Thursday, June 5, 2008

How I See It

Know the developing storm dangers in the computing cloud

Cloud computing is the latest tech buzzword to describe computing “as a service,” also known as utility or on-demand computing. While Internet startup companies are increasingly choosing to leverage cloud computing, it’s important to understand the strategic implications of this decision. Cloud computing can make it easier for startups to experiment and grow quickly, however relying on the cloud also involves some potential risk.

What is cloud computing? It started with software-as-as-service (SaaS) — hosted web applications such as Salesforce.com and Facebook. Rather than licensing and deploying large, expensive enterprise software packages, SaaS enables businesses to pay only for the functions used, as they are used. Over the last few years, it is no secret that SaaS has taken off as a delivery and business model for software companies, but also as an efficient and valuable resource for users of all types.

Next came platform-as-a-service (PaaS), which generally refers to the application interfaces (APIs) behind SaaS offerings, including Facebook’s F8 or Salesforce.com’s Force.com, or bundles of hosted application services such as Ning, Bungee Labs, Joyent or Coghead. PaaS enables very rapid application development because much of the application logic is provided by the platform.

Last (but not least) there is infrastructure-as-a-service (IaaS), the ability to provision and consume low-level computing resources including virtual computing instances, storage and databases in a flexible, pay-as-you-go manner. Amazon.com’s Web Services (AWS) is the leading example.

With cloud computing, businesses only pay for services used and there is no need for operations and IT staff — thus fundamentally lowering the cost of experimentation and speeding time to market. For example, AWS lets a company buy computing power for as little as 10 cents per CPU per hour and storage for 15 cents per gigabyte per month. An ecosystem of value-added cloud computing players is emerging. Management services such as RightScale’s running on top of AWS help companies run in a very reliable yet efficient manner. Combine this with the distribution power of platforms such as Facebook and, voila, you have a great recipe for scaling a consumer business.

Yet there are clearly risks when outsourcing mission-critical infrastructure. What’s an early stage company to do?

First, architect with the cloud in mind. Some things that are done trivially in a data center — running a big database with a high-performance storage back end, for example — are not easily done in the cloud. Cloud capabilities will improve, but in the short run you have to carefully map what’s available against your near- and mid-term needs.

Second, be aware that with flexibility comes dependency. When Facebook changed the way in which so-called “forced friend invites” were handled last February, hundreds of Facebook application vendors using the F8 platform were affected overnight. They had no control over Facebook’s choice — it was a “forced upgrade.” The only options developers had were to roll with it or get off the platform. This is much different from building applications on top of infrastructure deployed on premises (for example, if you don’t like Vista, don’t upgrade).

Three, consider the future. A company planning an exit in less than three years should seriously consider the implications of being bound to an IaaS or PaaS provider. Will Google Inc. or Microsoft Corp. want to buy a company whose entire infrastructure runs on AWS? Time will tell.

Cloud computing has been enthusiastically embraced by consumer Internet startups and will continue to evolve and thrive. Like Salesforce.com blazed the way for SaaS, the next wave of successful cloud computing startups will become the examples for everyone to follow.

 

Simeon Simeonov is a technology partner at Polaris Venture Partners.