Cloud computing means using web-based, rather than locally-installed, software applications. This technology has huge potential for businesses and consumers alike. In this article, we will examine how cloud computing is changing the way we look at and develop technology, especially in terms of business applications.
ECONOMIES OF SCALE
Cloud computing is simply not possible without the Internet’s enormous size. With a potential customer base of millions, if not billions, of users, a cloud application’s cost per user can be very low. An individual’s computer use may be predictable or it may be erratic, but when you have many customers, it all averages out. Traffic can be efficiently routed between servers using existing Internet infrastructure, leading to fewer wasted resources than ever before. Also, having a huge number of users encourages development of applications that are elegant, self-contained, and secure. The first successful cloud computing applications were web-based email services. Providers like Microsoft, Yahoo!, and AOL realized they could provide a valuable service absolutely free through economy of scale. The technological challenge to securely and reliably host millions of email accounts is a huge feat, but if the customer base is large enough that the cost per customer is almost negligible, then the revenue per customer can also be very low. Therefore, advertising is generally the major revenue stream for cloud applications, but in many cases, it is the relationship with the customer (not to mention access to data about that customer) that justifies the cost.
PAY-AS-YOU-GO
In the traditional software marketplace, where a software application is sold as a boxed product, there is a fundamental disconnect between the price tag and the actual value of the product. Whether you’re purchasing a $50 game or a $1000 video editing suite, you’re basically paying for a cardboard box, a CD-ROM, and some documentation. The price discrepancy is explained by the concept of a software “license.” You aren’t buying the software so much as the right to use it. The higher price of the one application is justified because it’s a valuable niche product; fewer customers are subsidizing the cost of development, therefore the cost per license must be higher if the company is to remain profitable and continue developing new versions of the software.
Pay-as-you-go is an economic model borrowed from service and utility companies, in particular, cell phone providers. Rather than selling a software license for $1000 per customer, you spread the cost over your customer base so that frequent users pay more than occasional users. With traditional software sales, this is impossible to calculate; however, cloud computing makes it a breeze. Suddenly, you have the opportunity to market your software to customers who can’t afford the $1000. Maybe you let them try it for free the first time, or possibly you charge them a monthly subscription for a certain number of minutes (just like a wireless plan). Either way, pay-as-you-go gives businesses and consumers a new economic model.
TRANSPARENCY
Part of the fundamental definition of cloud computing is the idea of transparency. Transparency is the idea that we don’t care how something works, we only care how we work. In other words, if a software application allows us to be productive, we don’t really care what’s going on “behind the scenes.” Cloud computing is the ultimate expression of this goal. When using a cloud application, we really have no idea what type of hardware the server is running on, or even where it is located. We don’t have to worry about backups, security, or tracking down bugs; all of these things are the provider’s concern. It doesn’t matter whether you use a PC or a Mac for cloud computing; all you need is a web browser and an internet connection. Transparency helps achieve the ideal of the computer as a tool. Basically with cloud computing, your computer becomes an “internet appliance” capable of achieving any task.
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