The Cloud Swells: SaaS Returns Encouraging

March, 2009

Though experts often disagree on the definition of cloud computing, few dispute the notion that in the near future organizations will be turning more and more to “the cloud” for computing resources, whether they be applications, data center infrastructure, development platforms, or services. Cloud computing promises low initial startup costs, quick deployment, flexibility, and enhanced computing capabilities. On the downside, IT organizations worry about security, vendor lock-in, the true cost of ongoing subscription fees, and loss of control over quality and availability of IT resources. Nevertheless, our data indicates that IT organizations are gradually integrating resources from the cloud into their IT environments.

This Research Byte is a summary of our full report, SaaS Returns Bolster Cloud Computing’s Promise.

We use the term “cloud computing” to refer to any number of vendor offerings, including SaaS, application development platforms, and computing processing resources that are delivered remotely to the user without requiring knowledge of the underlying computing infrastructure. Organizations can also deploy their own cloud computing infrastructures (so-called internal clouds) as well as integrate services from third-party providers into their environments. We describe cloud computing further in the next section.

Cloud Computing More Than SaaS
Cloud computing is a rapidly evolving topic and encompasses more than SaaS. In its broadest sense, the term “cloud” is a synonym for the Internet, and “cloud computing” or “Internet computing” can refer to almost any application the relies on the Internet. This nebulous definition brings into play the concept that, in the future, a multitude of IT services, infrastructure resources, and Web services from the cloud will be integrated in any number of ways to perform any number of tasks.

In some instances, large organizations are deploying their own cloud computing environments, using service-oriented architecture and the Internet to enable users to access IT resources anywhere around the globe. Organizations can also combine services and resources housed in their own data centers with those of third-party service providers. But, most often, cloud computing is a term used by vendors to describe their Internet-based subscription offerings.

Cloud computing may sound similar to grid computing and utility computing because it often incorporates these features. Grid computing employs clustered networks of powerful processors, while utility computing provides data center infrastructure as a metered service. Cloud computing, though, is a broader concept and does not necessarily entail grid or utility computing. Moreover, while utility computing arguably has been around for a while, the underlying enabling architecture for cloud computing includes service-oriented architecture and virtualization technology, two elements that bring added flexibility and scalability.

A typical cloud computing architecture comprises virtualized computing infrastructure with global access. The infrastructure is rented rather than owned, so getting started does not require a large capital outlay. Billing is generally on a pay-as-you-go basis. In addition, costs may be lower than with on-premise equipment because the provider attains higher utilization rates through multiple customers; hence, efficiency can be much higher than with in-house infrastructure.

Figure 1 breaks down the offerings of six “cloud computing” vendors into five basic categories: applications, infrastructure, platforms, services, and storage. Applications range from SaaS offerings such as’s CRM software to “desktop applications” such as Google’s calendar and e-mail services. “Infrastructure services” is utility computing by another name, but some say the new evolution implies a flexible, scalable, and virtual architecture that provides truly on-demand server and storage resources for the virtual data center. Enterprises and vendors use cloud computing platforms to develop and host full-blown applications and discrete Web services, such as a service that processes credit cards. “Service” is a catch-all category, including managed services such as virus scanning or network management, as well as hybrid software-plus-services offerings such as trading exchanges. Storage can be part of the infrastructure category but is also a discrete offering that often includes backup and recovery services. While platforms for integrating all of these cloud-based resources are not yet available, some envision the arrival of businesses that will acts as aggregators.

Cloud Fig1 - The Cloud Swells: SaaS Returns Encouraging

The full version of this report presents adoption trends, return on investment, and total cost of ownership experiences for software as a service (SaaS), which represents one significant component of the cloud computing paradigm. We also define cloud computing by looking at some of the major vendor offerings and conclude with key points IT managers should consider when evaluating cloud computing options.

Cloud Computing Entering Mainstream
Cloud computing has reached a level of maturity that makes feasible cost-effective solutions facilitated by the technology. Based on the experience of many SaaS users, the risk of using these services is reasonable, and the likelihood for favorable economic results is high. While cloud computing can reduce the burden of owning IT systems, management responsibility for ensuring the results expected remains. Astute managers will insist that quantifiable metrics for assessing quality and security be components of the vendor agreement.

This Research Byte is a brief overview of our report on this subject, SaaS Returns Bolster Cloud Computing’s Promise. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website at (click for pricing).