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Consolidation, Virtualization Higher Priority Than Move to Cloud

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REPORT

October 6, 2011 Companies: AMZN, BBBB, CRM, EQIX, GOOG, INTC, MSFT, RAX, VZ

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Reverdy Johnson, [email protected], 415.364.3782

Adam Lesser, [email protected], 310.500.0833

Summary of Findings

Data center consolidation and virtualization are higher priorities

than outsourcing infrastructure among enterprise and government.

After IT staff have prioritized internal infrastructure cleanup, they

will evaluate whether to move to the cloud and which systems to

move. Cost, security, reliability and control will be key in evaluating

whether to enter the cloud.

Wide-scale shifts to the cloud are not taking place. Cloud services

are growing faster among SMBs.

Enterprise and government agencies are focused on software as a

service (SaaS) rather than infrastructure as a service (IaaS). They

are interested in hosting low-risk, discrete software applications

such as CRM or e-mail in the cloud.

Companies are developing hybrid solutions to keep data and highly

integrated systems in-house.

Other items of interest:

One-fourth of sources said the cloud does not save as much

money as originally thought.

Some government agencies are beginning to specialize in

offering cloud-based services to other agencies.

Government consolidation of legacy applications is proving

more difficult than expected.

An opportunity exists in the analysis of ―big data‖ in the cloud.

Consolidation,

Virtualization

Priority Over

Cloud

Security

Largest

Concern in

Move to Cloud

Private Cloud,

Hybrid

Solutions

Gaining Steam

Enterprise IT

Personnel

Government IT

Personnel

Data Center

Operators

Industry

Specialists

Software/Service

Providers N/A

Hardware

Manufacturers N/A N/A

Research Question:

How much of the crop of data centers will be outsourced over time, and what is the

timing of this trend?

Silo Summaries 1) ENTERPRISE IT PERSONNEL These three sources are engaged in virtualization

projects as they consolidate data centers. They are

beginning to evaluate a move to the cloud but will not

make decisions for the next six to 12 months. In two

sources‘ firms, management is pushing for a move to

the cloud but their IT departments are more cautious

and pushing for a more thorough evaluation.

2) GOVERNMENT IT PERSONNEL Three sources have given virtualization projects top

priority and expect to complete them in one to two

years; after this, sources will evaluate cloud services.

Government agencies are hesitant to proceed into the

cloud, especially the public cloud, because of security

risks, loss of control, staffing uncertainties, and a lack

of transparency in cost structure.

3) DATA CENTER OPERATORS Three sources said data centers hold distinct

advantages that keep companies from migrating to the

cloud—primarily the ability to ensure more control and

security. Enterprises will operate their own data centers

onsite or in colocation facilities wherein they retain

ownership of the servers, or opt for private cloud

services with enhanced encryption and security.

4) INDUSTRY SPECIALISTS Two of three sources said the cloud is about to see

significant adoption, but a third source said migration to

the cloud will be slower than expected. Security remains

a chief stumbling block to cloud migration, and

reliability has become equally, if not more, important.

Outages within Amazon and Dropbox prompted firms to

consider a more hybrid approach.

5) SOFTWARE/SERVICE PROVIDERS These four sources said a move to the cloud is a

tremendous advantage for small companies looking for

cost savings and increased reach. Cloud adoption

provides a better return than a data center or

virtualization. Data ownership and reliability are larger

concerns than security.

6) HARDWARE MANUFACTURERS One said the cloud is the fastest growing segment of his

business. The other said larger companies are better off

using in-house systems or data centers because the

cloud can become too expensive.

http://searchcloudcomputing.techtarget.com/definition/Software-as-a-Service

http://searchcloudcomputing.techtarget.com/definition/Software-as-a-Service

http://searchcloudcomputing.techtarget.com/definition/Infrastructure-as-a-Service-IaaS

Data Centers vs. the Cloud


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Background

Although the move to cloud services, particularly among small and midsize businesses (SMBs), has been steady, questions

remain regarding the adoption rate among large enterprise companies and the government, which have control and security

concerns about the cloud.

CURRENT RESEARCH This report aims to determine whether enterprises will run their own data centers or move to the cloud, and how quickly they

move toward adoption. Blueshift employed its pattern mining approach to establish and interview sources in seven

independent silos:

1) Enterprise IT personnel (3)

2) Government IT personnel (3)

3) Data center operators (3)

4) Industry specialists (3)

5) Software/service providers (4)

6) Hardware manufacturers (2)

7) Secondary sources (8)

Blueshift interviewed 18 primary sources and included eight of the most relevant secondary sources focused on a shift to

private or hybrid cloud, security as the top challenge to the government‘s cloud implementation, Amazon.com Inc. (AMZN)

adding encryption to its cloud offering, budget cuts threatening to slow the federal cloud transition, and expansion of data

centers worldwide.

Silos

1) ENTERPRISE IT PERSONNEL These three sources currently are engaged in virtualization projects as they consolidate data centers. They are beginning to

evaluate a move to the cloud but will not make decisions for the next six to 12 months. A move away from data centers is

helping to improve efficiency and use of resources. Concerns regarding the cloud include security, unpredictability of cost,

loss of control, and a lack of support. For this reason, one source expects to move to a private cloud, and another will only

move e-mail, disaster recovery and Web hosting to the cloud. In two sources‘ firms, management is pushing for a move to the

cloud but their IT departments are more cautious and pushing for a more thorough evaluation.

Infrastructure manager for a national nonprofit association

This source is evaluating cloud services for disaster recovery, Web site hosting

and e-mail archiving. He will test outsourced e-mail archiving with Google Inc.

(GOOG) next month, but will not outsource anything tied to the association‘s

member data. The unknown that comes with the acquisition or dissolution of a

cloud provider is a concern. This source sees his organization maintaining a

hybrid cloud system, hosting some data and applications in-house. Lack of

resources, staffing and cost are all motivators for moving a data center into the

cloud. Outsourcing also allows firms to roll out new features and services more

quickly. Many cloud service providers do not appear to offer insurance against

security failures, and will not be held liable for any data breach. Still, a cloud

provider could deliver security and control that is superior to an internal

department, but this goes against many people‘s perception of the cloud.

―For a long time we‘re going to have a hybrid cloud environment. We‘re

building a private cloud in the data center right now using virtualization

technology. Then we‘re starting to leverage the public cloud. We‘re

going to be in that mode for a long time, where there are some

For a long time we‘re going to

have a hybrid cloud

environment. We‘re building a

private cloud in the data center

right now using virtualization

technology. Then we‘re starting

to leverage the public cloud.

We‘re going to be in that mode

for a long time.

Infrastructure Manager

National Nonprofit Association

http://www.google.com/postini/index.html



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services that we need or want to provide out of our private cloud, and there are some services that have been

commoditized and are perfect fits for the public cloud. And the trick is going to be to tie them together.‖

―Cloud services are making disaster recovery possible for the first time for a lot of organizations, possibly

because it‘s now cheap enough to do. In the past you had to build a second data center for yourself, which is

very expensive. Now you can simply leverage the resources that are in the cloud to do a lot of that disaster

recovery.‖

―We‘ve completed an RFP process, and we‘re in final negotiations with a company that is a cloud-provided

disaster recovery facility. By outsourcing disaster recovery to the cloud, we can spend substantially less and

have a running disaster recovery facility ready to take over almost instantly in the event of a disaster, for maybe

half or less of what we were paying before.‖

―We get more and more requests for IT to deliver things, and it‘s become almost impossible to keep up with

providing enough infrastructure fast enough to keep the customer happy. In a cloud environment, we‘re able to

deliver these servers and infrastructure much more quickly.‖

―One of the first things we‘ll likely move to the cloud is something like e-mail archiving. There are some security

concerns, but a lot of e-mail traverses the Internet anyway. We‘re

looking at Google for this.‖

―I have a single engineer who understands the storage environment,

and he‘s already at retirement age. When he goes, I have no idea what

I‘m going to do. That‘s why we start to look seriously at hosted storage,

for example. If I don‘t have to worry about a storage engineer and we‘re

simply using Google storage or Amazon storage, that‘s a safety net for

me and it may be the only way that I can continue to deploy more

storage.‖

―We‘re going to test some of Google‘s services within the next month,

and that could lead quickly to Google doing our e-mail archives. Longer

term, e-mail itself is ripe for moving into the cloud.‖

―We already have servers at Rackspace [Hosting Inc./RAX] for mainly

Web sites—Web sites that don‘t have integral ties to private data.‖

―Amazon has a terrible reputation for customer support. I decided to

spend extra money to use Rackspace.‖

―When I go to conferences and they poll the group on how many people

are moving core databases into the cloud, there are still a lot security concerns and loss of control concerns,

and people just aren‘t doing it. … They‘re moving certain things to the cloud, like e-mail archiving, but when you

talk about those core or private databases, they‘re not doing that yet.‖

―Some of the security concerns about the cloud may be overblown. In terms of relative risk, what I‘m hearing is

that we may actually be more insecure here in our building than some of the better hosting providers would be.

So it‘s kind of a question of relative risk.‖

―As we experiment with more cloud service providers, what we‘re finding is they have very limited liability

coverage in the event of a data breach, and that‘s definitely slowing us down in our move to the cloud. We don‘t

want to end up on the front page of The New York Times as losing a million records of member data.‖

―What happens if a cloud provider gets bought or goes out of business? How do you get your data back? Or let‘s

say you want to move cloud providers. Do they completely delete all your data when you tell them to? Is it easy

to remove it from the cloud and get it to another provider?‖

―[Cloud service providers] are not hand-holding you the way IT would, so when something goes wrong, they say,

‗There‘s not a lot we can do for you. You‘re responsible for the application. You‘re responsible for making sure

everything works on top of the infrastructure we provided you.‘‖

―If you do the math over three to five years, we‘re providing storage for our organization cheaper in-house than

we could buy externally, but we may be fooling ourselves a little bit too. It‘s very hard for us to add in the staffing

resources required to keep that storage upgraded and managed and flexible. That‘s why I think paying the

premium for something like e-mail archiving is going to be OK because that storage is going to be automatically

upgraded for the same cost per month that we‘re always paying. And then they‘ll add things like the application

acceleration for the same monthly price.‖

―I‘m very eager to get to a model where we can start to charge back as well. Right now a lot of demand on IT

resources is uncontrolled because they appear free to the developers and the users. They know how cheap

There are still a lot security

concerns and loss of control

concerns, and people just

aren‘t doing it. … They‘re

moving certain things to the

cloud, like e-mail archiving, but

when you talk about those core

or private databases, they‘re

not doing that yet.

Infrastructure Manager

National Nonprofit Association

http://www.rackspace.com/



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Google storage is, and they know they can have their Google e-mail box and it looks practically unlimited to

them, and they wonder why IT can‘t deliver the same things as cheaply. The costs aren‘t visible to the users, but

if we can start charging back to the developers who want eight servers for a Web site, they might think a little bit

more about it and be a little more conservative in their requests. They‘re used to paying for other things. They‘re

OK with paying Rackspace a monthly fee. Why can‘t they pay us a monthly fee for their servers?‖

―We‘re always resource-starved. We‘re slow to introduce new things to customers. The danger is IT looking

unresponsive to our customers. If we can‘t update our systems as quickly as they see things get upgraded

online, we don‘t look like we‘re doing our jobs.‖

Director of infrastructure for a midsize publishing company

The organization completed a major virtualization project in December 2010, during which the company-owned and -

operated data center with a footprint of 10,000 square feet was moved to a single rack in a colocation facility owned by

another party. Outsourcing holds many potential benefits for this company, including cost savings, faster time-to-market

with new applications, and availability of on-demand resources. Management wants to move operations to the cloud

quickly. However, the IT department is more hesitant because the existing investment has not yet depreciated. Other

roadblocks include the risk of change, the unpredictability of cost and support, and the loss of control. In the near term,

the source believes the company will move to Salesforce.com Inc. (CRM) as a hosted customer relationship management

(CRM) platform to save on its current, expensive private cloud. The company also will consider outsourcing the

infrastructure for some of its smaller e-commerce sites during the next 18 months. Beyond that, it may consider moving

from its current enterprise licensing deal for Microsoft Corp.‘s (MSFT) Office software to the Office 365 service suite.

―Cost is motivating discussion about public cloud [services], but right now it‘s just been discussions. A lot of it

comes down to timing. We need to find a balance between support and flexibility and at the same time [find]

cost savings.‖

―CRM will be cheaper in the cloud. Currently, we run SAP

[AG/ETR:SAP/SAP] in a private cloud, and the cost is enormous.

Salesforce has a platform as a service [PaaS], and the time-to-

implement is very attractive. The multiple integration points and

flexibility are things we‘re also looking forward to. For example, we have

a cloud-based phone system that we implemented, and they integrate

with Salesforce out of the box. It tracks not only when we talked to a

customer but how long we talked to them. It adds value to that data. [It]

gives us the advantage without the cost and without the risk of trying to

implement that ourselves.‖

―The benefits [to outsourcing Web publishing] include time to market

and on-demand resources. It‘s been a problem to scale up quickly

without requiring a lot of engineering. It really depends how far up the

stack you go on a Web publishing system in how much that will be

reduced. Right now it‘s a big unknown.‖

―I worked at a public company before this and they had to be SOX-compliant, so we had all kinds of security

things. That sense is not here. It‘s hard to worry about your shoes if your hair‘s on fire. We haven‘t gotten to a

point where we can worry about security when we‘re worried about making our servers work. It‘s not really part

of the discussion, but I think the mentality is that [cloud] providers have customers who require a lot more

security than we do. They already far exceed our requirements.‖

―Reasons we would decide not to outsource include an existing investment that hasn‘t been depreciated yet and

the normal risk of change, with the possibility of there not being any realized benefits at the end. Also … we

believe we can do things as well if not better than anyone else.‖

―We are concerned about the level of support we would receive putting all our eggs in a basket. There‘s a risk of

the costs not being as predictable as we thought and the risk of actually spending more money.‖

―You have to pay more to get more support. Look at Google e-mail. The more expensive the offering, you have

more support. It‘s a concern for me because regardless of the agreement that we have with the company,

people are going to look to me when things are down. I can only say I‘m going to call them again so many times.

At some point it‘s important to me that I cover my own responsibilities because people are going to look to me to

have it fixed.‖

Cost is motivating discussion

about public cloud [services],

but right now it‘s just been

discussions. A lot of it comes

down to timing. We need to find

a balance between support and

flexibility and at the same time

[find] cost savings.

Director of Infrastructure

Midsize Publishing Company

http://www.salesforce.com/

http://www.microsoft.com/en-us/office365/online-software.aspx#fbid=yyUAhSfTTQW

http://www.sap.com/country-selector.epx

http://www.sap.com/country-selector.epx

http://en.wikipedia.org/wiki/Platform_as_a_service

http://www.sox-compliance.net/



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―Availability‘s also a concern to me. Microsoft‘s had a number of

outages. They‘re not critical, but they‘re not the 99.9% that a lot of

people strive for.‖

―Upper management is pushing more because they believe in the

savings. And middle management and the worker bees are more

hesitant because they know they‘ll still have to be responsible and

there might not be the savings.‖

―We‘ll go to Salesforce probably in 90 to 120 days.‖

―Outsourcing e-commerce sites will probably be more like 18 months.‖

―The only other one we‘d consider outsourcing soon would be Office

365 because although we have a substantial investment in Microsoft

Office, we have an enterprise account and they‘d honor that

agreement.‖

Systems engineer for a global broadband satellite systems supplier

This source is deployed on a virtualization project to consolidate the company‘s four data centers. He cites greater

efficiency of space and resources and greater ease of use as the primary reasons for consolidation. Virtualization started

within the last year, and the project has no end date of yet. For every existing system that is virtualized, the company is

building up to four new ones in the virtualized environment. He has begun to hear discussions around potential cloud

opportunities, and expects discussions to progress further in the next six to eight months, with serious consideration

given to migrating to a private cloud at that point. The company is unlikely to use public cloud services because of

availability concerns and fear of a loss of control. As a service provider, the company does not want to be reliant on

someone else‘s infrastructure to maintain performance levels. Data security is less of an issue, but the source reported a

major emphasis on PCI and SOX compliance.

―We just started with our first round of PCI systems that have been virtualized. Before that, it was moving

internal stuff.‖

―Our data centers are a couple thousand square feet. We have a four-rack layout with eight or nine servers per

rack, give or take. We took all four of them down and compressed them into four servers.‖

―Right now, the virtualization project hasn‘t happened on a widespread

scale. We really just started this less than a year ago.‖

―People talk about the money saved. It‘s not actually that big a deal.

Servers aren‘t that expensive. It‘s resources [that are] really what‘s

pushing us as a company.‖

―You‘re not just talking about power. You‘re talking about the amount

of cooling that needs to be done in there, the cables that you save,

physical rack space, the man power that you save. It‘s really hard to

put a price on it.‖

―There really is no end date [for virtualization]. Every system that we

virtualize, we‘re building one, two, three, four new systems in the

virtual environment. It‘s a constant evolution.‖

―There‘ve been some rumors from higher up that they want us to start

looking into cloud. If we did, we would do it internally. It would be us

hosting it.‖

―It‘s going to come down to cost efficiency, resource efficiency. It‘s

going to be a numbers game in the end.‖

―We house our own systems, we [maintain] our own systems, and anything we can do in-house, we like to. If I

put something out there on somebody else‘s cloud, I don‘t have any control over the back end. If something

goes down, I‘m at somebody else‘s mercy.‖

―One of the questions that came up was could you house a PCI system on a non-PCI host? A security expert said

it‘s not good enough to have the operating system locked down. The host behind it also has to be PCI-

compliant.‖

Upper management is pushing

more because they believe in

the savings. And middle

management and the worker

bees are more hesitant

because they know they‘ll still

have to be responsible and

there might not be the savings.

Director of Infrastructure

Midsize Publishing Company

We house our own systems, we

[maintain] our own systems,

and anything we can do in-

house, we like to. If I put

something out there on

somebody else‘s cloud, I don‘t

have any control over the back

end. If something goes down,

I‘m at somebody else‘s mercy.

Systems Engineer

Broadband Satellite Systems Supplier

http://www.pcicomplianceguide.org/



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2) GOVERNMENT IT PERSONNEL Three sources have given virtualization projects top priority and expect to complete them in one to two years; after this,

sources will evaluate cloud services. Efficiency, cost predictability, and agility are attractive elements of the cloud. However,

government agencies are hesitant to proceed into the cloud, especially the public cloud, because of security risks, loss of

control, staffing uncertainties, and a lack of transparency in cost structure. One source‘s agency would rather follow than lead

others into the cloud. Another said the initial emphasis on the cloud will be on nonessential applications and that the agency

will not outsource items heavily integrated with other parts of the IT infrastructure.

Chief enterprise architect and director of network operations for the legislative branch of a federal organization

The agency is very interested in investigating outsourcing opportunities in the future, but the immediate priority is an

initiative to consolidate infrastructure and virtualize application systems. That process is expected to take at least two

years. Improved operational efficiency, greater cost predictability and a desire to be more agile in introducing application

functionality are attractive features of moving to a cloud model. Challenges include a need for security, fear of the

unknown, and fear of losing control over how IT is staffed. This agency does not want to be a trailblazer because it lacks

the resources, and would rather look to its government peers to develop an approach to data center outsourcing and

cloud migration. In fact, the agency would consider leasing resources from another government organization that was

able to set up a robust private cloud and its own outsourcing model. This scenario fits with a paradigm of government IT

resource pooling that has developed over the last seven to 10 years. When the agency does start migrating systems to

the cloud, it likely will start with nonintegrated systems like application-specific infrastructure. E-mail would be a good

candidate except the agency‘s e-mail is heavily integrated with its documentation management system. The agency has

500 servers in its main data center, with 100 servers in a back-up center elsewhere.

―We currently are in the middle of upgrading our storage infrastructure in preparation for implementing

virtualization. Once we can get the consolidated storage platform and the basic infrastructure in place for

virtualization, we think we‘ll be ready to embrace a lot of the private and public cloud offerings that a lot of the

vendors are talking to us about.‖

―We‘re looking to be able to reduce the cost of the basic IT infrastructure that we use to support applications

and services. We‘re also looking to embrace things like virtualization so that we can be a lot more agile. And

make the time period from request to actual deployment of an application or service much faster.‖

―Our focus is to reduce costs, increase the infrastructure resource efficiencies, look at ways we can enhance our

business continuity capability, improve the storage efficiency. We also want to increase our data center

flexibility. Once we move into a virtualized environment and we have a repository for our storage, we may even

be able to have it outsourced in a public or private cloud somewhere and even save some money over having

our own data center.‖

―It‘s going to take us at least another year to finish the SAN [storage area network] migration and data

consolidation and to stand up the virtualized infrastructure, and then another year to actually complete the

migration of those applications on to the consolidated architecture.‖

―Some of the nonintegrated or stand-alone applications like e-mail are the low-hanging fruit that a lot of

organizations can take advantage of. Unfortunately for us, our mail system is heavily integrated with our

document management system and several of our back-end systems.‖

―Right now the opportunities are more application-specific than they

are data center systems.‖

―We‘re anticipating the budgets getting worse, so we have to figure out

how to operate not only in the budget we‘re going to have in the next

six months but possibly even less in the future.‖

―We‘ve never done chargebacks here, but cost attributions could be

the benefit of outsourcing.‖

―We‘ve been able to do the refresh on the infrastructure that we own,

or lease to own, every few years. With the budget reality that we‘re

facing, financially we‘re not going to be able to do this refresh.‖

―If you‘ve got mobility as your basic premise, then not having an

infrastructure that you control in-house becomes more realistic as a

model. We are becoming much less bound to the physical building in

that our workforce is becoming more mobile.‖

We‘re in a big gray area right

now because there are

mandates to move to the cloud,

but nobody has ever really

offered a fully integrated

offering that addresses all

these issues.

Chief Enterprise Architect

Legislative Branch of a Federal

Organization



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―We want to be agile enough to support it from anywhere and be able to get to it any time using anything. We‘re

actually looking at, from a hardware resource perspective, not just the data center but the ubiquity of all these

smartphones and smart devices, and that‘s something we can‘t ignore. We have to make sure we have the

capability to support a global workforce with a connection from a multiple set of devices, under multiple

networking platforms.‖

―Our biggest challenge, other than funding, is actually getting the resources to maintain the current operations,

plus preparing ourselves for the new environment.‖

―We‘re in a big gray area right now because there are mandates to move to the cloud, but nobody has ever really

offered a fully integrated offering that addresses all these issues.‖

―We‘re never on the cutting edge here. We‘re not big enough. We want to take advantage of what‘s actually

worked elsewhere.‖

―We‘re looking at what some of the other agencies are doing. … We‘re looking to be more of a follower as other

agencies find that they‘re actually viable and secure options for us.‖

―There are some government organizations that actually provide outsourced cloud solutions. They have their

own infrastructure. We just dial in and pay them a yearly bill to use it. That‘s for software as a service. It‘s

something that we‘re already doing, and it‘s given us an awareness that it‘s taken a long time for those

organizations to be ready to be service providers.‖

―There are government agencies that are service providers, and they have their own private clouds that they

provide those services on. They already have this in their physical infrastructure, with all the security

requirements, certifications and accreditations on their systems.‖

―We follow the model of one app, one server. What we‘re looking to do with virtualization technology is to reduce

that at least initially to a 15:1 ratio. We consider that a considerable savings on just hardware maintenance. But

we know that we‘re going to be able to reduce our electricity bill for cooling and power as well.‖

―We‘re trying to collaborate with a lot of our federal peers. We‘ve been doing a lot of research on our own. We

recently got back an RFI from a considerable number of market leaders to help us come up with a more codified

approach to what we think we need to do and where we‘re going. We‘re hoping we‘ll have a better sense of

what‘s a realistic game plan for us in the next four or five months.‖

―The biggest challenge is battling this new infrastructure environment, learning how to monitor and report on the

performance, availability, reliability of those systems so that we can ensure we‘re not jumping into the fire.‖

―It‘s fear of the unknown. And it‘s also the fear that we don‘t lose control of the staffing to do that work. There

needs to be incredible assurance that data is protected. We‘ve got a very complex environment that‘s taken

many, many years to accumulate.‖

CIO for a large metro-area public school system with 250 supported locations

The IT department has been proactive about examining outsourcing opportunities but still maintains most systems in-

house, primarily because outsourcing offers no apparent cost advantage. In-house infrastructure includes one main data

center, with a second data center for backup and recovery needs and a local high-speed fiber network. Some

applications, like e-mail, are virtualized within the main data center, and the department is in the process of transitioning

local file systems at school locations to virtual machines. That initiative is about 50% complete. Two systems already

reside in the cloud: Blackboard Inc. (BBBB), a hosted learning management application, and Google Apps for Education.

The Blackboard app is delivered on an annual subscription-fee model. The Google Apps system is free and was part of a

Google pilot project. Neither outsourced system required any kind of migration. The IT department will continue to

monitor outsourcing options, and will consider moving systems into the cloud in the future if the economics change. The

source is less likely to consider outsourcing systems that are heavily integrated

with other parts of the existing IT infrastructure. The source also voiced

concerns about moving systems to a public cloud, primarily the loss of control

over maintenance and upgrade cycles.

―We handle internally our student information system, keeping track of

all our kids and demographics, our testing application, a library system

application, our transportation system, and all those are integrated

with each other.‖

―We did have our testing application on the public cloud, and we ended

up bringing it in-house because it was cheaper for us.‖

―It comes down to a cost benefit. If it‘s cheaper to put it in the public

We did have our testing

application on the public cloud,

and we ended up bringing it in-

house because it was cheaper

for us.

CIO, Metro-area Public School System

http://www.blackboard.com/

http://www.blackboard.com/Platforms/Mobile/Overview.aspx

http://www.google.com/apps/intl/en/edu/



8

cloud, we‘re happy to do that. And if it‘s cheaper to do in-house, we‘ll do it in-house.‖

―It‘s easier to have some of our student information systems close by because you‘re doing your own version

upgrades, and things that you would have to pay for somebody else to do in an external data center.‖

―It‘s also having control over when you want to do these upgrades. … If Google Apps decides to do a major

upgrade, we‘re totally at their mercy as to when they‘re going to do that. When you have things in your own

environment, you have a little more control over the timing and whether or not you want to take an upgrade of a

particular application.‖

―We have a very high-quality staff. We‘ve been utilizing for many years

ITIL [Information Technology Infrastructure Library], and we have a very

robust staff infrastructure on how we manage upgrades. We‘re lean

and mean, but we invest a lot in our people to make sure they‘re up to

date and can handle upgrades of various systems. They really are

cross-trained so they can do a lot of these things in-house.‖

―We use Google Apps for Education, which is protected within a secure

environment so it meets federal security requirements like FERPA

[Family Educational Rights & Privacy Act].‖

―We wanted to make sure that people external to the school system

would not be able to access our student files. Because if it‘s in the

cloud, it‘s not within our own firewall, and we wanted to make sure we could protect that, and have assurances

from Google.‖

―We do security from a technical perspective, but we also handle security with contracts. Even though Google

Apps is free, we have a written, signed contract for the Google Apps applications, which includes all of our

security requirements that meet, for example, FERPA. That‘s something that took a while to work through, and is

one of the reasons we didn‘t go to Google Apps earlier.‖

―We utilize a product called Blackboard. We have our own private access to their system, so we do utilize them

as an ASP [application service provider] model, so our systems are on their data centers.‖

―If it‘s cheaper to do in-house, we‘ll do it in-house, and if it‘s cheaper to outsource, we‘ll do it outsourced. So we

do have a combination of the two, and we probably always will. By having that combination, we keep our

vendors pencil-sharp, and you do your best to keep your costs down.‖

―A lot of this market is somewhat in flux. For things like Office applications, we‘re able to put that in the internal

cloud, which makes it easier to move it to a public cloud later. For things that are operational that we have to

manage and run, like our student information system, we like having that in-house.‖

―We kind of like having a mix of virtualized and nonvirtualized applications, and internal and outsourced

applications, but we will continue to monitor the industry. Hardware and storage keep getting cheaper, but so

does the competitive analysis of the public cloud. It‘s a trade-off, and we have to keep our eyes out. It‘s a lot of

work to move from one to the other. Once you have everything consolidated, then it is easier to outsource.‖

Government technology consultant for a large IT services and systems

integration company

This source works with civilian government agencies, and has experience with a

wide variety of agencies. As a general trend, the source sees government

agencies consolidating their data centers and moving to virtualization, but not

all of them have virtualized yet. Plenty of physical hardware and inefficient use

of computing resources still exists. Government agencies are exploring cloud

services primarily for cost savings and to simplify operations. Concerns center

around security, performance and control. Another big challenge for government

agencies is understanding cloud pricing and the services that need to be

bundled with outsourced infrastructure to meet operational needs. The top

candidates for cloud-based services are applications that are heavily

commoditized like e-mail and document suites. The source expects more

agencies to have at least one or two hosted apps in the cloud in a year.

―A big part of moving to the cloud is the cost savings. Also, once you get

to a hosted solution, you don‘t have to worry about uptime and things

When you have things in your

own environment, you have a

little more control over the

timing and whether or not you

want to take an upgrade of a

particular application.

CIO, Metro-area Public School System

You go to Amazon, for example,

and get their EC2 pricing and

you need the server,

connection, bandwidth, then a

special VPN, then certification

and accreditation. It might still

be cheaper than hosting

internally but maybe not much

cheaper.

Government Technology Consultant,

IT Services & Systems Integration Co.

http://www.itil-officialsite.com/

http://www2.ed.gov/policy/gen/guid/fpco/ferpa/index.html



9

like that. You have the SLA [service level agreement] versus internally having to do that yourself.‖

―Security is No. 1. Performance and access are probably No. 2. If you have an SLA and you want fast page load

times, you‘re not directly connected anymore. These are all things you can overcome, but they may not be things

people think about.‖

―I don‘t think [government agencies] understood what moving to the cloud meant. Moving offsite means I don‘t

have a direct connection to my servers anymore. You have to pay for that. And then there‘s security

requirements which complicates where you put things and how you handle it. It‘s not going to be as cheap as

you think.‖

―You go to Amazon, for example, and get their EC2 pricing and you need the server, connection, bandwidth, then

a special VPN, then certification and accreditation. It might still be cheaper than hosting internally but maybe

not much cheaper.‖

―[Providers] have to make it simple to pay for. With Amazon, their

pricing model is crazy. It‘s very difficult to figure out what it‘s actually

going to cost.‖

―Now Amazon actually has a government cloud offering that meets

certain security requirements, which was not the case a year ago.

[Verizon‘s] Terremark is another one. They can do classified data.‖

―E-mail is the most commoditized. That stuff seems to be good for

outsourcing, like Office 365 and Google Apps.‖

―Custom apps I would see coming later, and obviously the secure stuff I

see coming later, if ever.‖

―I‘m working with one agency now where we‘re going to be moving

them into one of our data centers. Another one is struggling with

pricing and figuring out how to price it, and budget for it.‖

―Another one moved into another private government-based cloud. It was relatively new. They did not get the

performance they wanted, the capacity they needed. It‘s different from a public cloud model. With Amazon you

can just give a credit card and buy service. We need to get to that in the government private-cloud space.‖

―In a year, outsourced hosted applications will be much more common than now. There will be more assurance

for security. Agencies won‘t have to do as much work.‖

3) DATA CENTER OPERATORS These three sources said data centers hold distinct advantages that keep companies from migrating to the cloud—primarily

the ability to ensure more control and security. SMBs have been quicker than enterprises to move to the cloud. One source

said Amazon‘s Elastic Compute Cloud (EC2) and Rackspace Hosting Inc. (RAX) lack a failover mechanism that data centers

possess. Enterprises will operate their own data centers onsite or in colocation facilities wherein they retain ownership of the

servers, or opt for private cloud services with enhanced encryption and security. Another source said the cost advantage

associated with the cloud disappears when the necessary customization is taken into account.

Senior infrastructure engineer for a large SaaS organization with managed hosting services

Approximately 15% to 20% of this company‘s customer base have chosen to purchase managed hosting. That

percentage has gone up but only slightly during the last decade. The size of the customer base, however, has risen

steadily in that time. For customers who choose the managed hosting option, the biggest selling point is improved costs;

outsourcing the data center infrastructure is more cost-effective because of the engineering personnel required to

support it. The biggest barrier for customers in choosing to purchase managed hosting is fear of a loss of control.

Customers have expressed some security concerns regarding managed hosting. Although this source‘s company runs a

private cloud, his team has looked at using public cloud services but found that cost advantages disappear once

customization is required. Using the public cloud for computing power might be a better option because it is more

standardized, but this again brings up concern around loss of control. If the advantages were better explained by the

sales team, more customers would choose the managed hosting option.

―I don‘t know if we‘ll actually hit a logarithmic adoption rate in terms of percentage of customers choosing

managed hosting services in the future. There are additional challenges just in our sales team. There are

In a year, outsourced hosted

applications will be much more

common than now. There will

be more assurance for security.

Agencies won‘t have to do as

much work.

Government Technology Consultant,

IT Services & Systems Integration Co.

http://aws.amazon.com/govcloud-us/

http://www.terremark.com/about/news/archive/2011/09292011.aspx

http://aws.amazon.com/ec2/

http://www.rackspace.com/

http://en.wikipedia.org/wiki/Colocation_centre



10

specific salespeople who sell managed hosting very well because they understand it and can pitch it. And there

are others who maybe don‘t understand it and don‘t sell it well.‖

―There‘s a lot of effort from our managed hosting business development team trying to make sure that the sales

force is aware of what we do so that they can sell it well. We think we have a very good story to tell, and when

it‘s told well, it sells well.‖

―We‘ll stay in-house for the foreseeable future. At first look everything in the public cloud looks cheap, but once

you start looking at it from a storage perspective, it‘s cheaper and we maintain more control doing it ourselves.‖

―[A public/private cloud] is interesting from a compute standpoint, but not as much from a storage standpoint.

It‘s become a little more commodity to say I need a certain number of CPUs—compute resources from a CPU and

memory perspective. We hear from our server vendors that it‘s a lot more standard across the industry.‖

―Our application is a tool that is meant to be available online 24/7. [Support staff] need the expertise to not only

answer user questions but also recover from database location or data center problems, Internet outages.

―As customers look into what that cost is and what that hassle is, they will hopefully look to somebody to host

the application for them. Per the licensing, [we‘re] the only entity allowed to host.‖

―People who eventually decide to go managed hosting, their decision is all going to come down to cost. Cost is

also availability. When they start to have a little bit of down time, they have issues. And all they hear from [users]

is ‗Why is this down?‘ and ‗It needs to be up.‘‖

―When you turn [an IT system] over to another entity to manage for you, you lack that control. For example, we

have maintenance windows. Any shared resources that we need to do work on, [the customers] don‘t generally

have a say in when we do the work. We try to keep things from being disruptive as much as possible, but it‘s

certainly a factor that you lose control of when you do maintenance, as well as control of your data.‖

―I certainly know companies who don‘t run e-mail servers anymore. They all run through Google or some other

hosted e-mail provider, which is certainly interesting but that big question of control is always out there. I don‘t

know if I would choose to move my corporate e-mail out into a cloud where I don‘t have control.‖

Mike Chase, CTO of dinCloud, a virtual data center/cloud service provider

Midsize companies are gaining momentum in moving to the cloud, using the cost savings to improve technology and

better compete with larger companies. Cloud providers like Amazon and Rackspace offer no advantage in terms of

security and continuity than do in-house data centers because they lack certain features like failover mechanisms. Cloud

providers must partner with secure data centers on the level of Equinix Inc. (EQIX) in order to provide that continuity. A

growing trend will be cloud provider/data center partnerships.

―The midmarket is the one moving to cloud the fastest. The No. 1 driver that pushes people to the cloud is cost,

but one reason they stay out of it is … the perception of security whether it is real or not.‖

―Larger customers tend to put non–mission-critical functions like Web

servers on the cloud.‖

―The midtier companies want to be innovative and get to market faster,

and cloud is a way to do that without spending tens of millions of

dollars in an infrastructure.‖

―Two presumptions are that the cloud is highly available. That‘s

something people presume but don‘t ask when they sign up with a

credit card. The second is that the cloud is secure. The news came out

that Dropbox [Inc.], which people assumed was encrypted and secure,

was neither. It was wide open.‖

―Third-party data centers are accelerating quite a bit because the

economy is variable. Businesses that move to the cloud wouldn‘t be

able to operate otherwise.‖

―A second kind of customer has an infrastructure, which has reached

the end of life, so moving to the cloud is a way to get newer technology

without the capex burden.‖

―A third type is the enterprise guys, who are always trying to save and

make money. They use the cloud as a technology bridge to get to revenue. It gives them a competitive edge and

allows them to do disaster recovery, which would have been cost-prohibitive. Considering the natural disasters

and terrorism threats they‘ve been facing for over five years, that‘s particularly high on their minds.‖

The midmarket is the one

moving to cloud the fastest.

The No. 1 driver that pushes

people to the cloud is cost, but

one reason they stay out of it is

… the perception of security

whether it is real or not. …

Larger customers tend to put

non–mission-critical functions

like Web servers on the cloud.

CTO, Virtual Data Center

http://www.dincloud.com/our-team

http://www.equinix.com/

http://news.cnet.com/8301-31921_3-20072755-281/dropbox-confirms-security-glitch-no-password-required/



11

―There was a time when colocation facilities took off, but the market crashed and people went back to doing

their own thing, or a mix. The cloud came in as a next-generation colocation facility because essentially all the

things physical in the data center are virtualized.‖

―Servers and VMware [Inc./VMW] got virtualized; now we‘re able to virtualize desktops and phone systems. So

you have an infrastructure, but you don‘t worry about it. You could be in a Tier 3 data center that is completely

destroyed and fails over instantly to another.‖

―Anyone can host servers with cloud storage. We‘re hosting phone systems, video systems, virtual desktops,

which are the gem of our empire. We‘ve got large companies down to 20-user doctor‘s offices, with their phones,

servers and apps in our cloud.‖

―From a disaster recovery standpoint, if our entire data center were destroyed, we could bring up the data again

anywhere in the world within minutes. We‘re partnered with worldwide data centers, like Equinix with 98 data

centers worldwide.‖

―Amazon and Rackspace say they‘re cloud, but really they‘re just

application hosters and have a lot of customers because they open up

to the Web. We‘ll be doing that shortly.‖

―In reality, the back-end data centers at those companies are archaic;

they‘re not what people think of as a cloud. If it‘s destroyed in site A,

can they go to site B? Amazon didn‘t ‗fail over‘ somewhere else with

last year‘s outage. They‘re just the traditional data center model

extended onto the Web space.‖

―We offer levels of service: cold, warm and hot. Cold is where we back

you up and can restore you to any of our facilities worldwide. Warm, you‘ll pay 1.5 times the fee to be replicated

in real time to another site, 500 or 1000 miles away. Third tier is instant failover in a business where five

minutes costs millions. They pay twice the fee, usually larger companies, because they‘re using twice the

compute and memory resources.‖

―Customers want everything encrypted but want to hold the keys. It will become standard that the cloud‘s

encrypted and we have mechanisms in place where customers hold the keys. Otherwise, some competitor can

sue them to turn over the data and compel us to do that. That‘s bad for customer relations.‖

CEO of a nationwide chain of colocation data centers

Business is picking up from professional customers like law firms and physicians that are reluctant to move into the

public cloud and from midsize businesses that have security concerns with the cloud. Those customers choose private

clouds with colocated servers in a data center. The price point for private clouds favors midsize to larger businesses.

―We‘re not going into the cloud. We‘re staying a dedicated colocation facility. We‘d rather do a private cloud.‖

―Colocation is not cloud computing. The way that I understand ‗cloud,‘ you have to colocate your servers and

infrastructure and data center. At the end of the day you have to have servers colocated in a secure facility for a

data center.‖

―Public cloud services are not as secure as a private cloud. The public

cloud is like Web hosting, where a Web site is shared on dedicated

servers with others, versus having your own dedicated or colocated

server.‖

―It‘s great marketing to say ‗cloud,‘ but my concern is the security.‖

―Security problems aren‘t overblown. As far as our customers are

concerned, they can‘t be secure enough. I‘d rather they be fully

secured rather than get a call at 4 a.m. that a customer has been

hacked. In colocation, nothing is shared; only your customer has

access to those servers.‖

―A private cloud is just as expandable. If you‘re pushing a lot of traffic,

you can build in for extra RAM.‖

―The reason customers come to our data center is that they don‘t want

to maintain their own infrastructure. It‘s cheaper to have your

infrastructure at a data center, and it‘s more secure and redundant.

You may have 10 servers in a room at your company with connectivity

from Verizon [Communications Inc./VZ], where the maximum

Customers want everything

encrypted but want to hold the

keys. It will become standard

that the cloud‘s encrypted.

CTO, Virtual Data Center

Security problems aren‘t

overblown. As far as our

customers are concerned, they

can‘t be secure enough. I‘d

rather they be fully secured

rather than get a call at 4 a.m.

that a customer has been

hacked. In colocation, nothing

is shared; only your customer

has access to those servers.

CEO, Chain of Colocation Data Centers

http://www.vmware.com/

http://en.wikipedia.org/wiki/Data_center#Data_center_classification

http://www.pcmag.com/article2/0,2817,2390702,00.asp



12

connectivity is T1 or T2. But that gives you only the bandwidth that a typical phone company can deliver.‖

―In colocation you‘re in a locked-key cabinet and can come and go as you wish.‖

―The bandwidth at your office may be 10 megabytes, but in a colocation data center you can push gigs of traffic.

At the same time, it‘s a redundant, blended bandwidth. If Verizon is slow, AT&T [Inc./T] and other providers pick

up where Verizon left off, with intelligent routing.‖

―Colocation is secure as well because you can have your servers located on both coasts, with failover between

them, say in the case of a hurricane.‖

―It‘s mostly the bigger companies that have their own IT departments. What Amazon has done is set up this

huge infrastructure of a cloud, comparable to shared Web hosting, so a mom-and-pop business will host with

Amazon along with thousands of other companies. But Amazon doesn‘t have the uptime that we can provide,

which is a reason to colocate.‖

―We‘ve sent customers to Amazon if they‘re very small. We do that case by case. We typically handle midsize

and bigger companies.‖

―We have about 45 government contracts, from the city down to the local level. They colocate for the same

reason a company does.‖

―When a company colocates, it‘s making a choice equivalent to home ownership. Why would you buy a house

with a $5,000 mortgage and maintain the garden, spa and pool if you could rent for $2,000, write it off and

have everything included?‖

―A perfect example is a law firm that came in today. Why would it need all these servers creating heat and noise

at its offices? Slowly, professionals like doctors and hospitals are going to secure and colocated servers.‖

―My own physician tells me he gets calls from people saying ‗We can back up your data securely,‘ but at the end

of the day does that service provider back up to Amazon? The doctor wants a company that specializes in only

HIPAA-compliant data in a private cloud strictly for doctors.‖

―For the typical customer, the cheapest dedicated server is $100. I don‘t know what Amazon does. But the right

service provider can put different doctors or dentists on one dedicated server for $100, charge each of 100

doctors $100, and at the end of the day you‘ve got capability comparable to Amazon but it is more secure and

less vulnerable. If you get hacked with Amazon, good luck getting through to an operator. But if you are a small

company and hired a firm to manage your infrastructure, it‘s your own concierge service.‖

4) INDUSTRY SPECIALISTS Two of three sources said the cloud is about to see significant adoption, but a third source said migration to the cloud will be

slower than expected. A survey shows companies are willing to spend 10% more on the cloud compared with last year, helped

in part by greater awareness of the cloud from non-IT staff. Virtually all large companies will have a presence in the cloud in

the next two to five years. Security remains a chief stumbling block to cloud migration, and reliability has become equally, if

not more, important. Outages within Amazon and Dropbox prompted firms to consider a more hybrid approach. Integration

and ROI also are important in companies‘ decisions to move to the cloud. One source said companies are unclear where their

data sits and fear losing it in the transition to the cloud, which is causing further

delays in the conversion.

Seth Robinson, director of technology analysis for CompTIA

Cloud adoption has increased significantly, and most companies surveyed by

this source‘s association reported being willing to spend at least 10% more year

to year. Adoption is in line with the amount of discussion taking place,

compared with last year when survey results revealed much lower adoption than

expected. Increased awareness by non-IT staff helped spur adoption.

Companies are satisfied with the transition. Still, the cloud is young, and some

companies changed their approach in light of outages from Amazon and

Dropbox earlier this year. Companies will rely on data centers and the cloud

alike until reliability issues are completely resolved. Security is less of a concern

than previously believed.

―We were surprised last year at some of the low rates of adoption,

especially among channel companies. This year‘s data showed a

We were surprised last year at

some of the low rates of

adoption, especially among

channel companies. This year‘s

data showed a significant

increase in adoption and that

brought things more in line with

what we might expect, given all

the discussion about cloud that

is taking place.

Director of Technology Analysis,

CompTIA

http://www.hhs.gov/ocr/privacy/

http://www.comptia.org/home.aspx



13

significant increase in adoption and that brought things more in line with what we might expect, given all the

discussion about cloud that is taking place.‖

―We think it‘s growing. This was our second cloud study. We were able to compare some of the data, not only

looking at end users but channel data with the firms assisting companies to the cloud. We‘ve seen the general

perception increase. Even though there are questions of security and reliability, companies are accepting the

cloud as a way to provide better infrastructure. They‘re realizing it‘s not a simple thing to do, but it also opens up

new doors for them. As they continue moving to the cloud, we think they‘ll not only view it as a way to replicate

what they‘ve done before but to expand their operations and have flexibility.‖

―One difference between this year‘s study and last year‘s is that the understanding of the cloud and the

perception of the cloud increased across the board. But if you looked at the IT staff, it was already fairly high last

year. This year, the business staff increased dramatically. You have people outside the IT realm who are seeing

advertising, talking to their peers and understanding what‘s available in the cloud and some of the risk there.

There are some challenges there, but I would feel pretty comfortable translating the data we saw as non-tech

industries are following the same lines of business. They‘re becoming more aware of the capabilities of the

cloud.‖

―Even among the IT staff, they‘ve experimented with it more, they‘re

understanding the issues, and they understand what areas need to be

addressed if we move to the cloud. So yes, I feel that enterprise will

continue to move toward the cloud.‖

―Really in a large part, they were satisfied with the transition. And

we‘ve seen that in a couple different studies. For those who

transitioned to the cloud, they‘ve seen the benefits. On the whole they

seem to be satisfied, which again leads to the rise in positive

perception. The comfort level factor is a big selling point.‖

―We see medium-size companies being the fastest adopters.‖

―Government is moving pretty rapidly too. The government is looking to the cloud as a big cost-saving measure.

The government was looking at shutting down several hundred data centers and utilize cloud computing. That

number has been tethered a bit, but there are still a large number of centers they‘re trying to consolidate.

Obviously, their concerns of security are even greater than enterprise.‖

―You see a lot of e-mail and a lot of storage and backup. I think those are point solutions. One thing that would

be the next level beyond that is to build disaster recovery and business continuity plans. As far as other types of

offerings, software as a service inside the cloud is the most widely used application. Infrastructure as a service

was less widely used. An additional 36% plan to use those in the next year. Those are used primarily for

application development.‖

―The cloud by itself is not any less secure by its nature, but it‘s a little young. And some of the security hasn‘t

been fully developed yet, unlike on-premise security. But I don‘t think security is going to be the big concern.

Reliability is the new one. It‘s different from on-premise. Now you‘re dealing with network connections. Now you

have to make sure your network is up to speed. We see people upgrading.‖

―Our survey showed one in five companies began moving some or all cloud systems back on premises as a

result of Amazon EC2 outage and Dropbox security breach. It‘s not too surprising. It was some or all. Most

people are moving some of their data back. It‘s not a wholesale retreat

from the cloud, but changing what data is in the cloud and what data is

not in the cloud. It‘s more of a movement to a hybrid approach. I don‘t

think it signals a retreat from the cloud but a change in methodology in

using both systems to their strength.‖

―One thing people are doing here, as they‘re doing a mix of cloud and

on-premise, is assessing all the apps and deciding which ones they put

in the cloud and what is the cost benefit. That is a new exercise. When

everything was on premise, it didn‘t matter, other than maybe making

sure your servers had more reliability.‖

―I wouldn‘t say mission critical is not ever going to be in the cloud.

Companies are going to have to decide individually. What they put in

the cloud is going to change over time. A company may not put mission

critical in the cloud today but three to five years from now, they might.

We see medium-size

companies being the fastest

adopters.


CompTIA

Most people are moving some

of their data back. It‘s not a

wholesale retreat from the

cloud, but changing what data

is in the cloud and what data is

not in the cloud. It‘s more of a

movement to a hybrid

approach.


CompTIA



14

Another company may never put them in the cloud. I think that will change over time.‖

―A large percentage of companies are going to have some mix. The difficulty is what will that mix look like? Ten

percent in the cloud? A large percentage of companies will have something in the cloud. The cost benefits just

really outweigh any of the issues. Companies will find that mix and the cloud will gain momentum.‖

―Winners and losers are a little difficult to determine right now. Clearly some of the larger companies like

Amazon and IBM [Corp./IBM] are doing well in the cloud space since cloud depends on economies of scale and

these companies have the right infrastructure to be cloud players. Another winner is going to be software

development; the difference between a virtualized data center and a private cloud is the software that is used

either to manage the virtual machines or handle user interface.‖

―The losers are a little harder to figure out. There will definitely be some change; there is the possibility for IT

departments to contract. But our data shows that some IT departments are able to redeploy technicians that no

longer have to perform server work. Management of on-premise data centers will contract, but management of

cloud arrangements will increase. Ultimately, there will be fewer people doing data center operations. The cloud

providers will consolidate, and managing those relationships will not be as significant a task as on-premise data

center management.‖

John Dodge, manager of The Enterprise CIO Forum for CIO magazine

Every large company is looking at the cloud, and many will have a presence within two to five years. Security is not the

biggest concern; rather, companies are closely looking at business integration and financial return. Those with the most

privacy and security issues will be slower to the cloud. This source expects someone to figure out an efficient, successful

way to transition those companies, and everyone will follow out of necessity. Working in the cloud will become automatic

and assumed, especially as early adopters already are moving on to the next big thing.

―They‘re definitely moving to the cloud. There isn‘t an enterprise or

large company that isn‘t looking at it. They‘re doing it initially with

lightweight apps like e-mail, conferencing but not business apps. If they

go down, it isn‘t the prize assets for the most part being put online.‖

―The industries moving to it are the ones with the least regulation, the

lowest number of rules. But there are a lot of concerns. There is a lot of

confusion with the cloud. There are not only technology considerations,

but the basic consideration is how this benefits the business. It has to

have some provable return on investment.‖

―Will the cloud get hacked? And there‘s reliability. Will it go down?

We‘ve seen public clouds go down for extended periods.

―There‘s just a real swirl of issues that make cloud adoption slower,

more hesitant than it otherwise would be. Will I, Mr. CIO, lose

resources? Does it mean I could lose my own job? Will my own job

change radically? But this is the same with the personal computer.‖

―Most enterprises will have a foot in the cloud in a couple of years. I‘d

wonder about a company that wasn‘t moving some of the lightweight

apps.‖

―There are things like the regulatory environment. A lot of these

companies are so afraid of not being in compliance and that will slow the cloud down. But if they had done it

earlier, the cloud would have vetted these earlier. Compliance could be good or bad. You don‘t want this to

happen too fast. But what will it look like in five years? I can‘t imagine that at least 30% to 40% won‘t be in the

cloud in five years, if not two or three.‖

―We did a Q&A with five large-company CIOs. We asked them if security was their biggest concern, and not one

said it was. They talked about how integrating the cloud into their existing environment was very important. They

talked about the value proposition of the cloud and figuring it out. It tells you their thinking has evolved.‖

―Companies have thousands of applications. There are lightweight ones, like CRM, e-mail, conferencing. The

lightweight apps are moving the cloud. There are companies that have standardized on Gmail. That‘s sort of the

first ultimate cloud app. But then your financial trading systems that are highly regulated and highly controlled

have to be behind 12-foot-thick firewalls. I covered a conference recently and nobody really saw the financial

companies going to the cloud. I haven‘t seen much progress. I think they‘ll move later rather than sooner, but I

They‘re definitely moving to the

cloud. There isn‘t an enterprise

or large company that isn‘t

looking at it. They‘re doing it

initially with lightweight apps

like e-mail, conferencing but

not business apps. If they go

down, it isn‘t the prize assets

for the most part being put

online.

Manager of The Enterprise CIO Forum,

CIO magazine

http://www.ibm.com/cloud-computing/us/en/

http://www.enterprisecioforum.com/en/videos_page/Community%20Video

http://www.enterprisecioforum.com/en/article/cios-not-fretting-about-cloud-security-0



15

think they will someday. Somebody is going to do it successfully, and it will be cheaper and more efficient. And

they will have an edge and then everyone will follow.‖

―Government has its own cloud strategy. Federal IT is terrible. … Former U.S. CIO Vivek Kundra, before he left to

go teach at Harvard, mandated the Cloud First strategy and advised the shutdown of 800 data centers. … The

cloud is the next big thing in IT. It‘s about the removal of distraction in your core business. You wouldn‘t want it

to move hugely fast. You want the issues to sort themselves out.‖

―What is going to replace the cloud? ‗Big data‘ is the buzz word. What

are we going to do with the 1.8 zettabytes that will go into the cloud

every year? We have all this unstructured data that has all this

potential. The big IT vendors are saying this is our future. Beyond the

cloud, the cloud becomes automatic. There‘s no cost-effective way to

store all this data yourself.‖

―Big data is massive amounts of unstructured data. Think about all the

tweets, Facebook posts. How do you mine that? How do you find out

about customer sentiment? You can‘t dump it into rows/columns. How

can you glean from it where you can do much more accurate

forecasting and projecting? Typically in healthcare, where they project

expenditures for diseases on the payer side, but on the clinical side, they could glean trends from populations.

How do you exploit this massive amount of mostly unstructured data? Big data is in the cloud. The cloud is the

vessel.‖

―Another thing to watch is consumerization. How do IT departments work when you bring in your iPhone to work?

End users don‘t have to rely on IT anymore or rely so heavily on it. IT was the gate keepers. There‘s another

issue of renegade IT, where people are going outside and around in-house IT. Where do they go? Amazon Web

services. This is very reminiscent of the early days of the PC when people brought PCs in the back door. The

cloud has the same characteristics. I can go to Google, Amazon or any number of vendors. I don‘t need IT. It‘s

not the IT people who make all the decisions anymore. It‘s the people leading the sales team who are saying,

‗I‘ve waited for this forever; now I‘m just going to go ahead and do it.‘ There‘s a certain level of vision that the c-

level suite has. This raises huge issues, not just control, but who owns the data. Is the data secure?‖

Executive for a data center management software company

Outsourcing data centers to the cloud is happening slower than expected because companies risk losing valuable data in

the transition. Security remains an important stumbling block and will lead to only portions of a company‘s data being

outsourced to the cloud. Until companies have better information on how and where their data is stored internally, they

will not move it to the cloud and reap the cost savings, not matter how attractive it may be.

―Security is still a big issue with the cloud. There is a lot of proprietary data that will never be allowed on the

cloud.‖

―Expectations need to be tempered with data centers outsourcing to the cloud.‖

―A lot of these firms don‘t know what data they have, where it is stored and on what servers. They don‘t get the

benefit of outsourcing their data unless they can turn off their servers. But they don‘t know which servers and

data centers are using it.‖

―These companies are very risk-adverse, and they aren‘t going to risk losing information by outsourcing data

centers to the cloud. They first need to get a handle on where the data is, how to outsource it and how to

effectively close down their data centers without losing their information.‖

―It costs $1 million a year to power 100 racks in a data center. And when that server is idle, it still uses 60%

power. Our software helps companies save money on power for their data centers.‖

―Our software helps companies understand what to shut down and what to turn off. To us, the cloud is just

another data center.‖

5) SOFTWARE/SERVICE PROVIDERS These four sources said a move to the cloud is a tremendous advantage for small companies looking for cost savings and

increased reach. Cloud adoption provides a better return than a data center or virtualization. Data ownership and reliability

are larger concerns than security. Sources favor solution providers that manage and use data as the customer directs but

What is going to replace the

cloud? ‗Big data‘ is the buzz

word. What are we going to do

with the 1.8 zettabytes that will

go into the cloud every year?

Manager of The Enterprise CIO Forum,

CIO magazine

http://www.cio.gov/documents/federal-cloud-computing-strategy.pdf



16

hold no ownership of that data. One source estimates the timing of getting firms on the public cloud to be three to five years.

Amazon emerged as sources‘ favored cloud provider.

CEO of an IT services and cloud integration consultancy

Small and new enterprises prefer to use cloud services rather than a data center, particularly for commodity applications.

Cloud adoption is expected to occur in three to five years. Security is less of a concern for users than is data ownership;

users need assurance of data ownership from cloud providers.

―The movement to the public cloud will continue, provided that the cost benefits continue. New companies, early

adopters and smaller firms with no IT teams will continue to use the public cloud. This will happen over three to

five years like virtualization or other game-changing technologies.‖

―As facility-based data centers age, clients have to choose between

refreshing an older facility or outsourcing the data center function,

many times with a private and public cloud hybrid solution. Further

complicating the situation, many clients have waited to refresh their

servers and other IT equipment and have had staff reductions.‖

―The pace of third-party data center adoption has been steady or

increasing when viewed on an annual basis. Shorter term, adoption

seems to happen in spurts. Typically, clients will explore options and

then wait for a triggering event to make a decision. This could be a

business issue, contract or lease agreement related and the like.‖

―Small businesses are … looking for low-risk and reliable ways of

migrating to the cloud. Cloud is no longer a foreign idea. Those that

have IT staff and are entrenched in the current model are slower to

adopt because it is difficult for them to quickly make a transition. Early

adopters, new companies and smaller firms without at existing IT team

are much more open to the transition.‖

―Commodity and well-understood solutions are typically the first to

move to the cloud. Tier 1 and business-critical systems are kept in-house. This is true with most new

technologies.‖

―The cost savings vary per solution, but it is typically 20% to 30%.‖

―One key issue in deciding whether the move to the cloud is the cost of my cloud or their cloud in the public

versus private cloud debate. The service level from the provider and data ownership are others. ‗Is my

private/hybrid cloud cheaper or is using their cloud more cost-effective? Will they provide and stand behind

service levels?‘ And the legal area of data ownership is still being ferreted out.‖

―Cloud security concerns are overblown. Hackers attack unpatched and misconfigured servers. But there are

concerns around data ownership.‖

―For commodity services, it is easier to justify the economies of scale.‖

CEO and CTO of a cloud-based SaaS solution

The company uses hosted e-mail and code management applications, and offers its own application from the Amazon

cloud. By using the cloud, the company pays 5% of the amount it would have paid had it chosen the colocation or data

center options. The company‘s only concern is outages; the 2010 Amazon outage cost this company significantly in

dollars and customer good will.

―We provide our service through the cloud. All our operations are within the cloud. For a small organization, you

can have a very large infrastructure.‖

―Our options were colocation, where you purchase a bunch of servers and drop them into a data center, or to

build our own data center, or use a cloud service like Amazon‘s, which provides the server and infrastructure

around the server. We never thought of building our own data center. We have no in-house data center at all.

The cost of an in-house data center is astronomical compared to the services Amazon provides like backup,

backup power and network. Everything is redundant and right there and would have cost us millions to build as

a small company.‖

―We looked into Amazon and Rackspace. We just liked the Amazon interface better, and it‘s come a long way

since then. It was also a little less expensive than Rackspace. And Amazon built a tremendous infrastructure to

support millions of transactions per year.‖

The movement to the public

cloud will continue, provided

that the cost benefits continue.

New companies, early adopters

and smaller firms with no IT

teams will continue to use the

public cloud. This will happen

over three to five years like

virtualization or other game-

changing technologies.

CEO, IT Services & Cloud Integration

Consultancy



17

―We use Amazon. It scales very quickly, and that‘s a tremendous

benefit to us.‖

―Amazon lets us call up an ‗instance,‘ a virtual server, in about five

minutes and at any time of day. We can even do that dynamically in

peak traffic, where we bring up a server automatically. That‘s not

possible at all with an in-house data center or colocation facility.‖

―We pay, I‘d guess, less than 5% what we would have paid building a

data center.‖

―From a business standpoint, we can run our infrastructure and provide

services to our customers at a lower cost because of the cloud. We‘re

supporting 8 to 10 million API calls a month, and supporting north of

20,000 e-mails a day; we have reports that are self-generating and e-mailed out every day, all out of the cloud

for a nominal cost.‖

―We use the virtual cloud for an e-mail service so we don‘t have to keep an e-mail server in-house, don‘t worry

about managing Microsoft Exchange or people‘s Outlook folders; all that‘s organized by the service provided.‖

―We also have a cloud-based bug repository and source-code control system. So when developers find or fix

issues, they go up to this cloud-based server to check in source code.‖

―We have a series of servers in the Amazon cloud that host all our services. It‘s from them we provide a news

feed for client companies. Those are servers in the traditional sense where we can log in and control those

environments completely. The e-mail and bug tracking are services we don‘t control.‖

―We‘re not worried about security, but we are about continuity. Certainly one issue we panic over is outages.

These things are still not infallible. Remember Amazon‘s network went down for four or five days? That cost us

money and hurt our business. Amazon went down, so we went down. But that‘s happened only once in the three

years we‘ve been on Amazon.‖

―There are ways to circumvent that, and there‘s a presumed redundancy when you build in the cloud. You expect

a fault-tolerant system. Even though Amazon and companies like it provide you with SLAs, it is worth asking how

they plan to avoid an outage.‖

―If you‘re in a world where you need network operations to manage the internal workings, then certainly I‘d say

you‘d have a network operations center and a data center. But if you‘re doing application development, you

could farm that out into a cloud.‖

CEO of a cloud-based experiential media application

This software company is a SaaS provider in the early stages of migrating its applications to the cloud. It currently

conducts much of its development in the Amazon cloud, and is just beginning to push its Web sites and applications to

Amazon. The advantage is nearly limitless server space and processing power for what is a resource-intensive

application; users will find that the applications will run smoothly from the

Amazon cloud. This company can scale up its number of users without the

limitations of in-house processing power.

―We‘ve maintained a data center and we haven‘t left it yet, but we are

starting to experiment with the cloud.‖

―The advantage to us is the speed and ease of growth and

maintenance—knowing we can turn to it without having to significantly

change our own infrastructures.‖

―When we have used it, we‘ve gone to the Amazon cloud. I haven‘t

seen any issues with security or continuity, but we‘re not relying on it

on a daily basis. Right now we use it to supplement our resources when

we run low.‖

―When we build our 3D venues, it is very resource-intensive. The cloud

enables us to send out our frames to be rendered, and to take

advantage of the sheer volume and speed and processing power.‖

―We have begun to experiment with hosting our virtual venue Web sites

on Amazon, but that‘s early.‖

―We‘re not worried about security at all. I can‘t imagine anyone out

there is looking to lift our data, and what we‘re putting out there is not

We looked into Amazon and

Rackspace. We just liked the

Amazon interface better, and

it‘s come a long way since then.

It was also a little less

expensive than Rackspace.

CEO & CTO, Cloud-based SaaS Solution

When we have used it, we‘ve

gone to the Amazon cloud. I

haven‘t seen any issues with

security or continuity, but we‘re

not relying on it on a daily

basis. Right now we use it to

supplement our resources

when we run low. … We have

begun to experiment with

hosting our virtual venue Web

sites on Amazon, but that‘s

early.

CEO, Cloud-based Experiential Media

Application



18

liftable; we‘re just rendering frames of images, and anyone who gets hold of that data wouldn‘t know what to do

with it. They might see a very distorted football field.‖

―From a security standpoint, we‘re not anticipating that we‘ll have any. I‘m sure if the hosting sites can be relied

on for day-to-day business, they‘d investigate security deeply as well.‖

Product marketing manager at a cloud-based software/services solution provider

Advantages of cloud solutions are sheer low-cost computing power and enhanced capabilities. This source‘s company

can send 100,000 e-mails at a time and offers features like ―whitelisting‖ by Google and Yahoo Inc. (YHOO). Security

questions from customers have subsided somewhat.

―We offer cloud-based applications. We maintain a data center, but our services are both on-site and remote.

We‘re using colocation facilities to host some of our products, not all.‖

―The whole advantage of using our services, using our e-mail product as an example, is that you as an e-mail

customer can get sent through our IPs, which because we‘re a permission-based application—we maintain a

high deliverability. Our IPs are whitelisted with all the major e-mail clients like Google and Yahoo.‖

―With some of our cloud-based applications, we have no hardware for the entire product; the applications are

completely web-based.‖

―In the years past we fielded a lot of questions about security. … But I feel as if those questions have become

less frequent as the average person gets more familiar.‖

―If you‘re using Carbonite [Inc.] or an online backup, security is generally becoming less paramount. It‘s

presumed.‖

―All of our services are marketed to small and medium businesses, folks who don‘t have their own servers to

send e-mail out by the thousands. Or they can‘t write HTML code and want a professional looking product. Still,

we get larger businesses like companies and universities.‖

―Companies that have those capabilities themselves have someone to develop HTML e-mail and have e-mail

servers. Those who are resource-strapped just don‘t have the knowledge to do what we can.‖

―The average cost to maintain a server and hire IT people—I can‘t guess. But a customer spends under $50 a

month with us, without the IT time and server space.‖

―Salesforce.com is the Cadillac. Intuit [Inc./INTU] offers a lot of Salesforce‘s software-as-a-service products. It

frees up resources for a company, to have all its needs out in the cloud rather than put into infrastructure.‖

6) HARDWARE MANUFACTURERS These two sources said sales of equipment headed for the cloud are growing quickly. One said the cloud is the fastest

growing segment of his business, faster than data centers or in-house hardware. The other said small companies are a good

match for the cloud, but larger companies are better off using in-house systems or data centers because the cloud can

become too expensive.

Global communications director for a provider to the data center storage market

The fastest growing market of server space is cloud service and cloud computing providers, but data centers and private

enterprise both still are strong. Google, Amazon, Facebook Inc. and companies of that scale are the strongest consumers,

but also are reinventing the configuration and use of servers.

―It‘s really an ideal situation, moving from the legacy x86. So the old model is to run new applications, and the

new cloud runs more instances of fewer applications. So that makes an alternative to x86 architecture more

feasible.‖

―Sales are both faster and slower. There‘s a lot of inertia due to the existing x86 monopoly. If anything, we target

the top 10 Web 2.0 companies—Google, Facebook, Twitter [Inc.]. You run very few apps on our servers and get a

more dense compute, and that saves on expenses.‖

―What the cloud is doing on the desktop is making more thin-client computing possible. Someone can use an

iPhone to do things while all the heavy lifting is in the cloud.

―It‘s the large data centers that are doing the bulk of purchasing. … Anyone maintaining a large data base can

scale rapidly in the cloud.‖

―The one company taking the most unique approach is Facebook, with its open compute platform. They‘ve taken

the idea of what a server is and parsing it down to the bare essentials, squeezing a lot of efficiency out of every

http://www.carbonite.com/en/

http://technology.inc.com/2011/09/08/intuit-announces-salesforce-for-quickbooks-quickbooks-2012/

http://en.wikipedia.org/wiki/X86



19

component. Google as well is commonly known to build its equipment. They work with Quanta [Computer Inc., a

server provider] to build theirs.‖

CEO at a low-power server technology provider

Cloud sourcing server space is a strong value for a small business or a new business unsure of its requirements. Once

companies know their requirements, they are likely to move to internal data centers and private clouds. Amazon and

Rackspace are winners in cloud sourcing, and also among the most significant buyers of server space.

―The beauty of the cloud is that you have access to capital equipment, mainly servers, without spending capital

dollars.‖

―Its adoption is enormously quick, and it‘s changing internal IT departments‘ behavior. Traditionally you‘d submit

a ticket and wait two weeks or more to get 50 servers up. Now you can get that from Amazon in 30 minutes,

which created a competitive dynamic for internal IT to step up its game.‖

―Cloud is a fancy lease. What a lease does traditionally is that, instead of paying $100,000 up front you pay it

over three years on a lease. You sign no contract, you rent by the day to step into an Amazon cloud and step out

when you need to.‖

―That‘s helpful when you don‘t know how much compute you‘re going

to need, like launching a product on the Web, when you don‘t know if

you‘ll have 1,000 or a million visitors. You use the cloud to dampen

uncertainty. You step into the cloud to dampen the variability of your

need. You can‘t buy servers to support a potential million users.‖

―The bigger or more sophisticated you are, the less the cloud has to

offer you. Customers like Zynga are leaving Amazon‘s cloud as fast as

they can because they‘ve reached a scale at which it‘s too expensive to

pay Amazon a premium for the management and use of server space.‖

―What‘s happening with equipment sales is a redistribution of

purchasing away from the small and medium businesses, to a small

number of large cloud providers. That‘s the first step; an acceleration

of purchasing for both cloud providers and larger enterprise

customers.‖

―The demand for compute is insatiable right now. Companies like

Facebook and Zynga [Inc.] can‘t buy compute fast enough.‖

―We‘re generating computes and the need to analyze data. If you took

away Google for one day, it would be hard for any of us to do our work. And what does Google do? Buy servers.‖

―For the largest guys, the Googles, Facebook, Amazons, they build data centers and deliver to themselves. And

they‘ve become extremely good at building facilities and managing not just thousands, but millions of servers.‖

―Their advantage in cost and acquisition is because of scale, and the capacity can be packaged and resold to

small and medium businesses who couldn‘t afford the expertise or discounts that Dell would give to Amazon,

Rackspace or Google.‖

―Amazon has the most sales for sure, and Google, with its cloud-based e-mail. So the biggest buyers are the

Microsofts, Amazon, Facebook.‖

―The recognized leader in cloud offerings is Amazon. But Rackspace and a collection of others have top-quality

offerings.‖

―At one point, Zynga was buying 1,000 servers a week, and they‘re not even in the top 20 consumers.‖

―Smaller companies like us … could buy servers and run our CRM on them. Instead, we go to Salesforce.com

and rent their software by the day.‖

―I don‘t see sales slowing down on the enterprise side. I hear a huge sucking sound; cloud has a greater

acceleration.‖

―The value in the ‗90s was a strong client-side offerings, like Microsoft spreadsheets on your desktop. Who has

the value today? It‘s all the cloud, like Web search, streaming media, real-time communications.‖

―All of the cool 21st century apps live in the cloud.‖

The bigger or more

sophisticated you are, the less

the cloud has to offer you.

Customers like Zynga are

leaving Amazon‘s cloud as fast

as they can because they‘ve

reached a scale at which it‘s

too expensive to pay Amazon a

premium for the management

and use of server space.

CEO, Low-power Server Technology

Provider

http://www.quantatw.com/Quanta/english/about/company.aspx



20

Secondary Sources

Our review of secondary sources included industry surveys that highlighted a shift to private or hybrid cloud. Also, security is

the government‘s chief concern in cloud implementation. Amazon has added encryption to its cloud offering. Budget cuts are

threatening to slow the federal cloud transition. Meanwhile, data centers are being expanded through the world.

Oct. 5 ReadWriteWeb.com article

Amazon is adding encryption, bundling new security assurances with its public cloud offering.

http://www.readwriteweb.com/cloud/2011/10/amazon-s3-hundreds-of-billions.php

―If you ever wondered whether Amazon S3 would be successful, I think we have the answer. Yesterday, Amazon

provided an update on S3 growth, and stated that S3 now stores 566 billion objects. To make S3 even more

appealing, the company announced today that they‘re adding server-side encryption to S3.‖

―Amazon isn‘t just hanging on to a lot of data, they‘re also serving it at a breakneck pace. According to the post

by Jeff Barr, Amazon handles up to 370,000 S3 requests per second.‖

―That‘s a lot of data, but Amazon wants to store more. To that end, they‘re introducing server side encryption—

which Barr says is an often-requested feature that will be ‗welcomed by our enterprise customers, perhaps as an

overall strategy to encrypt sensitive data for regulatory or compliance reasons.‘‖

―If developers want to use the server-side encryption, Amazon does it transparently when you copy or store an

object in S3. Here‘s how Amazon describes the process:

o When you PUT an object and request encryption (in an HTTP header supplied as part of the PUT), we

generate a unique key, encrypt your data with the key, and then encrypt the key with a master key. For

added protection, keys are stored in hosts that are separate and distinct from those used to store your

data.‖

―Amazon is using AES-256 encryption, and says that the process for encryption, key management and

decryption is audited regularly.‖

―Customers have always been free to encrypt data before storing in S3, of course. Amazon‘s server-side

encryption seems like a good solution for some use cases, but the standard disclaimers should apply. If Amazon

can decrypt the data on your request, it can decrypt the data at the government‘s request too. Only use server-

side encryption for data that you‘re comfortable with Amazon being able to decrypt.‖

August 2011 ―Trends in Cloud Computing‖ report from CompTIA, based on surveys of 500 IT professionals

http://www.comptia.org/research/cloud.aspx

―One in five companies began moving some or all cloud systems back on premises as a result of [Amazon EC2

outage and Dropbox security breach]. This signals a strategy shift from public cloud to private or hybrid.‖

―Although many upcoming users have not yet selected a model or still need more information, those users who

have already selected a model are clearly moving away from public cloud, though it still factors into some

plans.‖

―Nearly half of channel firms plan to bump up their investment in cloud business by between 10% to 15% in the

next 12 months. That compares to less than a third that said they were upping their investment to that degree

the year prior. Investments span capital outlays for new infrastructure

or systems, along with softer investments in hiring new staff and

training both new and existing employees.‖

―The largest channel companies ($500M and above in revenue)

eclipsed other providers in the depth of investment they plan to make

in cloud over the next year. Just north of 4 in 10 of those companies

said they would invest 15% or greater in their cloud-based business,

compared, for example, to a quarter of companies in the $100M to

$499M bracket that plan to do so.‖

―Among current users, large companies are more likely to use private

or hybrid models. 45% of large companies (more than 500 employees)

use private cloud, compared to only 34% of small companies (less than

100 employees). Likewise, only 19% of companies use private cloud,

indicating that small companies are likely to have a single cloud

One in five companies began

moving some or all cloud

systems back on premises as a

result of [Amazon EC2 outage

and Dropbox security breach].

This signals a strategy shift

from public cloud to private or

hybrid.

CompTIA Report, August 2011

http://www.readwriteweb.com/cloud/2011/10/amazon-s3-hundreds-of-billions.php

http://aws.typepad.com/aws/2011/10/amazon-s3-566-billion-objects-370000-requestssecond-and-hiring.html

http://aws.typepad.com/aws/2011/10/new-amazon-s3-server-side-encryption.html

http://www.comptia.org/research/cloud.aspx



21

application rather than multiple applications running on both public and private installations. Small companies

also show the greatest opportunity for education—65% of small companies are unsure of the model they will use

for future cloud solutions.‖

April 2011 ―U.S. Govt. IT purchase plans‖ report from CompTIA, based on surveys of 375 federal, state, and local IT

decision makers

―Sixty-one percent (of government organizations) plan to invest in hardware for end-users while 45% plan to

invest in enterprise hardware in the next 12 months. Similarly, 52% plan to invest in software for end users,

compared to 28% in software for enterprise.‖

―IT spending expected to reach $78.5 billion at the federal level in

2011, and $54.4 billion at local/state level.‖

―Forty-four percent of cloud implementers rated network security as the

top challenge, with security mandate compliance (36%), data loss

prevention (35%) and hardware security (35%) also rated as top

challenges.‖

―Potential cloud adopters may have concerns around integration,

downtime, resistance to change and vendor-lock in. Alternatively, the

top two drivers for cloud implementation include the desire to cut costs

and reduce capital expenditures on hardware, software and other IT

systems.‖

―Price is the most important attribute influencing the selection of an IT

solution provider.‖

June 26 eChannelLine.com article

Findings from the Future of Cloud Computing Survey were discussed, chief among them that cloud computing is in its

infancy. IT professionals are experimenting with a move to the cloud and waiting for it to mature before developing a

formal cloud strategy. Slight more than one-half of the respondents believe the cloud lowers the cost of ownership.

http://www.echannelline.com/usa/story.cfm?item=26936

―Today, scalability and cost are seen as the primary drivers for cloud usage, while agility and innovation are

quickly emerging as a key factor for adoption, as IT organizations view cloud computing as an effective means to

implementing new applications quickly to keep pace with application backlogs and business demands.‖

‗Those are some of the findings of the inaugural Future of Cloud Computing Survey, conducted by North Bridge

Venture Partners in partnership with GigaOM Pro and The 451 Group and supported by more than 30 industry

collaborators. The 2011 survey captures current perceptions, sentiments and future expectations of cloud

computing from industry experts, users and vendors of cloud software, support and services. 413 respondents

participated in the survey, including representatives from both vendor and end user communities. Respondents

were asked about a wide range of key issues impacting cloud

computing, such as: drivers for cloud computing, inhibitors, sourcing,

hiring, TCO, cloud‘s effect on business sectors, and user interest for

future cloud services.‖

―The results confirm that cloud computing is clearly still in its infancy,

as 40 percent of respondents indicating that they are only now

experimenting with a move to the cloud, while another 26 percent of

respondents are awaiting market maturity before adopting a formal

cloud strategy. On average, respondents have been using cloud based

solutions for 20 months.‖

―‗Our initial survey has revealed that although there is broad-based

support and enthusiasm for cloud computing, we‘re still in the very

early stages of this significant industry movement,‘ said Michael Skok,

general partner, North Bridge Venture Partners.‖

―‗While it wasn‘t surprising to learn that scalability and cost are driving

current cloud usage, it was extremely informative to learn that agility

and innovation have become key motivators for organizations in

accelerating their adoption of the cloud,‘ Skok said.‖

Forty-four percent of cloud

implementers rated network

security as the top challenge,

with security mandate

compliance (36%), data loss

prevention (35%) and hardware

security (35%) also rated as top

challenges.

CompTIA Report, April 2011

Respondents were equally split

on the impact of cloud

computing on IT manageability,

with an equal number (39

percent) indicating that the

cloud would make for less or

more complex environments.

The majority of respondents

(55 percent) do believe that

cloud computing has a lower

total cost of ownership (TCO).

Future of Cloud Computing Survey

http://www.echannelline.com/usa/story.cfm?item=26936



22

―Respondents were equally split on the impact of cloud computing on IT manageability, with an equal number

(39 percent) indicating that the cloud would make for less or more complex environments. The majority of

respondents (55 percent) do believe that cloud computing has a lower total cost of ownership (TCO).‖

―While security and compliance remain the top inhibitors, with 31 percent citing these as key obstacles to cloud

adoption, interoperability and vendor lock-in remain real threats as 25 percent of respondents identified these

as roadblocks to cloud usage.‖

―74 percent of respondents indicated that cloud computing would either lead to an increase in hiring or have no

impact, while only 26 percent of respondents expected any decrease in hiring based on cloud adoption.‖

―‗The Future of Cloud Computing Survey confirmed some things we‘ve been seeing in the market: the early stage

of cloud computing in enterprise IT; greater progress, production use and profit in public clouds; significant

interest and potential in hybrid and private clouds; and an expectation of cost savings,‘ said Jay Lyman, Senior

Analyst, The 451 Group Supporting Links.‖

―‗Though the survey told us cloud computing, particularly private clouds and platform-as-a-service (PaaS), are

still fairly nascent among most users, it also indicated a higher level of awareness and pragmatism in

confronting challenges and drawbacks, such as security, complexity and compliance, perhaps because of the

lessons learned already in deploying virtualization at all layers of the stack,‘ Lyman said. ‗That should help to

accelerate cloud computing‘s uptake in the enterprise, despite this seemingly slow start.‘‖

Sept. 21 NextGov.com article

Budget cuts to electronic government initiatives could slow the federal cloud transition.

http://www.nextgov.com/nextgov/ng_20110921_3452.php?oref=topstory

―Current funding levels for electronic government initiatives in the House and Senate Appropriations committees

could cripple the government‘s ability to modernize federal information technology and thereby save money in

the long run, a General Services Administration official told lawmakers Wednesday.‖

―That includes new security and certification projects aimed at helping agencies transition their data storage to

more nimble cloud computing, a governmentwide initiative that officials expect to save $5 billion annually, GSA

Associate Administrator Dave McClure said.‖

―The White House requested $34 million in fiscal 2012 appropriations

for the E-Government fund, which pays for a hodgepodge of initiatives

ranging from the GSA‘s FedRAMP, a governmentwide security

certification for cloud vendors, to numerous open government

initiatives developed at the Office of Management and Budget.‖

―House appropriators have committed about $15.8 million to the fund

and the Senate has committed about $7.4 million, McClure said.

Precise funding figures are somewhat hazy because both houses rolled

E-Gov funding into a larger pot titled the Information and Engagement

for Citizens fund.‖

―The 2011 E-Gov appropriation was cut from $34 million to $8 million

in last-minute bargaining to avoid a government shutdown in April.‖

―‗When anyone gets less money than they requested, something‘s got

to give,‘ McClure told members of a House panel on Technology and

Innovation. ‗Our challenge is trying to use this fund to fuel innovation

and to do crossagency, governmentwide work. … If we reduce funding down to those levels, what you‘ll have,

essentially, is [operations and maintenance] work going on for existing projects rather than fueling new, creative

ways to save money for the government.‘‖

―OMB officials have said E-Gov funding cuts might prevent it from meeting congressional mandates for some

government transparency initiatives, including the agency performance-tracking website Performance.gov.‖

―McClure was speaking at a hearing on the future of cloud computing in government and the private sector

sparked by the industry group TechAmerica‘s Cloud Squared report. Among other things, that report

recommends establishing an international standard for security in cloud computing, raising criminal penalties

for data breaches, and increasing government and private sector investments in cyber research.‖

―Computer clouds essentially are large banks of servers that can operate much closer to full capacity than

standard servers by rapidly repacking data as one customer surges in usage and another one dips. Data storage

Current funding levels for

electronic government

initiatives in the House and

Senate Appropriations

committees could cripple the

government‘s ability to

modernize federal information

technology and thereby save

money in the long run.

NextGov.com Article

http://www.nextgov.com/nextgov/ng_20110921_3452.php?oref=topstory

http://topics.nextgov.com/cloud+computing/

http://topics.nextgov.com/Office+of+Management+and+Budget/

http://sunlightfoundation.com/blog/2011/06/15/house_appropriators_consider_e-gov_for_fy2012/

http://science.house.gov/hearing/technology-and-innovation-subcommittee-hearing-cloud-computing

http://science.house.gov/hearing/technology-and-innovation-subcommittee-hearing-cloud-computing

http://www.nextgov.com/nextgov/ng_20110826_9074.php

http://topics.nextgov.com/transparency/

http://www.nextgov.com/nextgov/ng_20110826_9074.php



23

in the cloud is operated like electricity grids or other utilities, with customers paying only for the resources they

use.‖

―Critics have said cloud storage limits federal agencies‘ ability to safeguard their own data, but boosters have

said the cloud‘s capacity to shoot data to another location when its original location is endangered will make

agencies better able to withstand a cyberattack.‖

―Budget cuts and the rapid pace of technological advancement mean the federal government is unlikely to be a

leader in future cloud computing innovations, Nick Combs, chief technology officer of EMC Corp. and a former

longtime federal information technology executive, testified.‖

―The government‘s role as a major cloud customer, though, likely will lead companies to compete more

vigorously to make shared, public clouds secure enough for sensitive government data. Once government

agencies are comfortable storing sensitive information in public clouds, companies will be more willing to share

storage space with competitors, which will lead to new efficiencies, he said.‖

―Cloud development is likely to be both good and bad for competition in the IT world, testified Michael Capellas,

chief executive of Virtual Computing Environment Co. and a co-chairman of the Cloud Squared Commission.‖

―On one hand, cloud storage infrastructure is costly enough that it is likely to become concentrated in the hands

of a few major players. On the other hand, cloud storage significantly reduces the amount of money that small

companies and entrepreneurs must spend on hardware --typically about 70 percent of an IT shop‘s costs, he

said -- which means smaller players can be more competitive in the software and applications markets.‖

Sept. 29 Federal Computer Week article

The Department of Homeland Security is moving its public Web sites to the cloud.

http://fcw.com/articles/2011/09/29/dhs-moving-public-websites-to-the-cloud.aspx

―The Homeland Security Department is the latest and one of the largest federal agencies to move its public

websites into the cloud.‖

―The department has adopted a cloud services solution provided by contractor CGI Federal Inc. for hosting,

managing and securing public-facing websites including DHS.gov, FEMA.gov and USCIS.gov, the company

announced Sept. 29.‖

―CGI also will provide enterprise development services along with

integration, testing, training, staging, troubleshooting and production

services under the three-year contract valued at $1.8 million, the

company said.‖

―Websites in the cloud typically are hosted on shared servers and

managed under a service contract. The Obama administration has

been promoting a ―cloud-first‖ policy to encourage agencies to use

Web-based cloud computing services rather than purchasing and

operating servers and other computer hardware themselves.‖

―Several other agencies, including the White House and Federal

Communications Commission, have moved their websites to the cloud.‖

―‗DHS‘ move to the cloud is being watched closely as it‘s one of the largest agencies to put the ‗cloud-first‘ policy

into practice,‘ Eric Wolking, senior vice president of CGI, said in a news release.‖

―He said CGI‘s cloud contains all of the required enterprisewide security, service delivery and hosting

capabilities that are needed to reduce costs while delivering improved services.‖

―CGI is a wholly owned operating subsidiary of CGI Group Inc. The contract with DHS was under the Public Cloud

Web Content Management Services contract, which was awarded under the General Services Administration‘s

infrastructure-as-a-service blanket purchase agreement.‖

Sept. 27 New York Times article

An industry survey shows that major expansion of data centers is expected worldwide, especially in the eastern United

States.

http://www.nytimes.com/2011/09/28/technology/worlds-data-centers-expected-to-grow-survey-

says.html?_r=1&emc=eta1

―The next great expansion of the world‘s digital infrastructure is under way in developing markets like those of

China, Brazil and Argentina, according to a global census of the industry released on Monday.‖

The Homeland Security

Department is the latest and

one of the largest federal

agencies to move its public

websites into the cloud.

Federal Computer Week Article

http://fcw.com/articles/2011/09/29/dhs-moving-public-websites-to-the-cloud.aspx

http://www.nytimes.com/2011/09/28/technology/worlds-data-centers-expected-to-grow-survey-says.html?_r=1&emc=eta1

http://www.nytimes.com/2011/09/28/technology/worlds-data-centers-expected-to-grow-survey-says.html?_r=1&emc=eta1



24

―Despite growing concerns of a global economic slowdown, the companies that construct and operate data

centers that run the Internet and store vast amounts of corporate and government data expect growth next year

to match levels last seen in the world economy‘s boom years: about 19%.‖

―The census focused on data centers, the buildings and complexes filled with the computers that operate the

Internet, store and process e-mail, preserve medical records, carry out Web searches and perform countless

other tasks for corporations, governments and other organizations. The London-based company that released

the results, DatacenterDynamics, said it conducted some 5,400 interviews this year with industry officials

around the world. Those officials are responsible for about 100,000 data centers, the company said.‖

―The officials interviewed cited the cost and availability of energy for their power-hungry computers as their top

concern in planning future operations. Such energy concerns were driving them to design more efficient data

centers.‖

―But the predicted shift away from the Western United States, and out

of the United States entirely, may also be related to those concerns.

The census, which expressed its results in energy use, showed a

projected increase of 46% in China over the next year.‖

―‗Imagine what might happen when India and China get the pedal to

the metal in terms of data center growth and the effect that will have

upon global energy consumption in the sector,‘ said George Rockett, a

co-founder of DatacenterDynamics.‖

―The company said that projections of brisk growth in the Nordic

countries could be partly a result of the availability of renewable energy

there.‖

―The findings received mixed reviews from other experts in the field.

Jonathan G. Koomey, a consulting professor in the civil and

environmental engineering department at Stanford University, pointed

out that the projected growth rates were ‗self-reported‘— estimated by

the companies themselves rather than by outside analysts, who would

presumably be more objective.‖

―A study that Mr. Koomey released in July indicated that while power consumption by data centers doubled from

2000 to 2005, it grew at a much slower pace in the next five years. He cited cutbacks caused by the recession

and more efficient computing facilities as contributing factors.‖

―Still, if the new figures are correct, they suggest that the industry is recovering its footing, he said.‖

―‗We just had the greatest economic shock since the Great Depression,‘ Mr. Koomey said. ‗It wouldn‘t surprise

me if people started investing in facilities again.‘‖

―Although the census found minuscule growth in power consumption by data centers in the Western United

States in 2012, it did predict growth in the Eastern United States of some 22%. James Coakley, president and

chief executive of Power Loft Services in Manassas, Va., said that the large projections were ‗hard to believe‘

given current vacancy rates in data centers. ‗I do not see the surge of demand that would produce that amount

of growth—at least not here in the U.S.,‘ Mr. Coakley said.‖

―Mark Bramfitt, a data center consultant and former California utility official, said he doubted that the pattern of

data center growth would increase so quickly in the East, while sinking in the West, where it all began. ‗Doesn‘t

feel right at both ends,‘ Mr. Bramfitt said.‖

―DatacenterDynamics said, however, that it took great pains to avoid statistical anomalies like double-counting

that could inflate the results.‖

Sept. 15 DataCenterKnowledge.com article

EMC opened a newly built data center in North Carolina to replace an existing facility that it outgrew.

http://www.datacenterknowledge.com/archives/2011/09/15/emc-opens-new-cloud-data-center-in-nc/

―EMC today announced a new data center and Center of Excellence lab in Durham, North Carolina that will

power the company‘s cloud computing operation. The 450,000 square foot facility will house a 30,000 square

foot data center running IT applications to support EMC‘s 50,000 employees around the globe, as well as more

than 130,000 square feet of research and development space.‖

―The new data center will replace an existing facility in Westborough, Mass. which is out of space. Over the next

year, EMC will shift more than 6 petabytes of data from Westborough to the new highly-virtualized facility in

Despite growing concerns of a

global economic slowdown, the

companies that construct and

operate data centers that run

the Internet and store vast

amounts of corporate and

government data expect growth

next year to match levels last

seen in the world economy‘s

boom years: about 19%.

New York Times Article

http://www.datacenterknowledge.com/archives/2011/09/15/emc-opens-new-cloud-data-center-in-nc/



25

Durham. Once the migration is complete, the Westborough facility will be retired. EMC will continue to maintain

a disaster recovery data center in Hopkinton, Mass.‖

―EMC becomes the latest in a series of leading technology companies to choose North Carolina as the location

for new data centers, a list that includes Apple, Google, Facebook, Cisco, American Express, IBM and NetApp,

among others.‖

―EMC said the data center will include energy efficiency features, including the use of outside air (free cooling)

for approximately 57% of the year, a col-aisle containment system to manage airflow within the data center, and

flywheel UPS systems to save space and reduce reliance on batteries. The company expects that the facility will

earn Silver certification under the LEED standard for sustainable buildings, and operate with a Power Usage

Effectiveness (PUE) of about 1.3.‖

―EMC runs more than 500 applications in its five corporate data centers. The company also maintains Centers

of Excellence in India, China, Egypt, Israel, Ireland, and Russia. The Centers of Excellence perform engineering

and research and development, translation services and technical support.‖

―‗We are pleased to extend EMC‘s network of COEs around the globe by increasing our IT and R&D presence in

North Carolina,‘ said Sanjay Mirchandani, EMC Chief Information Officer and COO, Global Centers of Excellence.

‗Our virtual-first mantra and the latest EMC, VMware and VCE technologies, not only provided the foundation to

deliver agility to our more than 50,000 employees, but the COE, data center and our R&D labs enable us to

extend and showcase our world-class cloud computing capabilities, solutions and the best practices with our

customers.‘‖

―‗As a leading global technology innovator, EMC has put its money where its mouth is with its new COE and cloud

data center,‘ said Charles King, Principal Analyst, Pund-IT. ‗By doing so, the company has opened the doors to

harness the agility of cloud computing for its employees. Its efforts should also help EMC customers develop

their own virtualization and cloud computing initiatives.‘‖

―In 2004, EMC‘s IT organization began moving from a physical to a highly-virtualized IT infrastructure. The new

EMC data center provides the foundation required for cloud computing with an architecture that will leverage

EMC‘s latest information infrastructure technologies, VMware virtualization and cloud infrastructure

technologies, and Vblock Infrastructure Platforms from VCE (the Virtual Computing Environment Company

formed by Cisco and EMC with investments from VMware and Intel).‖

Next Steps

Blueshift‘s next report on cloud computing will included a silo for small and start-up businesses to assess their pace of cloud

adoption. We also will revisit larger enterprise and government IT sources for an update on their evaluation of cloud services.

We will watch the prevalence of hybrid implementation and growth in the private cloud. Finally, we will consider the growing

area of analysis of big data and ways in which to research this field.

Additional research by Tamara Chuang, Dann Maurno and Mari Silbey

The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities

and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not

own securities in any of the aforementioned companies.

OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both

market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including

OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and

offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial

Group LP.

© 2011 Blueshift Research LLC. All rights reserved. This transmission was produced for the exclusive use of Blueshift Research LLC, and may not be reproduced or relied

upon, in whole or in part, without Blueshift‘s written consent. The information herein is not intended to be a complete analysis of every material fact in respect to any

company or industry discussed. Blueshift Research is a trademarks owned by Blueshift Research LLC.

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