In Saugatuck's view, Cloud Computing has emerged - and will continue to evolve - to enable increasingly networked, mobile businesses, staffed by knowledge workers exchanging information and doing business with organizations across the globe in an economic environment favoring agility and speed of response.

The economic appeal of Cloud Computing derives from its fungibility. As with commodities like precious metals (by the ounce), grain (the bushel), oil (the barrel) or electricity (the kilowatt hour), raw compute power or storage or software-as-a-service (SaaS) solutions can be bought and sold "per user, per month."

But for IT vendors and users, providing and using the services and devices to enable and manage this in a strategic, cost-effective manner requires a clear understanding of two things: What is Cloud Computing; and, How does Cloud Computing really work? The former is a definitional issue, while the latter requires some framing and modeling in order to develop useful answers.

Saugatuck recently published the first in a series of research Perspectives offering our analysis and insights on both issues (please see Saugatuck Strategic Perspective MKT-508, "Harnessing the Cloud: A Model for the Emerging Cloud Computing Ecosystem," published Sept. 23, 2008). This article summarizes that Perspective, and raises some key questions that need to be addressed by providers and users.

What is Cloud Computing?
As we addressed in Saugatuck Strategic Perspective MKT-469, "Clearing the Air on Cloud Computing: Insights from Ten CIOs," published May 30, 2008, many senior IT executives strongly associate the term "Cloud Computing" with on-demand and off-premise operating systems and storage platforms, because the earliest and most prominent On-Demand Infrastructure providers (e.g., Amazon, Google, IBM, Microsoft and Salesforce) have called their offerings "Cloud Computing."

However, Cloud-based offerings also include Software as a Service, Web 2.0, Social Networking, On-Demand Infrastructure, and Cloud-Based Development which may also rely on Cloud-based Services Hubs for billing, administration and other value-added complements - as reflected in Saugatuck's definition of Cloud Computing:

Cloud Computing encompasses on-demand infrastructure (compute, storage, networking), and on-demand software (operating systems, applications, middleware, management, and development tools), customized dynamically to fit current and immediate business process requirements, along with the ability to deliver and manage those business processes.

To amplify our point of view, we have identified several important characteristics of Cloud Computing solutions that underscore its value proposition in the eyes of potential buyers:

• Location-independent, except where regulatory compliance may dictate otherwise, e.g., Canada, the European Union
• Accessible over the Web via browser and Web Services APIs
• Provides support for distributed groups and organizations, especially mobile workers, occasionally-connected workers, travelling knowledge workers and executives, remote office workers, contractors and students
• Delivers a scalable resource - Cloud or On-Demand Infrastructure is sometimes described as "elastic" and "massively" or "infinitely" scalable
• Billable by subscription, units of consumption, size of enterprise or other metric on a recurring, periodic basis
• Offers significant TCO advantage - no capital, no technical resources or personnel required, solutions and platform professionally managed by the Cloud solution provider
• Simplifies both business and technology management issues such as implementation, upgrades, downgrades, new releases, patch management, urgent updates, ongoing enhancements and bug fixes
• Speeds implementation of solutions because already installed on Cloud platform, leaving only provisioning, configuration and access as tasks to manage

There are, in addition, many technologies associated with Cloud Computing that have evolved over the past dozen or so years to converge on a solution set that enables these Cloud offerings. Among the most familiar are the following associated technologies: asynchronous APIs, grids, parallel processing, virtualization, multi-tenancy, appliances (and virtual appliances), open source, Web 2.0, mobile devices, and browsers.

Modeling the Cloud Computing Ecosystem
The shift in acquisition of business and IT resources from on-premise licensed software solutions to Software as a Service and from on-premise data center infrastructure to Public and Private Cloud deployment will transform the information technology sector. This inevitable transformation will result in a multi-level ecosystem depicted below in Figure 1 - Cloud Computing Ecosystem.

Figure 1 - Cloud Computing Ecosystem

Source: Saugatuck Technology Inc.

• Level 0 - Suppliers of hardware, system software and utilities, data center management software, networking equipment, hardware and software, and associated services. These offerings are the underpinnings of Cloud Computing offerings for both Public and Private Clouds.
• Level 1 - Cloud-based On-Demand Infrastructure providers and platforms that host SaaS and other on-demand solutions and provide service offerings to manage infrastructure platforms (collocation); these solutions may rely on partnerships with Level 2 providers, such as Cloud Development (Platform as a Service), SaaS Integration and Services Hubs -- e.g., SaaS billing, Cloud-based security and Mobility-as-a-Service providers -- to provide a more complete offering and attract SaaS vendors or ISVs migrating to SaaS.
• Level 2 - Cloud Development (Platform as a Service), SaaS Integration, Services Hubs (e.g., billing, administration, aggregation, security and mobility solutions, systems and infrastructure management, data warehousing, data access and analysis, and related professional services. These solutions are platform-targeted, as enhancements to Level 1 platform offerings or Level 3 SaaS solutions. In the case of Cloud Development, the resulting application many run on a Level 1 platform or in conjunction with a Level 3 SaaS solution.
• Level 3 - Software as a Service (Waves I-III) and related professional services. These are business solutions delivered from the Cloud, typically in a multi-tenant architecture, and billed by subscription, units of consumption, size of enterprise or other metric on a recurring, periodic basis.
• Level 4 - Business Processing Outsourcing (BPO), Managed Services, Business and Information Services. These services are based upon the specialized expertise of the provider and typically delivered in conjunction with a Cloud-based solution, e.g., SaaS, Mobility as a Service, Cloud-based security, sourcing, data warehousing, etc.

(NOTE: Detailed explanations of each Level, with comprehensive lists of leading vendors in each Level, can be found in Saugatuck Market Perspective MKT-508, "Harnessing the Cloud: A Model for the Emerging Cloud Computing Ecosystem," published Sept. 23, 2008.)

Net Impact
The inevitable consequence of this transformation is an enterprise that is essentially boundary-free, virtually integrated with its suppliers, buyers, and distributors worldwide. Its employees and non-employee contract workers utilize mobile devices to access business and IT resources that may be deployed on enterprise assets or in the cloud.

In the cloud, between clouds, and between the cloud and its users, provider roles will change quickly. Clouds constantly shift, grow, morph and even dissipate. Cloud computing will be little different.




Mike West is VP of Research for Saugatuck Technology Inc. and a leading expert on SaaS and cloud computing provision, business, and usage management.

Saugatuck will be presenting and discussing this Cloud ecosystem model, with our latest user and provider research and insights, in a presentation entitled "Understanding the Cloud Taxonomy" at Sand Hill's Cloud Summit Executive conference , October 14, 2008 at the Computer History Museum in Mountain View, CA.