A year in which the economics of the travel and hotel industries are so bad that business analysts keep making comparisons to the months immediately following the Sept. 11, 2001 terrorist attacks in New York is not generally the time most IT people would be comfortable putting together a disaster recovery plan for the first time. Most would be in their offices, sweating over spreadsheets, looking for ways to trim spending a bit more, or push a project to drive down operational costs. Chad Swartz, senior manager of IT operations at the Preferred Hotel Group, spent most of the year planning disaster recovery and ended up with a big cost-saving strategy for the Chicago-based firm.
Preferred, which specializes in group-travel sales, booking conventions, conferences and corporate outings into its network of luxury hotels, is moving its relatively tiny data center into the cloud.
The company signed up earlier this year for The Enterprise Cloud, a hosted server-and-software service from Terremark Worldwide. Under the plan, Terremark will supply 10 virtual servers - seven on full-time duty and three in reserve for spikes in demand-each with a pre-configured amount of disk space, memory and processing power, as well as a set amount of bandwidth, Swartz says. Actually, Terremark will supply double that eventually; one set for the production environment and an identical one that is physically located in a different Terremark data center, as a disaster-recovery hot site.
The service will cost about US$16,000 per month for the whole kit-and-kaboodle. That compares favorably to the $210,000 Preferred was going to have to pay to refresh its aging Dell servers this year, plus $10,000 per month in co-location and bandwidth fees, Swartz says.
"Everyone is checking their budgets now," says Swartz. "If you go to the board, is it an easier sell to say we need to spend $200,000 in capital costs and $10,000 a month? Or just pay a $10,000 implementation cost and $16,000 per month? The cloud environment is going to explode, if just for the cost savings."
The need for disaster recovery - a mandate that came down from on high after members of the board realized the privately held company had no backup plans - was the driving force behind the investigation into cloud computing service. But it was the cost that sold it, Swartz says.
That's not surprising, given the currently dismal economics of the business- and luxury-travel markets, both key parts of Preferred Hotel's business.
Travel Business Slump Increases Pressure on IT Costs
At this time last year, only about a quarter of all hotels reported they were charging a lower average cost per room than they had at the same time the previous year, according to industry benchmarking analysts Smith Travel Research. Now, more than 40 percent report that they're charging less. Among luxury hotels that number jumps to more than 50 percent. And 20 percent of all hotels report that they're both charging less and are renting fewer rooms than the same time last year.
Travel-agency bookings dropped 11.6 percent during October, according to Airlines Reporting, a transaction clearing house for the travel industry. The Air Transport Association also forecasts a 10 percent drop in the number of passengers travelling during Thanksgiving this year. Smith Travel Research predicts demand for hotel rooms will drop slightly during 2009 and 2010, while the supply of hotel rooms continues to rise at about 2.5 percent per year this year and next.
That's not the kind of environment in which most IT executives would try to implement a disaster recovery plan, outsource their data center and launch a customer relationship management project all at the same time, as Swartz did.
Swartz, who was hired less than a year ago as part of an expansion of Preferred Hotel's IT staff from one person to seven, actually went into the cloud investigation assuming the company would shift over to VMware virtualization environment but continue to use a co-location service to house the physical servers themselves. When it became clear how much lower the capital cost would be, at a similar ongoing monthly service charge, he was sold.
"With a colo, if something breaks you have to go there and fix it, or have someone send parts and wait until they get there. Meanwhile, everything is pretty much crippled," he says. "In a cloud environment, you have a facility manned 24 hours a day and virtual servers. So if a piece of hardware goes down, I'll never even know about it. [Terremark's] load-balancing takes care of it automatically and puts [the effected virtual server] onto another machine. From an operational perspective, the focus shifts away from maintaining the servers and onto doing other things."
The ability to focus on IT functions unique and specifically beneficial to your own business is one of the biggest strategic benefits of cloud computing, says James Staten, principal analyst at Forrester Research.
"The power of the cloud is that you're being offered these services by people who view data center operations as their business, not something they do as part of the rest of IT," Staten says. "They do it considerably better than you do because it's all they do."
Among companies larger than 1,000 employees, about five percent use cloud computing services, according to a market-survey report Staten conducted and plans to publish early in the first quarter of next year. Among small- and mid-sized companies only about two percent are currently using cloud services, according to Staten's data.
Dumping Legacy Code and Hardware Chores
Cost will get a company into the cloud-computing arena, Swartz says, but convenience and reliability are what will keep Preferred Hotels in it, at least. Being able to rely on Terremark to maintain the hardware is a big step. Being able to call up a configuration screen in a Web browser to raise or lower the amount of processing power, memory and disk space each virtual server gets lets Swartz tune performance as much as necessary, to keep his users happy.
The company uses Citrix software to virtualize its desktop applications onto Terremark's servers, so performance tuning can be a big deal. Putting Citrix on top of virtualized servers drags performance down a certain degree, because every request from the application has to go through two layers of control software to get to the processors. To compensate, Swartz increased the number of Citrix servers from five to seven when he set up the Terremark deal. So far, there have been few problems, he says.
All the company's standard commercial applications have run fine during the two months Preferred has been testing the cloud-based system. Now the company is gradually shifting all its homegrown legacy applications over to the new servers, even as it works on a Microsoft CRM implementation that will replace much of the legacy code, Swartz says.
That won't happen until sometime next year. Until then, there are two more months of testing one function after another of the legacy apps, to make sure they behave while running on virtual servers on a cloud far from the environment in which they were originally conceived.
"We hope to have everything fully tested and make the switchover by the end of the year," Swartz says. The company's production servers still live at its old co-location facility and the shiny new cloud system is mostly for backup. "Right now we're paying twice; once for the colo and once for the cloud, so we're eager to cut that out as soon as possible," Swartz says.
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