Nearly four years ago, IT research company IDC described cloud computing as being in first gear. Today, says Chris Morris, IDC's Asia-Pacific head of cloud computing analysis, the cloud is here and organisations should "get over it and get on with it".

If that sounds like more of the hype that abounds in a sector that is never stuck for a new trend, Morris says cloud computing's arrival can be seen in hardware sales.

"Cloud service providers are responsible for a growing proportion of equipment sales," he says, as they build new data centres to cater for cloud customers.

That phenomenon is as apparent in New Zealand as it is elsewhere, with IBM, Datacom and Revera all having spent - or spending - tens of millions of dollars on new hosting facilities in Auckland, Wellington and Hamilton.


Big Blue's $80 million East Tamaki data centre, which hosts its Virtual Server Services cloud offering, opened in the middle of last year. Datacom and Revera are spending a total of about $70 million on facilities in Hamilton and Upper Hutt respectively - in Datacom's case, on top of a $40 million data centre in Albany that was completed in April 2009.

The fortunes of another New Zealand company, Xero, also reflect the movement to the cloud. The Wellington company's cloud-delivered accounting application went from having 45,000 paying customers in July last year to 60,000 in January.

Yet getting on with adopting cloud services is not happening uniformly, Morris says.

"Most organisations are still at the toe-in-the-water stage."

For large outfits that tends to mean establishing "private clouds" to cater for all in-house computing needs, replacing the islands of servers within different organisational departments that ran particular applications.

Small to medium-sized organisations, in contrast, are using the internet to connect to service providers' clouds. As they do so, IDC is seeing a shift in IT budgets from capital to operational expenditure, as customers take advantage of cloud services' typically monthly payment schemes.

Cost is directly related to use of resources that include CPUs, storage space and memory. Prices are pushed up depending on add-ons such as the degree to which the service provider manages the customer's software, security and backups.

Morris says prudent cloud computing customers are clear about the service level agreement and business-continuity commitment of their provider.


As the clouds continue to roll in, IDC estimates the new service delivery model is accounting for about 10 per cent of IT spending.

"That's growing at about 40 per cent a year, but from a pretty low base," says Morris.

Service providers are falling over themselves to get into the business, to the extent that market consolidation is considered inevitable. Competent smaller providers will be bought by industry heavyweights such as IBM, Google, Microsoft, Oracle and, in the New Zealand market, Gen-i, Datacom and Revera.

That's a good reason to be selective when choosing a provider, Morris says, since it would be inconvenient for the umbilical cord through which an organisation's data is pumped to be intact one day and snipped the next.

That hasn't been an issue for the University of Auckland, which switched to a cloud service for provision of email and a host of other applications nearly four years ago. Nor is it ever likely to be - the university is plugged into perhaps the biggest cloud of all, Google.

One of the big benefits of cloud services is how they're paid for - typically by the month, based on usage. The attraction for bean-counters is that the cost is predictable and doesn't involve capital outlay.

For an institution such as the university, the cloud's pull is even stronger. Google bundles up its online email, word processing, website creation, calendar and other applications in the free Google Apps for Education suite, which is used by numerous big-name US institutions.

It's hard to go past, says the University of Auckland services manager, Matt Cocker, and not just because it's free.

"It's been a success story," he says, despite a couple of technical glitches that affected Google worldwide, which students "seemed to accept".

"Our cost for running the service is very little in terms of support calls. There are some challenges managing changes, because Google is constantly innovating, but it's been good ..."

One of the hazards of using an international service was brought home when Google got offside with the Chinese Government, which restricted access to its site. That shut off services to University of Auckland students resident in China, until Cocker was able to provide them with a workaround.

The university made the move to the cloud in response to student demand for a "Google-like" email application.

"The cost of developing and maintaining something that could compete at a service level equivalent to Google's is quite considerable," Cocker says.

Not that cloud services are offered free out of charity. Cocker points out that Microsoft offers a similar free collection of applications to education users, Live@edu, the motivation being to win mindshare. "It's a marketing exercise as much as anything."

For business users, Google's suite is US$50 ($61) a head per year. Microsoft's equivalent, Office 365, is $9.25 a month for small businesses.

One perceived trap of entrusting data - say, tens of thousands of email messages - to a cloud service is that you'll never be able to reclaim it if you decide to move to another provider. An unheralded Google initiative, the "data liberation front", aims to make it easy for users to remove every bit and byte they've ever stored on the company's servers.

Even so, for many organisations there will be data too sensitive and applications too critical to consider having them hosted in the cloud. Andrew Charlesworth, managing director of Maclean, an Auckland reseller of IBM cloud services, says applications for which any time lag is unacceptable aren't cloud candidates.

"If an application's performance is measured in milliseconds, it's probably better kept closer," he says.

By definition, cloud services increase the importance of having a reliable telecommunications network. As fibre-optic internet links are extended under the Government's ultrafast broadband plan, Charlesworth sees network quality being less of an issue.

"That's the tightrope - you're trying to get cost and efficiency gains by pushing applications into the cloud, and balancing that against the risk and impact of something going wrong."

Hybrid arrangements, with email and Microsoft Office-type applications in the cloud and mission-critical financial and customer management programs running in-house, are increasingly common.

Charlesworth says Maclean is finding that if organisations haven't already adopted a cloud service, they're considering doing so within the next 12 months.

"I think that's partly because they've been holding off upgrading hardware and systems over the past few tight years but they can't wait any longer. One of the things we say to them is the cloud means they don't need to splash out the $20,000 or whatever it is to upgrade.

"It allows them to switch to a monthly payment model with the flexibility to scale up or down depending on workload. It takes away the capex pain."