Profits in the Cloud

Atlantic Dominion Solutions LLC (ADS) is something of a rarity in the IT world: a solution provider with SMB clients that's making real money reselling cloud computing resources. Specifically, the Winter Park, Fla.-based application development and data warehousing firm is leveraging "platform-as-a-service" offerings from the Amazon Web Services division of Amazon.com Inc. Drawing on Amazon's Elastic Compute Cloud (EC2) and Simple Storage Service (S3), which offer hosted processing power and storage space, respectively, ADS is building custom solutions for its clients that require no up-front investment in back-office hardware or software. Like most cloud platform providers, Amazon charges customers only for the resources they use, as they use them, and it scales those resources up or down dynamically as needs fluctuate.

With money tight and credit scarce, more and more businesses see appeal in that pay-as-you-go pricing scheme, which is why cloud-based projects are making an increasingly large contribution to ADS' bottom line. "I'd say about 20 percent of what we do is in one way or another involved with the Amazon platform," suggests ADS Chief Executive Officer Robert Dempsey.

Definitions of cloud computing vary widely. But if you thought it was just about software as a service (SaaS), get ready: There's a new cloud on the block. Web-based platform offerings from Amazon, Google, Microsoft, and a host of lesser-known players with names like FlexiScale and Joyent are catching on fast-especially with SMBs. And while some channel pros question their reliability and security, others are finding lucrative new ways to profit from them. "The opportunities are definitely out there," Dempsey says.

Capacity on the fly

The latest market projections seem to bear Dempsey out. According to analyst firm IDC, spending on cloud services will nearly triple over the next five years, hitting $42 billion by 2012. Moreover, predicts IDC, cloud-related outlays will account for 25 percent of IT spending growth in 2012 and nearly a third of growth in 2013.

SMBs are responsible for a great deal of that spiking demand. "The most popular users of cloud platforms out there are small businesses," says James Staten, a principal analyst at Forrester Research Inc. That's no surprise, he adds. Notoriously short on cash, SMBs were bound to find an infrastructure model that frees them from buying and maintaining hardware attractive. Plus, since cloud vendors charge customers only for the platform resources they use, there's no overspending on underused server and storage capacity. "If your business is small and stays small, so does your bill," Staten notes. If you grow, your IT costs grow no faster than the rest of your company.

Platform-as-a-service offerings provide increased flexibility too. Traditional server hosting companies usually insist on long-term rental agreements. Most cloud providers, however, let businesses tap into their resources for as long or short as they like. "Give them your credit card number and you're in business," Staten says. And you can scale that business as far and as quickly as you want.

Consider the case of New York City-based Animoto Productions. The digital media startup's Web site, animoto.com, converts still images into music videos. When membership on the site grew from 25,000 to 250,000 in four feverish days, its Amazon Web Services infrastructure automatically kept pace, adding some 3,300 servers worth of capacity on the fly.

Management muscle required

Meanwhile, few SMBs can afford the kind of data center management muscle that cloud vendors employ. Most cloud platforms have multiple layers of redundancy at every potential point of failure, not to mention armies of technicians on 24/7 standby. And though some companies worry about the dangers of sharing server space with strangers, security is usually tighter in the cloud too. "We can afford data protection and fault-tolerance solutions that are far more robust than most of our clients can [afford]," says Mike Eaton, CEO of Cloudworks, a provider of cloud-based desktop and server solutions in Thousand Oaks, Calif.

Not that cloud platforms aren't without their drawbacks, of course. For one thing, while most cloud vendors offer service-level agreements (SLAs), they rarely promise-or achieve-the fabled "five 9s" of availability. Indeed, both Amazon EC2 and Google App Engine experienced highly publicized, multihour outages last June. Then there's the problem of vendor "lock in." Today, at least, portability between clouds is extremely limited, so migrating solutions from one cloud to another can be somewhere between a chore and an impossibility.

High dollars per hour

Even so, cloud platforms continue to attract users. "At the beginning of [2008], cloud computing was a neat new idea that only some early adopters were using," says technology evangelist Michael Sheehan of GoGrid, a cloud platform provider in San Francisco and a division of ServePath. "Now I believe it should be included side by side with any IT recommendation that an IT reseller or solution provider delivers."

And not just because customers like the new technology option, Sheehan and others say. The platform-as-a-service model has plenty to offer channel pros too. For starters, handing infrastructure management off to a cloud vendor enables solution providers to focus on more sophisticated tasks, like strategic IT consulting and customizing business applications.

"Those sorts of things tend to be higher dollar-per-hour opportunities," Eaton notes. Moreover, as adoption of cloud-based services accelerates, businesses are sure to need help integrating them, both with each other and with on-premise systems. "There's a pretty big gap in the market in terms of delivering that expertise," observes Kris Tuttle, director of research at analyst firm Research 2.0.

Leveraging the cloud could prove beneficial to managed service providers (MSPs) as well. Tapping into platform-as-a-service products enables MSPs to sell processing power and storage space along with the usual remote monitoring and backup services. SMBs are likely to find such an all-inclusive, "no capital option" tempting, says Brian Wolff, vice president of sales and marketing at BlueLock Co., a cloud provider with headquarters in Indianapolis.

Posing tough questions

Of course, once you've decided to make use of a cloud, you must next decide which one. There is a wide variety of cloud operators to choose from, ranging from corporate giants like Microsoft to smaller companies such as GoGrid and BlueLock. "Evaluate them carefully," Eaton of Cloudworks advises. "It's a really important relationship."

Start by comparing the cloud vendor's offerings to your needs. Some cloud platforms, such as Amazon's EC2, essentially offer access to a complete virtual server. "That gives you the greatest degree of freedom in how you configure your application and the operating system," says Forrester's Staten. Other clouds, such as Google App Engine, give you little to no control over OS selection and setup options, but are far simpler to use. "Anybody who has the basic skills to write a Python script can drop that onto Google App Engine, and they take care of everything else," Staten says.

Don't just assess a cloud vendor's technical capabilities, though. Pose the same tough questions you'd ask of any significant new partner. How long have they been in business, and how solid are they financially? What kind of support do they offer, and how strong is their SLA? How deep is their data center management know-how? And don't rely solely on the cloud provider for answers either. Ask an existing client or two how responsive the cloud vendor is to problems, and how often problems occur. "You really have to be careful about what people's claims are," Eaton warns.

Needless to say, once you've found a cloud you like, experiment with it in-house before putting customer solutions onto it. In fact, Research 2.0's Tuttle recommends moving your own company's infrastructure onto the cloud as a good initial step. "My goal would be to create a suite of cloud-based applications that I really understand [and] that I can make work in my customer environments," he says. Once you're ready to trust your clients' systems to the cloud, start with the least-critical ones first. "The ability to hand off something that has less risk associated with it is always a good way to approach it," says Wolff of BlueLock.

Ultimately, though, how you approach the cloud is less important than beginning your approach now. According to David Mitchell Smith, a vice president at Gartner Inc., channel pros without cloud computing skills could be at a competitive disadvantage as soon as 12 to 18 months from now, given the rapid rise in SMB demand. Tuttle shares that view. "The fact is that more and more services every day are going into the cloud," he says. "As a channel guy you need to get there, and you'd probably rather get there before your clients than after."