By Daniel Field

At the PoweredByCloud conference earlier this week in London, around 170 CEOs, CTOs, analysts, lawyers, universities and users from the cloud computing community met for three days discussing developments in cloud: its adoption, barriers, business models, success stories and legal issues.

Interestingly a lot of the talk actually centred on getting out of the cloud. It appears that among those users and potential users that have done their homework, the business case for cloud is satisfactory and the use cases so far disseminated encouraging. However along with the security, privacy, reliability, compliance and similar concerns that we have been talking about since the start of the field, one of the major barriers to entry for many users is that once in a given cloud, is it possible to get out again?

The scope of this question ranges from the concerns regarding provider lock-in to emergency withdrawal in the case of a breakdown of relations with the provider. The view from many of the smaller players and the “cloudarati”, as someone has coined them, is that cloud is a commodity and as such it should completely painless to move data and applications between competing clouds.

However, these are also barriers we see in a number of other sectors without such great concerns, and vendor lock in is rarely (if ever?) absolute. Really we should be talking of switching costs, a term that emphasises that it we are dealing with only half of the equation, because countering the cost is the benefit. When the benefit outweighs the cost then we are prepared to make the change. It only becomes effectively absolute when that cost is insurmountable, irrespective of the potential benefits. But switching costs are something we all accept all the time. When you change your telephone provider you may be charged a contract termination charge by your old provider, or even a connection cost by your new provider.

Let’s take another example. When it comes to the banks and mortgage lenders it is usual to find a myriad of different terms and conditions relating not just to the interest rate but also the costs of setting up the account, the cost of paying it off early, different if it is paid in full or in part, and so on. Do these deter people? Clearly they do not, despite much of them being overtly groundless charges. One has to look at the entire package. It is actually similar to cloud provision in several ways: it is a potentially long term decision, you must trust the provider (at least somewhat), banking is a commodity and cloud is heading for one, and you have relatively little loyalty to one provider or another. And yet people are happy to accept mortgages with explicit switching costs as part of the contract, when we know there is no basis for the charge, so why not for cloud?

True, when it comes to mortgages the numbers are fairly easy to compute. You know the switching cost (say 1%) of closing the mortgage to go to competitor. You know the competitor rates and you can calculate how long it takes to amortize the switching cost. You know the time remaining on the mortgage. You make the decision based on the magnitude of the eventual saving. In cloud the situation is more blurry: the time it takes to set up the new infrastructure is only an estimate as are the exact benefits from the new provider. Nonetheless, any decision to change provider is based on both sides of the same equation. Cost and benefit.

Essentially, then, the attitude of the cloud providers to deliberately building switching costs into their business model should be based on business principles. If you offer long term savings you may be able to impose higher switching costs. As you are trading a commodity, you must look at the overall benefit and cost you provide. Indeed having switching costs may well afford a buffer for fending off rivals on a temporary basis. This may actually be beneficial to the long term profitability of the market, likely to see profit margins eroded in a price war. By the same token, other providers, particularly the smaller, newer or otherwise more expensive players may need to eliminate switching costs entirely to attract clients in order to get a foothold.

However, the situation is perhaps not straight cut. As well as the economics of the situation, there is also the inertia of the situation. In banking, the first mortgage lender you approach is your existing bank. You don’t swap provider over a trivial amount. Cloud will be the same. Switching costs also include the investment in time and the consequent disruption the change causes.

Currently the market is young and even Amazon, the assumed dominant player does not have it sewn up, not by a long stretch. Most providers have some switching costs, different APIs and configurations. Providers are still competing as much on differentials as on price. However, as the market evolves towards full commoditization, the companies will become less differentiated on offering and on price. Now is the time for those with the stronger position to start a land grab. If they can keep those clients during the journey to commoditization in the next couple of years, even low switching costs may become enough to mark the difference between those still trading in 2020 and those that are not.

So in conclusion, we providers must know their switching costs. Their customers and potential customers certainly will. They are not an absolute barrier to entry, merely a hurdle, a fee. Providers should attempt to minimise them for new customers and deliberately assign their magnitude for exiting customers, high or low, as part of a larger strategy based not just on today’s market, but also tomorrow’s.

By Stephanie Parker

To ensure world-class research, energy efficiencies and competitive edge in the global marketplace, Europe needs to evolve current Distributed Computing Infrastructures (DCIs) by  encompassing new, industrial-quality technologies such as virtualization, service orientation and convergence with the digital world.  While grid infrastructures have captured the requirements of several specific communities, smaller and ad-hoc groups with significant  applications have struggled to get their requirements satisfied with grid technology because the inherent complexity and long deployment times  (with outcomes not always meeting with success). Moreover, industry adoption of grid has not taken off as widely as once expected. By contrast, a business case for cloud computing is increasingly gaining consensus in both the public and private sectors and as several standardisation development organisations focus efforts on interoperable solutions for clouds through strategic alliances in which Europe is playing a pro-active role. Furthermore, a recent Expert Group Report on the Future of Cloud Computing produced with the support of the European Commission DG INFSO recommends that the European open source movement should work strongly with industry to support commercial cloud based service provisioning.

A cloud-based e-Infrastructure for eScience, currently missing from Europe’s service portfolio, would ensure a leap forward in the European Research Area by integrating flexible and easy-to-use utility services, complementing current computing services like grids and supercomputers at the hands of researchers and scientists. Value-add needs to come from new business models in a shift away from costly and complex “run-by-scientists-for-scientists” approaches on the one hand and the use of pay on demand on the other. Sustainable growth needs to be addressed by a deeper understanding of policy and legal issues, ensuring cost-effective investment at EU level and interoperability while also fostering new public-private partnerships in the longer term. A new culture of cloud research, “scientific cloud”, and a spirit of entrepreneurship cannot be achieved without the involvement in R&D initiatives of pioneering enterprises with a commitment to industry quality standards and interoperability working alongside research organisations.

Recent developments led by experts in industry and research would help to gain efficiencies and make savings by optimising resource utilisation, reliability, energy efficiency and maintenance costs, all key objectives highlighted by EU policy bodies. This new approach focuses on the provisioning, operation and user-testing of an industrial quality, virtualised e-Infrastructure in the form of a cloud computing service platform, open for usage by the research and scientific community and tested by major categories of scientific and industrial communities across disciplines and sectors important to Europe. The aims of these new developments are to broaden inter-disciplinary scientific collaboration in Europe, ensure co-ordinated, strengthened and focused software deployments, improve the usability of DCI platforms targeting the largest possible base across a range of fields in science and engineering, and advance exploitation in the rapidly changing hardware environments through appropriate software developments.

This novel component in the e-Infrastructure ecosystem would help expand existing Distributed Computing Infrastructures (DCIs) serving eScience by ensuring easy access to virtually “infinite” resources and high mobility while hiding the complexity of set-up, maintenance and communication from users and reducing the length and costs of application porting through automation, as well as overcoming the need for in-depth knowledge of ICT technologies. Economies of scale will be achieved by optimising resources, reducing operational costs, especially energy costs, where savings are crucial for sustainability.

An ideal approach could be based on both open source and commercial solutions, combining the best of both worlds. Users would be enabled through access to a commercial multi-layer solution including compute and storage power, a development environment and immediate services, while advances in open source would also be ensured through community contributions to extend the capabilities of current DCIs and support efforts towards interoperability and portability.

Open source initiatives would be leveraged to pave the ground for interoperability. A good case in point is the Zend Framework project, which has invited the open source community and software vendors to participate in the formation of a Simple Cloud API. IBM, Microsoft, Rackspace, Nirvanix and GoGrid have already joined the project as contributors. In coming months, they will work together to define APIs for these cloud application services, enabling a generation of cloud native applications written in PHP. The Simple Cloud API is an open source project that makes it easier for developers to use cloud application services by abstracting insignificant API differences. One of the design goals of the project is to encourage innovation. To this end, the Simple Cloud API can be used for common operations while users can easily drop down to vendor libraries to access value-add features. One example of this is Microsoft Azure, which now also supports the full Java stack including open source tools such as the Apache web server, working towards interoperability.

But it doesn’t stop here. A cost and energy efficient on-demand environment has much potential to support incubators, industrial clusters and scientific parks, which are central to Europe’s economic strength, particularly in terms of high value-added categories like ICT, Biotechnology and Pharmaceuticals and R&D across diverse sectors. What’s more, such a solution would enable SME and small research labs by bringing the value-add needed to compete with the larger organisations that currently dominate the pharmaceutical landscape.

Significantly, such an approach meets with all four additional recommendations of the EC’s Expert Group Report for the future of cloud computing, that is, the need for large-scale research and experimentation test beds; developing joint programmes encouraging expert collaboration groups with industrial and public stakeholders; supporting the development of cloud interoperation standards and open source reference implementation and European leadership position in software through commercially relevant open source approaches. The time has come for Europe to tap into the expertise that will help make this happen, opening up strategic opportunities for a new scientific cloud that brings interoperability and innovation into sharp relief.