What exactly is Cloud Computing?

(Figure 1) Infrastructure, Applications and Processes in the Cloud

Accenture defines cloud computing as the dynamic
provisioning of IT capabilities, whether hardware,
software or services, from a third party over the
network. Although the term “cloud computing” is
relatively recent, elements of the concept, such
as timesharing and virtual machines, have been
around for several decades. What makes cloud
computing real now is the pervasiveness of the
Internet and Internet technologies, virtualization,
hardware commoditization, standardization, and
open source software. A key catalyst is the success
of major Internet companies such as Google,
Amazon and Microsoft. The highly global and
scalable infrastructure these companies have built
to power Internet search, electronic commerce,
social networks, and other online services forms
the core of cloud computing. In tandem, a cadre
of capable, credible pure-play firms has emerged—
Salesforce.com and Workday among them.
Characteristics of cloud services include
the following:
• Little or no capital investment required
• Variable pricing based on consumption;
buyers “pay per use”
• Rapid acquisition and deployment
• Lower ongoing operating costs
• Programmable.
Clouds can take two forms: private and public.
For most banks, the first major foray into cloud
computing will be via private clouds. Indeed,
in a survey of IT executives at tier-one banks,
83 percent of participants saw private clouds
as their first priority2. Private clouds are built
within a company’s data center and are designed
to provision and distribute virtual application,
infrastructure and communications services for
internal business users. These service components
are highly elastic, and expand and contract as
needed to meet service-level requirements.
In comparison, public clouds extend the data center’s
capabilities by enabling the provision of IT services
from third-party providers over a network.
For example, software-as-a-service, platformas-
a-service and infrastructure-as-a-service—
all of which offer virtualized solutions based on
a variable, pay-as-you-go pricing model—are
emerging as important elements of next-generation
IT service capabilities. The increasing importance of
cloud computing derives from its fit with current
business priorities: It provides the capabilities
businesses need on a flexible basis, helping them
cost-effectively respond to changing conditions.
By combining virtualization and one-to-many
architecture with a pay-as-you-go business model,
cloud computing represents a new paradigm that
will significantly impact the way IT infrastructure,
platform, application and business processes
capabilities are procured, delivered and supported
(Figure 1).
Traditional solutions Cloud-based solutions
BPO offerings from
Accenture, IBM
Proceess PayPal. ADP Employease,
Amex-Concur
SAP ERP, Oracle CRM IBM
NotesLotus
Application Salesforce.com, Workday, NetSuite
Microsoft BPOS
Microsoft Window/.NET,
Linux/Solaris/I2EE
Platform Force.com, Windows, Azure
Google App Engine
Infrastructure Amazon EC2, VMware vCloud,
IBM Smart Business cloud
IBM BladeCenter, Sun Fire X4100
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At the infrastructure level, companies have already
begun to source raw computing resources—
processing power, network bandwidth and storage—
from the outside on an on-demand basis. In most
cases, these resources are used to augment rather
than replace existing in-house infrastructure, which
itself is increasingly virtualized. Unlike traditional
hosting services, which provide dedicated hardware
to customers, infrastructure cloud providers draw
from a pool of shared resources and dynamically
expand and contract to accommodate fluctuating
demand from different user organizations. As a
result, they provide far greater elasticity, economies
of scale, and cost advantage compared to
standalone datacenters.
At the platform level, cloud-based environments
provide application developers similar functionalities
as in traditional desktop settings. Specifically,
these include tools and other support for
development, testing, deployment, runtime libraries,
and hosting. The emergence of such platforms
allows independent software vendors (ISVs) and
IT staff to develop and deploy online applications
quickly using the third-party infrastructure.
At the application level, the first wave of cloudbased
services (also known as software-as-aservice
or SaaS) falls broadly into the areas of
CRM, human capital and financial management.
The second wave focuses on desktop productivity
tools, including word processing, spreadsheets,
e-mail and Web conferencing. Today, application
clouds span all major enterprise solution areas,
from procurement to enterprise resource planning
and content management. These applications run
on the third-party infrastructure. Organizations
subscribe to these services based on the number
of users or seats. Because these services are
available via standard browsers, they support device
independence and anywhere access.
At the business process level, cloud-based solutions,
also known as business process utilities or platformbased
business process outsourcing (BPO), offer an
Internet-enabled, externally provisioned service for
managing an entire business process, such as claims
processing, expense management or procurement.
Unlike traditional BPO, which often requires the
service provider to take over an existing software
installation, the process cloud uses a common, oneto-
many platform to automate highly standardized
processes. It differs from application clouds in that
it provides end-to-end process support, covering
not just software but also processes supported by
people, such as contact centers. These processes are
typically priced on a per-transaction rather than
per-seat basis.
An adjacent technology trend that is most affiliated
with cloud computing is mobility. The mobile phone
is an information access device that can be easily
injected into the value chain to deliver cloudbased
services and, indeed, soon will pass the PC in
popularity (Figure 2). Smart-phones are increasingly
versatile, acting as a wallet or security token. For
instance, mobile payments vendor BOKU enables
consumers to completely bypass the traditional
banking system by enabling them to purchase
virtual goods—such as weapons on the “Mob Wars”
app in Facebook—by charging the transaction
directly to their wireless account instead of a credit
card3. In this new world order, there are many
avenues to a given piece of content, and devices—in
different shapes and sizes—are simply doorways. A
key principle of the new paradigm is that users will
tend toward whatever access patterns maximize
their own convenience and productivity, whether
this means reading a transcript of a voicemail on a
tablet computer, making a dinner reservation using
a video game console, or approving a purchase
order by touching the screen of a phone.
While the trend of accessing information and
making payments via a mobile phone is not new,
cloud computing allows for new entrants that can
grow without the massive capital costs. Start-ups
can grow very quickly and support a massive influx
of customers by scaling on an infrastructure cloud
without dealing with any of the legacy system
baggage of traditional financial institutions. For
example, mint.com brought personal financial
management services to its sizable community (1.5
million users as of 2009) using a software-as-aservice
business model and offering.
2005A 2006A 2007A 2008A 2009E 2010E 2011E
Smartphones
Shipments (MM)
400
350
300
250
200
150
100
50
0
PCs
(Figure 2) Smartphone sales to beat PC sales by 2011
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Finding cost savings in the Cloud What
opportunities does the Cloud
create for banks beyond cost savings?
Indeed, one of the benefits of the cloud—
especially in the short term—is lower costs.
Accenture, for example, estimates its own IT
organization could save up to 50 percent of its
hosting costs annually by transferring most of its
applications to infrastructure clouds. Bechtel’s CIO
benchmarked the company’s internal data center
and storage against those of Google, Amazon and
Salesforce.com, and concluded he could greatly
reduce his per-unit costs by creating an internal
cloud4. At the platform cloud level, Bank of America
is using Force.com as a way to eliminate many local
application servers that are hosting departmental
applications.
The cloud also can substantially reduce the time
it takes for banks to roll out new applications. For
example, SunTrust Bank rolled out its Salesforce.com
CRM application to 2,000 employees in just over two
months instead of the six to 12 months a typical
non-cloud CRM solution would take to implement5.
But bank executives should not take cloud savings
as a given. They should seek rigorous ROI case
studies based on actual cloud usage, rather than
estimates of anticipated savings. Hardware, after all,
is a relatively small component of data center costs.
Executives need to uncover the hidden management,
transition, and usage costs that reveal themselves
only when organizations start to work with the
technology. They need to evaluate the pricing models
of different kinds of cloud services. And they need
to work with the finance department to develop a
consistent and acceptable approach to measuring
the costs and return from clouds. Only then can they
reliably estimate the savings.
In addition, a number of factors can play an
important role in determining how much money a
bank ultimately can save by using the cloud:
• Adopting common standards that make data
sharing and movement easier.
• Using standard, “fit for purpose” service levels as
much as possible, according to requirements of the
specific application.
• Applying security and data privacy restrictions
appropriately and, again, standardizing the number
of different levels as much as possible.
• Overcoming any departmental ownership issues so
as much work can be moved to the shared cloud
as possible.
• Taking care to maintain flexibility around
procurement to avoid being locked into specific
supplier arrangements.
While saving money can be attractive, we believe
there is much more to cloud computing than
cost reduction. We see four areas in which cloud
computing can create significant opportunities for
banks to create new business models that are more
customer centric and nimble and, consequently, can
help banks grow more quickly and more profitably.
Building a Frictionless and Flexible Ecosystem
Cloud computing’s most compelling use case
for banks likely will be in the way innovative
services can be created. The cloud gives banks an
opportunity to break apart their own value chain—
be it credit approval or back-office fulfillment. A
bank can re-configure its business in-real-time
by dynamically sourcing from several service
providers. For example, an e-invoicing company
called Tradeshift allows for dynamic invoices that
“pay themselves”. The service constantly monitors
exchange rates and then automatically sends out
an order to withdraw funds or to make a purchase
when the process is cheapest.
Cloud services extend into the back office as well.
Paypal, while relying on both banks and credit cards
in its system, wants to streamline the way money
moves. Paypal is not alone. Amazon Web Services
and Microsoft Azure are enabling a new cadre of
up-starts to think differently about how to stitch
together the banking value chain. Twitpay, Zong
and Square are new entrants into the payments and
transaction processing business and all are aiming
to reduce fees and accelerate the movement of
money. Nimble application developers are conjuring
up the latest cloud services that seek to bypass any
entity that slows down steps in both the front and
back office.
Another example: Banks will be able team up with
other parties (such as telcos and post offices) that
can provide the “last mile” to consumers with whom
the banks have no existing relationship and who can
be difficult to reach. In supporting such teaming,
the cloud can offer banks in the future an alternate
growth strategy—i.e., a bank will be able to provide
wholesale banking services outside of its core
geography without having to create a presence in
the new region by acquiring an established brand.
One company that already is using the cloud to
push the limits of traditional banking transactions is
Britain-based Zopa. According to Zopa’s website, the
company “is a marketplace where people lend and
borrow money to and from each other, sidestepping
the banks. It’s a smarter, fairer and altogether more
human way of managing your money, where both
borrowers and lenders get better rates.”6 While
plenty of questions remain about Zopa’s business
in terms of the maturity and viability of these new
models to move money, Zopa is demonstrating the
“art of the possible” in using cloud computing to
orchestrate business processes outside the firewall.
Consumer Cloud Computing
Banks also will be able to provide a more engaging
and relevant customer experience that will enable
customers to more easily access and use banking
products and services and, thus, help attract and
retain customers. For example an application that
consumers might find useful on a smartphone and
that could be supported by traditional financial
services that are now made available by the cloud is
“Split the Bill.” This would enable consumers dining
out together to easily divide the bill among each
other. At its heart, such functionality is still the same
basic transaction enabled by just a bit of clever logic
that sits within the application, plus the required
security. But it’s afforded by banks’ willingness to
accept messages in a certain way with a certain
level of security around them from a mobile device,
and enables consumers to conduct their transaction
completely differently (and in a way that is
convenient to them).
One of the cloud-based avenues in which banks
can engage their customers is social media, which
is growing in prominence and popularity by the
month. Consider that between March and September
2009, the average amount of time spent on social
networking or blog sites increased from one in 11
minutes to one in six minutes7 8. These figures clearly
illustrate the rise of what we call the Conversation
Economy, the next logical step in the evolution from
the Information Economy and Attention Economy.
With consumers spending considerable time having
online conversations, banks will need to determine
how to monetize the time that is spent on
these conversations.
Another benefit of the cloud is giving consumers
24x7x365 access to their banks. Process clouds
and collaboration clouds can allow experts to
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Arch
SaaS, PaasS, etc
Multi-tenancy
Partly-cloudy systems
Integrating across
providers
Data
New data formats
NOSQL
New access styles
Unstructured data
Code
Dynamic, functional,
& parallel languages
Clicks vs code
‘Glue’
UI
Browser as default
Mobile & appliance
capabilities explode
Touch, voice, &
“googles”
Horizontal
scaling
Productivity
demands
The New Web
Moore’s Low End
Parallelization
Language evolution
Cloud cost model
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