Is Google your next data center?

June 17, 2008 (Computerworld) Jonathan Snyder's five-person team at Dreambuilder Investments LLC isn't your typical IT organization. Or is it?

The New York-based company, which buys and sells defaulted residential mortgages, uses Force.com from Salesforce.com Inc. as its financial services platform. It backs up data using EMC Corp.'s hosted MozyPro service. The company's server is hosted by RackForce Networks Inc. in Canada and its e-mail is handled by Apptix, a hosted exchange in Herndon, Va.

Granted, Dreambuilder Investments is a five-year-old company that lacks the kind of IT infrastructure that's been built up over decades by a typical Fortune 1,000 enterprise. But as Chief Technology Officer Jonathan Snyder sees it, his company's core business is mortgages, not server maintenance and disk backups.

"If it's somebody else's core business to handle an Exchange server, let them do that," says Snyder.

It's not just small to midsize businesses that are following Snyder's lead. By 2013, at least one-fifth of enterprise IT workloads will be managed in cloud computing environments, according to Mike West, an analyst at Saugatuck Technology Inc., a boutique consulting firm in Westport, Conn. He says that big companies are increasingly handing over their IT infrastructure activities to traditional IT services firms like IBM, Hewlett-Packard Co. and even recent market entrants such as Amazon.com Inc. and Boomi. The goal is to lower their costs, access enhanced functionality, sidestep skilled labor shortages and reduce their data center footprints.

Moreover, companies are recognizing that building or installing commoditized applications or IT infrastructure services that don't provide them any competitive advantage "has become a diminishing return over the past several years," says John Dutra, CTO at Sun IT, a division of Sun Microsystems Inc., which is preparing to launch a hosted computing platform for developers called network.com.

Companies "are no longer going to buy technology artifacts, like ERP systems," predicts Thornton May, a Biddeford, Maine-based futurist and Computerworld columnist. Instead, he says, "They'll commit to a service."

Advantages

The benefits of cloud computing -- the ability to store files and data on a remote network using the Internet -- include lowered infrastructure costs and speed to market, and they are making hosted IT infrastructure services a lot more enticing to IT leaders. Studies have shown that it would cost some companies millions of dollars to install and set up their own virtualized server and storage environments, says West.

With hosted IT services, notes West, "you don't have to buy the hardware and software; you just subscribe. There's not a lot of capital outlay. The attraction to that is huge."

Moreover, providers of hosted services such as Google Inc. and Amazon are making pricing extremely transparent. For instance, Google Apps (which includes e-mail, word processing, spreadsheets, presentations and calendaring) is priced at $50 per user per year, says Matthew Glotzbach, Google's director of product management for enterprise.

Amazon's Simple Storage Service is explained simply on its site and priced at 15 cents per gigabyte each month. "We've removed so much of the friction by being transparent about prices and not having to have lengthy contracts and negotiations," says Adam Selipsky, vice president of product management and developer relations at Amazon Web Services in Seattle.

Although the bulk of its customers are small companies, Amazon Web Services has also signed up big players such as Nasdaq Stock Market Inc. and The New York Times, says Selipsky. In fact, he says that adoption among enterprise customers has "happened a little quicker than we would have imagined."

"The choices we have about what [IT activities] we do in-house and what we can have outsourced continue to improve," says Beach Clark, CIO at the Georgia Aquarium. The aquarium's Web farm, including two Web sites, is hosted elsewhere by a third party that also hosts its Web servers. But like other CIOs, Clark believes that IT activities that are core to the mission of a business will continue to be handled internally.

For instance, Clark's five-person staff handles most of the aquarium's online ticketing support and much of its business intelligence work -- functions he deems critical to the organization -- even though some of the programming itself is outsourced. And he doesn't see that changing anytime soon.

The shift among enterprise IT organizations toward hosted IT infrastructure services is real, says Paul Major, managing director of IT at Aspen Skiing Co.

But even though he finds the prospect of outsourcing IT infrastructure support to third parties "appealing," Major raises one of the red flags that have continued to prevent widespread adoption among large companies.

"My concern is what happens if [the service provider's] business model flops and someone comes in and buys them," says Major. "How do I go back in and get my data and format it? I'd rather keep it local and keep it under control."

For that reasons and others, Storage Networking Industry Association chairman Vincent Franceschini believes there will be "many shades of gray" when it comes to adopting hosted IT infrastructure services among Fortune 2,000 organizations.

For instance, the chemical and avionics industries have vastly different business processes and data workflows. But at the core of both industries is intellectual property "that they very much want to be controlling," says Franceschini. So even though he envisions companies outsourcing some level of rote IT infrastructure activities to third parties, "it will take some time" for core business applications -- particularly those containing IP -- to move off premise, he says.

"If there's anything that's going to cause a slowdown [in managed services adoption by enterprise customers], it's [concerns about] data protection," says Nick Sharma, senior vice president of infrastructure managed services at Satyam Computer Services Ltd.

There are other reasons that many CIOs are still resisting the hosted IT services model. "I think there's going to be a swing back to a more traditional [on-premise IT support] model because IT departments are understanding that users want to interface with a real human being in English," says Carmen Malangone, director of IT at Coty Inc., a maker of fragrance and beauty products. "That's one area where these [managed] services fall short," he says, alluding to the use of offshore service reps whose English language skills may be spotty.