps me sleep better. I pay for it all in my monthly Telstra bill and I don't have to think about maintaining or upgrading or fixing it or anything.”
Telstra's T-Suite introduced hundreds of thousands of small businesses to the concept of cloud computing. However, the idea of accessing software and storing data online is almost as old as the internet itself.
About 12 months after Hotmail was launched, the executive director of Virtual Offis, Craig Allen, bought into a data-centre facility at Pyrmont, Sydney, and began offering companies the opportunity to access software online.
"I've been working on this for 12 years and it hasn't been until the last 18 months that there has been a broad change in the way businesses approach online computing services," Allen says. "For years, the objection has been that company data is too precious to trust to anyone else. But what most companies fail to realise is that their data is in more danger in their own computing facilities than it would be if it were held in a purpose-built facility with access to various sources of power and internet access.”
Certainly, trusting company data to external cloud-computing suppliers remains a risky business. While it is true that the level of protection and disaster-recovery infrastructure in most commercial data centres far exceeds anything usually available to small businesses, it is a sector that remains unregulated.
"Right now, data is technically more secure in most commercial data centres than it is in the small server farms operating in many small to medium businesses, but there's no legislation to protect those businesses from data loss outside the contractual arrangements between the customer and cloud-computing provider," the managing director of security-software vendor Clearswift, Peter Croft, says.
"It would help if there was legislation in place to protect the customers in the same way there is legislation in place to govern the banking sector.”
A number of challenges to the current rapid expansion of cloud-computing services in Australia remain. Cloud computing relies on high-quality internet connectivity and large-scale data centres.
While stronger internet connectivity will eventually be provided through the federal government's national broadband network, the need for large data-collection bases resides at present in a clutch of commercial data-centre providers, the information technology equivalent of the big four banks. The biggest data centres in Australia are owned and operated by companies such as Telstra, Optus, Global Switch and Macquarie Hosting. While there are dozens of smaller data-centre providers with planned builds throughout the country, many are still struggling to find all-important anchor tenants to get their projects off the ground.
"This business will remain strong in the coming years because there isn't going to be any slowdown in demand for hosting services," says Aidan Tudehope, managing director of hosting at Macquarie Telecom, which posted an 81.9 per cent profit rise in 2008-09.
"Most software providers now develop their products with the cloud-computing-in-mind approach from the very beginning, and as a hosting company we need to ensure we create the environment to support these sorts of services," he says.
Macquarie Telecom also hosts a software- as-a-service incubator program in an effort to attract software developers to the fold. Tudehope believes the longer term will see cloud-computing technology progress to the point where it is provided ubiquitously as a utility service for business.
"The national broadband network will be genuinely transformational in terms of the access business will have to software services over the internet," he says.
"The truth is no one can predict exactly what we'll be using it for in five to eight years' time, but we will definitely be using more and more hosted services over the internet. It's the way of the future."
• Cloud computing: An approach to the provision of computing services which enables multiple end-users to source software from and store data on a large pool of clustered computers via the internet.
• Server: A large computer used to store or process data.
• Software-as-a-service: When software is provided via the internet and sold on a subscription basis. Rather than buying software as a package, installing and maintaining it on premises, the customer license is provided over the internet and charged based on usage.
• Infrastructure-as-a-service: Rather than buying and maintaining multiple servers within an organisation, organisations can access on-demand data-centre facilities from public cloud providers, paying only for what they need at any given time.
• Cloud: When multiple servers are virtualised and connected together to create a dynamic rather than a fixed computing environment for software applications and data storage.
• Public cloud: When multiple virtualised servers are connected up and offered as a pay-for-usage service over the internet. Data and software applications from multiple organisations can be hosted together in clusters of servers, significantly reducing the risks and costs associated with computing infrastructure.
• Hybrid cloud: Where an organisation uses a combination of a public and a private cloud by buying software or infrastructure on a subscription basis, and virtualising its internal data centre or server farm. Definition
• Private cloud: When many virtualised servers are connected up within an organisation to create a more dynamic, flexible and cost-effective computing environment.
• Utility computing: Where software, computing power and data storage is served as a metered service in a similar way to the provision of electricity.
Case study: One small step for van Eyk
Investment research firm van Eyk replaced its in-house servers with a public cloud service from Virtual Offis to reduce both cost and risk. Small and mid-size organisations tend to struggle when it comes to getting the right information technology systems.
Usual technology systems, which require large servers to be installed and maintained internally, lend themselves to economies of scale but are costly and often inefficient to run in smaller organisations.
This was the challenge facing the technology manager for investment research firm van Eyk, Andrew Lidell, mid-way through last year. Working with an information technology staff of seven, he was facing a significant upgrade and increasing administration costs on the company's small clutch of servers.
"We needed to replace a few servers and buy four more, and if you include all the extras like firewalls, anti-virus protection, the cost of the software and networking to hook it all up was about $150,000 just to get the system up and running," Lidell says. "Also, a lot of the maintenance work we need to do on the machines would have to be done out of hours, and although there are seven information technology guys here, five are software developers, so that leaves only me and an administration assistant to run a 24-hour data-centre operation.”
Having run a private cloud internally, Lidell was confident the approach would enable the company to access new applications and services more quickly than usual computing, and also significantly reduce the risk of down time and data loss.
"The redundancy those guys have just can't be matched by a mid-size business," Lidell says. "If anything breaks, they have it covered immediately, and nothing goes offline.
"The risk is less, and it's cheaper to run before you even start taking labour costs into account as well.”
So rather than buy new servers last November, van Eyk moved the bulk of its data and applications into the Virtual Offis data centre in Sydney's Pyrmont, where it resides in a large cluster of servers together with the data and applications run by other companies.
This approach to cloud computing is referred to as a public cloud because the storage and processing power is pooled across a number of servers.
The space and processing power on the servers is dynamically partitioned, meaning that each software application can access the processing power on demand, significantly reducing the costs of power and maintenance.
This is made possible through a technology called server virtualisation, which lets servers be partitioned to run multiple software applications on a single server. The approach also frees Lidell from a lot of administration work so he can focus on a more strategic approach to running the company's information technology.
"A lot of different software applications run on the same hardware," he says. "That's the beauty of virtualisation.
"We have a secure connection between the Virtual Offis data centre and information technology systems are more reliable than we could have possibly made them internally."
Case study: Virtual velocity
Air freight joint venture Australian Air Express uses Salesforce.com software-as-a-service to host and manage its customer data.
Customer data is just about the most precious resource Australian Air Express owns, which is why product manager Matt Larkin decided to make use of cloud computing to host the customer relationship management software and the data the company needed.
"I was appointed in July last year essentially to find customer relationship software which would enable the company to improve the way it dealt with customers," Larkin says. "Prior to that we had a customer database that was commercially driven. It was really run by accounts payable, and didn't work for us when it came to tracking client interaction.”
Australian Air Express is a joint venture between Qantas and Australia Post. It has over 1000 staff and offers a door-to-door package delivery service between Australia and over 200 countries around the world.
Matt Larkin decided to make use of the software-as-a-service provider Salesforce.com to host its customer data rather than buy servers to host the software application and data within the organisation.
Software-as-a-service providers such as Salesforce.com have access to huge data centres where data from different companies is pooled, offering much better back-up facilities than anything currently provided by individual companies. "I think our data is safer with Salesforce.com than it would be if we hosted it internally, and because it's an online system, we can access it anywhere no matter what happens to our offices," Larkin says.
Between July and September last year Larkin looked at a number of customer relationship management tools, ultimately settling on the Salesforce.com approach as it was less expensive, less risky and more flexible than in-house alternatives.
"We needed something that was easy to use and easy to change, so that we could apply it to the existing Australian Air Express processes," Larkin says.
"Our core business is freight, not information technology, so it makes sense for us to use a system which is easy to understand and requires a minimum of information technology staff internally.”
The software roll-out and staff training took a month to complete, and by October last year all Australian Air Express staff were using Salesforce.com software to manage customer data.
The cloud-computing model is also enabling a greater level of flexibility for the company's outwardly facing sales staff who can access and update customer data through low-cost mobile computers.
"All of our external sales people and business development managers were given a netbook - a very small notebook - and there are even applications which will let them update customer files from handheld computers like iPhones and PDAs," Larkin says.
"These guys are on the road for eight hours a day. Cloud computing has just made their job a little bit easier."
Case study: The race to meet demand
The Victorian Racing Club uses hybrid cloud computing to support its website during the busy cup carnival season.
It's the race that stops the nation, and if it weren't for cloud computing, it would also be the race that stops VRC's website.
The website, www.vrc.net.au, is a crucial source of information about the Melbourne Cup, an archive of past races and results, and a key source of advertising revenue for the VRC.
The site experiences a 100-fold jump in traffic in the weeks leading up to the first Tuesday in November when the race is held each year.
On the day of the race itself, traffic soars to more than a million hits, 600 times more than it receives on an average day outside of the carnival season.
As electronic traffic builds in the weeks leading up to the carnival, the data appearing on the website is transferred over the internet from the computers where it is usually held to alternative data storage space - the cloud.
In this case, VRC's website technology provider Citrus uses a hybrid cloud, paying for Amazon's Simple Storage Service for data storage and processing (referred to as a public cloud), and creating a more flexible environment within its own data centre (private cloud).
"About a month prior to the cup carnival, we put into place a hybrid cloud - that is, we use a public cloud to host some of the non-sensitive data which requires very large amounts of storage," Citrus's general manager of technology and operations, Andrew Fisher, says.
"We use a private cloud to expand the storage we can use to support the number of people coming onto the website to access some of the more-sensitive data that we don't want to send out to an external provider."
Data on the public cloud is hosted and paid for according to demand. When a punter logs onto the website to see videos of past Melbourne Cup wins, the source of what they are viewing may be located in Amazon's data centres in Hong Kong or the United States.
This arrangement provides VRC with as much storage as required during the cup carnival, without forcing it to pay for that extra capacity over the rest of the year.
As the cup approaches, Fisher also modifies VRC's data centre operation so that the website can draw on more storage than normal. This is called the private cloud because it uses the same principles of increased flexibility, but the data is held within the organisation's private data centre.
"It's a great resource that ensures the website is available throughout the carnival season when everyone suddenly wants access," Fisher says.
"The only way to do this without cloud computing would be to massively over-provision the VRC's data centre infrastructure during the rest of the year - so that we'd be paying for the computers to just sit idle, which would be a massive cost to the organisation."
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