Cloud computing takes hold

While cloud-based services have been around for some time-web-based email and file storage, to name two-they are now redefining the information technology (IT) industry and the way companies do business.

"Cloud services" refer to any utility delivered over the internet-application, software, hardware platform or storage-for which the customer pays a user fee based only on the amount of services consumed. Outsourcing such functions to a cloud provider eliminates much of the need for companies to buy and install, maintain and upgrade hardware and software essential to business operations.

For smaller companies, forgoing the labor and capital required to build and maintain a datacenter is frequently an easy decision, as it frees resources to be used in other areas of operations. Increasingly, however, large companies with existing IT infrastructure are shifting to the cloud as well-not only for cost savings, but for the value-added services that cloud companies can provide (see figure below).

But it's about more than just contracting-out the IT function. As consumers become more connected across a range of devices and expect to interact with businesses in real time-and as devices begin to communicate with each other-companies are increasingly opting to use cloud services that provide the processing power, storage and syncing technologies to help foster these customer relationships.

A case in point is Netflix, which in 2010 migrated the hosting of its streaming services to a cloud to accommodate the surges in capacity it faces during peak viewing times. The move allowed the company to focus on its core competency-streaming movies and TV-rather than building new datacenters to handle spikes in bandwidth and a growing customer base.

Still other large companies are using cloud-based data analytics and delivery tools to facilitate proactive customer relationship management. A leading US drug store chain, for example, is developing a cloud-based application that sends consumers timely reminders on their smart devices to take their prescription drugs.

To be certain, migrating to the cloud requires risk and cost-benefit analyses. Businesses need certainty that critical information and intellectual property stored on cloud servers are protected against theft, viruses, and malware. Depending on their confidence as to the security of their data on a cloud server, businesses must then determine which applications to move and when.

While the expense and effort associated with migrating to the cloud will drop in the coming years, companies looking to gain a competitive edge are already experimenting with cloud services. Most are adopting a phased approach comprising:

• Building new applications in the cloud
• Augmenting on-premises capacity with cloud storage
• Migrating existing applications to the cloud
• Moving their remaining services to the cloud

Businesses' growing needs for flexible, responsive technology infrastructures that promote engagement with customers are reshaping their operational models. For an increasing number of these companies, the way forward is clear-it's in the cloud.

Jagdish Rebello Senior Director, Consumer & Communication Research, IHS Technology
Connect with Jagdish on LinkedIn.