Traditional business applications and platforms are expensive and difficult to maintain. Companies need a whole set of experts to buy the infrastructure, run, maintain and deliver the IT services. To install an application, a company needs hardware (Networks, Routers, and Cables) and Software (Windows, Linux etc.,) and needs resources to maintain the application. All these costs time, money and effort just to have the infrastructure in place in order to access the information services. Large companies like Amazon, Google and IBM have built-in capabilities to handle the enormous data centre and application based computing capacity. But medium and small enterprises are still struggling to find ways to build economies of scale to optimize on the infrastructure costs. They don’t stand a chance to win in this competition without “Cloud”. The common questions buzzing around these days are “Where is the cloud?” “Are we in cloud now”? This report primarily focusses on a brief discussion about what cloud computing is, what are the growth and investment trends in this area as well as potential opportunities and risks for venture capitalists in this industry.
What is cloud Computing and the Current trends
Cloud computing is the future of business today. It is an internet-based computing where different services such as hardware, storage, servers and applications are delivered to an organization’s computers through the internet to be paid on “as-needed, pay-per-use” business model. This service reduces the burden on enterprises to buy and maintain infrastructure and offers elasticity by letting firms outsource their computing needs and focus on their customers' solutions. There are three common cloud services models offered by service provides – IaaS, PaaS, SaaS. The details of these services are defined in Exhibit – A. In addition to the cloud services mentioned above there are four types of cloud deployment offerings – Public Cloud, Private Cloud, community cloud and Hybrid Cloud.
Public Clouds are owned and operated by third party service providers on a low cost “Pay-as-you-go” model. Customers take advantage of the economies of scale as numerous customers share the same cloud thereby sharing the costs. Also, as public clouds are typically larger than private or in-house clouds, customers have an option of on-demand scalability. Private clouds are built exclusively for an enterprise to address concerns regarding data privacy, security and control. There can be on-premise private cloud or an externally hosted private cloud. On-Premise private cloud allows organizations to set up their own cloud but it costs the company on infrastructure. These are best used for cases where the privacy of the data is of utmost concern. Externally hosted private cloud is similar to On-Premise private cloud, except that it is being hosted by an external service provider with a strong focus on privacy and security. In community cloud, the service is shared by several organizations and is made available only to those groups. The infrastructure may be operated by organizations or private cloud service providers. Hybrid cloud combines the advantages of both public and private cloud leveraging the on-demand, externally provisioning scalability. It increases the flexibility of computing by choosing different services for different applications. A study by IDG Enterprise reveals the % of total IT cloud in each deployment offerings which is present in Exhibit – B.
During the early 2000s, cloud was primarily used for cost savings, removing on premise hardware thereby reducing the cost of buying and maintenance, and automatic upgrades. It freed the IT companies from spending hundreds and thousands of dollars a year on maintenance and upgrade fee. The core component of the value proposition for customers was cost savings during the early 2000s.
During the mid-2000s, cloud advanced to providing ubiquitous internet. With the rise of mobile