Applications in the Cloud The advantages of SaaS applications for large enterprises Group 2 15 January 2009 Stef van Grieken Pim van der Kwaak
Paper for the course ‘Architecture and Infrastructure’ Industrial Engineering and Management – Information Technology University of Groningen Faculty of Mathematics and Natural Sciences
Table of Contents Abstract...............................................................................................................................................2 Introduction ......................................................................................................................................3 Research Question ..........................................................................................................................3 Background .......................................................................................................................................4 Methods ..............................................................................................................................................6 Analysis...............................................................................................................................................8 Cloud computing case: the State Department.......................................................................... 8 Cost ........................................................................................................................................... 9 Flexibility................................................................................................................................. 10 Other benefits......................................................................................................................... 12 Risks ........................................................................................................................................ 12 Conclusions..................................................................................................................................... 14
Abstract The emergence of cloud computing has opened up a new way of running business applications in the cloud. A growing number of cloud platforms offer the possibility of running various kinds of business applications and integrate them in existing processes. Usually, development and deployment of applications in large enterprises takes a long time and results in high investment cost. Software as a Service (SaaS) applications open up a new and more competitive ways of developing and running business applications on in the cloud. In this paper we explore the advantages of cloud based SaaS applications for large enterprises. The research has been conducted on the basis of a general and scientific literature study and the reviewing of several cases. We found surprising advantages in development time and cost, operational cost, and flexibility of cloud operated SaaS applications. Since SaaS is a recently new concept we believe that these advantages should be studied further to build a comprehensive framework for evaluating both the advantages and disadvantages of SaaS applications in business settings.
Introduction In the recent years cloud computing has grown as a serious competitor for running enterprise ICT applications. A recent study from market researcher IDC expects a growth of cloud computing services to reach $42 billion in 2012i. The cloud-‐computing concept of Software as a Service (SaaS), allows organizations to run rich web applications in the cloud can substitute for many existing business applications such as business process management-‐, financial management-‐ or document management software. The recent emergence of successful platforms as Salesforce.com, The process Factory and Google Apps results in the question what the competitive advantages of these SaaS platforms are. This paper aims at finding the main business advantages of using cloud-‐based applications for large enterprises compared to conventional ICT applications. Because of the recent emergence of the topic limited research has been conducted in this direction. A fair amount of research has been conducted by commercial research and market organizations like Forrester, Gartner and Yankee Group. Preliminary studies show that cloud-‐ based applications can cut development time in halfii, reduce set up costiii, and realize savings of about 11 percentiv. Research suggests that the advantages of cloud-‐based applications outweigh the disadvantages. The paper begins by stating the research question and giving a background review of the available literature followed by a description of our working methods. In the next chapter we will analyse the literature we surveyed and draw general conclusions regarding the problem statement.
Research Question The main research question revolves around the advantages large enterprises could have of running applications in the cloud. The main research question is: “What are the advantages for large enterprises to run business applications in the cloud?”
To further elaborate on this research question we need a clarification of what we mean by advantage. We define advantage as ‘the quality of having a superior or more favourable position’. In relation to the research subject we need to understand what the criteria are on which we can measure this advantage. To do this we will need a clear understanding of what the success criteria of large enterprises are with regard to ICT applications. Furthermore, we will need to investigate if large enterprises are able to run business applications in the cloud with a comparable easiness to conventional methods. This results in the secondary research questions: “What are the success criteria that define advantages for ICT applications?” “Are their stable and systematic processes and services for creating large and complex cloud-‐ applications?”
Background Cloud computing is a computer infrastructure concept where businesses and users can access infrastructure, platforms, applications or IT services from anywhere in the world on demandv. Within the cloud domain we can distinguish three different architecture layers. The first layer is the hardware layer that in cloud context provides infrastructure as a service (IAAS). Providers of IAAS services deliver computer servers in different configurations that can be used to run customer specific applications in the cloud. On that infrastructure there can be a Platform as a Service (PAAS) layer that provides software frameworks that developers can use to develop their own cloud-‐applications. A famous example of a cloud-‐ computing platform is the Google App Engine that allows third parties to develop on Google infrastucture. Finally there is the application layer that consists of software applications that can be run from the cloud. The term to categorize these applications is Software as a Service (SaaS). This paper will focus on this application layer.
Figure 1: Three layers of cloud computing
Software as a service can have a major impact on the way businesses are run. A SaaS application essentially lets you run applications from a browser that directly from the Internet. Most commonly large enterprises run different systems from large ICT service centres that are only accessible through the company’s network. The beauty of the cloud is that you can run disembodied services from anywhere without the need of a hardware architecture that has to be maintained Compared to conventional ways of running an ICT development and deployment there seem to be big advantages to running your business in the cloud. The most important reason is that running a cloud service could be much cheaper: no investment in hardware or staff need, you pay as you go. Furthermore, a cloud service is much more accessible since it can be run from anywhere with just a web browser and an internet connection. Thirdly a cloud setup is much more efficient since enterprises share data centres where services are being virtualized. This last advantage also increases the load on data centres, which eventually is a lot cheaper (an average enterprise data centre runs only at 20% of its capacity).
Large company’s spend a significant amount of their budgets (between 2% and 16% of the total operating cost) on information and communication technology, and budgets have grown an average of 2,8% in 2007vi. More and more business processes strongly rely on the performance of ICT applications, especially in the enterprise resource and communication fields, good applications can seriously reduce the operational expenses of enterprises. With ever increasing competition large enterprise will be forced to support their business processes with ICT in such a way that they are cheap, reliable, scalable and easy to construct. A lot of research has been conducted on the success of ICT projects in organizations. To have a thorough understanding of what is better we need to define the success criteria of ICT projects in large enterprises. Many different criteria have been proposed throughout the agesvii. We will look at these criteria from the level of enterprise performance rather then project performance criteria such as monitoring and feedback, goal definitions and scheduling constraints. Milis and Mercken propose a framework to use of the balanced scorecard for the evaluation of ICT projectsviii. The balanced scorecard defines four perspectives by which benchmarking and evaluation of activities can occur. These different perspectives are the internal, financial, customer and innovation and learning perspective and carry different Key Performance indicators like Return on Investment (ROI), process time to maturity and cycle time. In this paper we will look at the financial and internal perspective in relation to application development and operation. The criteria by which we will use to compare SaaS to conventional ways of operating IT are development time and cost, operational cost, time to market, and flexibility. We use the derivative of the balanced scorecard because this is a method commonly used by executives to evaluate business performance.
Methods The main method of research for this paper is a literature survey. We have collected and read around 50 articles and websites on which we base our conclusions. Articles vary from subjects as Cloud computing, Software as a Service, Platform as a Service but also more specific articles on cloud security and flexibility. We have used some case studies from both software vendors and independent research groups. The quantity of high quality research in this field is quite low due to the relative newness of the target subject. To be able to generate enough information to base our findings on, we have used research from independent market researchers like Gartner, Yankee Group and Forrester. These organizations tend to be very successful at board level analysis and research but are less commonly used in Academic studies. We choose to use these reports because quantitative reviewed research on SaaS applications is not available. Based on the literature we have surveyed we selected the most important benefits that arise from these articles. We have tried to give an overview of those benefits, but the paper is by no means covering the entire subject of study. The choice of subjects to cover was based on the contents of the course ‘Architecture and Infrastructure’ and the research performed in the literature. We have tried to look at both the business as the architectural decisions underlying Software as a Service. The model in the next page shows the actors services and infrastructure involved in our research. We describe these actors in a conceptual model for reader clarity. Concepts in Cloud Computing and Software as a service have not matured to a level where there is an academic agreement on definitions and relations. The main actors in this paper are Large Enterprises, consultants and vendors. Large enterprises will implement cloud computing either via consultant or directly via the vendors. At the level of the services we will describe the main cloud computing services and their supporting services. The infrastructure service delivers a computing platform or grid with multiple servers and network infrastructure to run custom software in the cloud. Costumers usually buy server or CPU time in a measure of time and can run custom applications and operating systems on virtualized the hardware. The platform services offers developers a way of creating SaaS applications on the infrastructure services. These platforms usually have their own development kits and development rules. Applications services are the actual Saas applications that are run on the platforms. Different vendors offer ‘of the shelf’ Saas applications that are run on their own platforms. Some other services like backup, security, and data (web-‐) services support these main services.
Finally there the infrastructure part of our conceptual model. This is the hardware that all the services are based on. We have a main cloud platform for data storage and other components. Then there is the application platform, which is needed for Software as a service. The databases of the application platform are application databases, they describe the parts of individual Saas applications. The virtual applications are vendor or user created components. By cache we mean the application caching on the application platform. The network shown in the model is a visualisation of the different platform being coupled together.
Analysis Cloud computing case: the State Department Running applications from the cloud is a relatively new business and not many documented cases are available for study. In late 2009 the independent research group Nucleus published a case study on the use of the Force.com application platform for the state department Bureau of International Security and Non-‐proliferation (ISN)ix. This bureau is responsible for non-‐proliferation, missile security and reduction of weapons of mass destruction. The bureau performs this task through bilateral and multilateral diplomacy. One of the key tasks of this bureau is to be able to rapidly respond to disarmament opportunities worldwide by negotiation, financial compensation, program management and other forms of support the American Government can give in these types of actions. An important part of NDF's work is maintaining readiness for fast and flexible responses to a wide variety of situations. State department operatives frequently perform there projects outside the United States far away from regular state department facilities and information systems. The NDF needed a means to track cost between programs, managers and countries all over the world in such a way that they could optimally use their available capital. Force.com is an application platform and infrastructure providing an environment for building and maintaining SaaS applications. End users of the force cloud can hire implementation partners to create and implement a cloud-‐application for their business. The state department used an implementation partner to create the budget application, which used already available data from the state department databases and created workflows in the cloud. The state department describes three of the most important benefit areas of using the cloud applications in the case study. The first benefit is the management and development of the software project. The state department was able to deliver the application at less than a quarter of the time that would have been required in similar on-‐premises development environments. The second major benefit was the increased productivity of managers. The anywhere, anytime any device capabilities of the force platform gave managers a better insight and visibility of their program initiatives. Finally, the financial benefits of the program were stunning. The annual return on investment (ROI) of the program was 216% on a total cost of ownership of $475.564. The upfront cost for developing the software resulted in $133.560 on coding and software and $1.100.000 on consultancy in three years. The direct annual benefits were calculated at $445.066 per year and the indirect annual benefits were estimated at $1.180.000. No cost for hardware or training was required. In this case study we can see that the benefits mainly arise in the field of development time and cost, and operational cost. Although the operational costs are that low, there is still a
significant investment in consulting activities needed (77,1% of the total four year budget). The study teaches us that -‐if well executed-‐ with a significant amount of external help SaaS applications can be a very cost effective way of creating and running software compared to conventional ways. Cost One of the most important factors that large companies use when assessing their ICT investment is cost. Investments like infrastructure, applications and software must support a company in such a way it that it adds value to process. Not only the cost for the development of the software must be taken into account, but also the operating, maturing and distributing the software. Evidence in literature suggests that SaaS applications can have a significant impact on both the development and operation cost of the software. Before we go into the details of the specific types of cost we have to look at the nature of the SaaS business model. Vendors like Cordys, Force.com and Google provide an application platform of which they maintain the infrastructure, support and development. Independent vendors and businesses can create applications on those platforms and sell them to users. The nature of the cost is pay-‐as-‐you-‐ gox instead of buy-‐and-‐own. This usually means that the service is delivered on demand and that you pay for a user or a unit of time. The downside is that none of the software you use is owned. This means that third parties can buy the same software with relative ease. This doesn’t mean that SaaS applications have no upfront cost. Implementing a SaaS application into a company usually requires a lot of consulting and development hours as well. A SaaS application can be bought as a service of the shelf if from the platform owner or an independent vendor who has already developed it. But, usually a SaaS application requires some setup or specific tailoring to meet the requirements set by the company. Because SaaS applications are relatively new, consultancy on this issue is usually expensive and has to be taken into account when implementing a SaaS application. On the other hand SaaS can deliver some serious cost benefits during development. The foremost advantage is the reduction of development time on SaaS projects. A case study of Japan Post indicates an average reduction of on forth on development timexi. When privatised in 2005 Japan Post transferred their entire ERP infrastructure to a SaaS platform for their main organisation, distribution centres and offices. Amburst and Regan estimate that large companies can benefit from the economies of scale of a cloud platform and reach a price advantage of a factor 3 to 5xii. The case study on the US state department and the case studies provided by vendors and independent research groups suggest the samexiii. Furthermore, research by IEEE suggests that development on SaaS platforms leads to increased programmer efficiencyxiv and speedxv that will bring down the cost of development even further. One of the other factors that bring down the cost of a SaaS platform is the availability of ‘free services’. These services can come in the form of a public API that can provide real time information to SaaS applications because they generally use the same standards. Geographical information like postal codes or maps, government data sets and a growing
number of database can feed free of charge information directly into SaaS applications. Furthermore, a growing number of vendors provide certain platforms or applications for free. A good example is the Google Apps platform that is free of charge for small businesses and non-‐profits. The use of these web services and applications can decrease the investment required. The benefits of the investment have become clear, but what about operating a cloud platform. The operating cost scale with use of the application platform. The cost of operation can be divided into the cost of the infrastructure (or hardware) the distribution of the application and the support. The operating cost of a cloud platform is lower if a company can use the economy of scale by having a significant amount of users. Furthermore, these costs can be lower because of the flexibility of a cloud setup. A company can increase the capacity of the cloud platform when needed, and easily downscale as well. This will result in lower operating cost because provisioning for peak load of the system is not necessary. A good example is the cost of running a mail service within a company, which requires large expensive infrastructure, and fat proprietary mail software and personnel to support the mail service. A study by Gartner indicates that a cloud based mail service reduces the operating cost from an average of $10 to $3 per user/monthxvi. In general we can say that for large companies a SaaS application is cheaper than conventional applications. Finally there is the issue of distribution of the applications that you are using. A lot of commercial business support software requires expensive software and network architecture using proprietary client-‐to-‐server protocols to deliver the functionality to the client. A lot of investment in network, security, licenses, support and client computers has to be done. Running applications from the cloud only requires a web browser and a network connection. The client device can be a thin client in the form of a computer, but also a mobile phone, or any device with a connection and a browser. Therefore the cost of distribution can be a lot lower.
Flexibility An important attribute to ICT systems is flexibility, and can be defined as designs that can adapt when external changes occur. Flexibility can be used as a competition advantage because it allows organisations to more rapidly adapt to changing market conditions. From the business perspective there are many different dimensions of SaaS applications that provide flexibility to the organization. From the human resource perspective we can imagine many situations in which it would be easy to be able to scale up or down fast. Large enterprises have different hiring policies that can be influenced by changing market situations. When for example a large enterprise acquires another company and wants to integrate their new employees in their current applications the benefits of SaaS applications become clear. Instead of needing to buy new server infrastructure and expanding the licences of the proprietary software to accommodate the new acquisition a company can simply add another thousand or so users to the business applications they’re using.
From the process perspective we can se a higher flexibility with regard to process adaptation. SaaS applications provide for pluggable policies and can be easily adapted to changing market conditions without any adaptations to the users. Research provides some examples of successful market oriented cloud setups using .NET based service-‐oriented resource management. Researchers were able to easily adapt their applications without interfering with the overall resource management architecturexvii. At the level of the applications many SaaS platforms provide easy access to API and data standards making it possible to create mash-‐ups of internal and external data. Furthermore, by using these standards services like Google Maps, SMS text messaging and many more can be called on from the SaaS application. This brings high flexibility for next-‐generation enterprise IT services. Research provides an example of IBM research labs where employees can share the Atom feeds of their calendars to external parties when they are hired out and vice versa. The easy sharing of applications and data is a flexibility advantage of SaaS applications. Since SaaS applications are in fact an extension of Infrastructure and Platform as a Service, SaaS applications enjoy all the flexibility advantages that clouds have to offer. Business applications can have large variation in use and load over time. Especially within organizations that have a strong seasonal sales pattern the stress on ICT systems can become quite Figure 2: Scalable Cloud Models high around these sales peaks. Conventional applications run from a privately owned data centre should be able to cope with those peaks without any problem. This requires a much larger infrastructure– namely one that can cope with the highest peak at any time – than in a cloud setting. Because of the nature of cloud computing higher or lower load of the applications will not affect the performance. Many cloud applications and platforms can automatically trigger actions to mount extra capacity to an application when necessary. This hardware elasticity is a big advantage of SaaS applicationsxviii Finally there is network and distribution flexibility for SaaS applications. Because SaaS applications are usually browser-‐based applications, they enjoy a great variety of distribution and network options. Essentially, anything with a browser and an Internet connection can run a SaaS application from any device if the SaaS application meets the device standards. Deployment of a SaaS application to another device platform is therefore possible with minor adjustments to the application. There is however one factor that restricts the flexibility of a SaaS application with respect to conventional applications. Since SaaS applications run on a platform the degrees of freedom
in development are limited. SaaS platforms make tradeoffs between security, development speed an degrees of freedom in development. This last criteria is often sacrificed for security and development speed purposes.
Other benefits
Standardization and Reusability Modular design and off the shelf reusability are essential for enterprise applications and scalable SaaS applications. In conventional software we see that it is often very difficult to work together with other applications, or to change parts of the software once it has been developed. To get the most out of Software as a Service there should be effective and systematic processes to support the development of applications, which provide high reusability and applicability. There is not much literature about standardised processes to create applications. Only one abstract from a paper is what we have found about it. That paper presents “a systematic process for developing high quality SaaS and highlight the essentiality of commonality and variability (C&V) modelling to maximize the reusability.” xix With the introduction of Software as a Service, a new kind of standardisation and reusability will have to be implemented. What is done by most of the IT services now, is that an application is made specifically for one enterprise or company. For example a custom-‐coded user interface and the way it interacts with the backend system is completely re-‐usable for new screens or other functional units. This reusability can save development teams up to 85% in application front-‐end development cycles.xx When saving that amount of time, we can conclude that there is an advantage in reusability as well.
Scalability Formerly it was necessary to buy full capacity infrastructure for times of peak loud that could occur. This results in an infrastructure that most of the time performance much lower than it’s peak performance and is therefore uselessly burning money. A great advantage of SaaS applications is that both infrastructure and capacity of the system can dynamically scale with the performance of the system, only using infrastructure when it needs to. For companies that have a corporate goal to be sustainable this scalability property of SaaS applications can be used to their advantage. Running your own data centre increases the energy consumption, using cloud infrastructure applications are consolidated over the platform and that reduces the number of required servers. The scalability property of SaaS applications will save money in most cases.
Risks Risk management is important in most of large enterprises. For this specific case, this means that all existing risks should be well addressed in order to decide whether it is useful to implement Software as a Service. Even though most of the risks are not known at this point of the SaaS lifecycle, we will try to outline some specific downsides for implementing applications in a cloud.
Seeing the importance of security, this is a risk that needs to be taken seriously. There is a difference between a public cloud and a private cloud. To temporary deal with the security issues in the public cloud a possibility is to set up a private cloud. A private cloud can be firewalled from the outside world, only some advantages will be lost when implementing a private cloud. One of these advantages is the pay-‐as-‐you-‐go model. When using a private cloud it is necessary to buy, build and manage the cloud yourselves, whereas in the public cloud one only pays for the applications and space that are used. Interoperability, which means that one application can run on multiple different clouds, could cause trouble. Until now there has not been any standardization project for application in clouds. Hence, it is very hard to abstract a program from one cloud and use it on another. For example migrating GoogleApps to Force.com.: at this point it is impossible to migrate from one provider to another. By migrating between providers data loss will be inevitable. An optimal solution would be that all cloud applications are usable at multiple cloud providers. When the interoperability is well organized, moving to a cloud could be more profitable, because is it easier to switch from provider.xxi Then it could be possible that a vendor is, for some reason, forced to shut down. It is yet unknown what would happen in a situation like that. Also unsure is whether it is possible to collect your applications or hardware. And even if it is possible to easily export the data or applications, it is still hard to find a new vendor within a short period.xxii Another risk is the availability of a service. When an organization needs the applications 24/7, it is important to ensure the customer that applications will be available at any time. Although existing SaaS services have set a high standard with this problem, the thoughts exist with possible customers that availability will be a struggling point.xxiii Than off course the existence of licensing costs. Enterprises that run organization specific software might have problems implementing this software in a cloud. Not only does this software support limited operating systems, also the licensing costs could become different when an upgrade is needed, this problem lead to implementing open-‐source software in cloud environments rather than the use of proprietary software. xxiv
Conclusions In this chapter we will draw some general conclusions based on the literature that we have surveyed. We have to note again that a lot of the literature that we surveyed was not reviewed and is therefore not validated. Although this research has not been reviewed we believe that is provides a sound basis for drawing these conclusions. The organizations that provided us the information are highly appreciated for their work in market research and board level consultancy. They rely heavily on providing sound and verified analysis of market conditions and developments. We therefore believe that the conclusions we draw here – considering the relative recentness of the subject – are valid based on the available evidence and scientific research. We will start by answering the primary and secondary research questions. “What are the success criteria that define advantages for ICT applications?” In this paper we looked at the criteria development time and cost, operational cost, time to market, and flexibility to compare SaaS applications to conventional applications. There are many ways ICT applications can be evaluated for success. Since the focus lies on large enterprises we looked at high-‐level criteria that indicate performance of the primary goals of businesses as defined in the balanced scorecard. Since the balanced scorecard or derivatives are widely adopted methods within companies we looked at the parameters development time and cost, operational cost, time to market, and flexibility since we believe they apply to software projects the most. “Are their stable and systematic processes and services for creating large and complex cloud-‐ applications?” At this maturity stage of Software as a Service, there is no clear process for creating large and complex cloud applications. Most companies implementing use conventional methods like agile development to create SaaS applications for their business. We do however see evidence of large enterprises implementing very complex business applications in the cloud. This circumstantial evidence leads us to believe that with adaptation of existing methods SaaS applications can be successfully created. Furthermore, we observe an increasing amount of users on different SaaS platforms such as Google Apps and Force.com. These users all seem to find ways to develop applications for their business needs. The application exchange of the force.com platform features more than 8000 business SaaS apps readily available. This evidence -‐again circumstantial-‐ leads us to believe that processes are in place to create large and complex cloud applications. We conclude that it is very likely that these large enterprises have managed to create a systematic approach, in order to efficiently create and modify applications in a cloud. Whether these are stable and controllable processes we cannot determine.
“What are the advantages for large enterprises to run business applications in the cloud?” In this paper we looked at the criteria development time and cost, operational cost, time to market, and flexibility to compare SaaS applications to conventional applications. We can conclude that there is strong evidence in the literature that the cost of SaaS applications is lower and the return on investment is higher compared to conventional applications. Especially the upfront cost of implementation and development is much lower. Depending on the size of an organization the operational costs of SaaS can be low. We see that especially large companies benefit from the economies of scale in cloud settings. Furthermore, we can see that some specific types of situations can reduce certain types of cost. Since the relative newness of SaaS applications we have reason to believe that the cost of developing and maintaining these applications will decrease once the market becomes of substantial size. Because of the reusable nature and easy use of most SaaS platforms development time can be significantly reduced. A lot of the savings in development can be directly attributed to this reduction in development hours. If development cycles of software decrease it becomes easier for vendors to respond to market changes fast by being able to use the IT to support their business processes. Therefore the time to market of companies will decrease. Literature suggests that SaaS applications bring more flexibility in some key areas of businesses. The most important increase of flexibility comes with the ‘pay-‐as-‐you-‐go’ nature of SaaS applications. It is very easy to respond to market or business changes and scale the applications up or down. Secondly the cloud provides enough flexibility to adapt applications fast when processes or software requirements change. Finally there are some advantages that follow naturally out of the standardisation movement on the web. Since most of these infrastructures are already dynamic system can cope with changes in load and demand fairly easy. Furthermore, standards provide high levels of data and application integration through platform programming interfaces. We believe that especially large enterprises wil benefit of the flexibility of SaaS. There are some further advantages that we will not mention in this conclusion because we believe that their impact is relatively minor. Conclusion We conclude that there is very strong evidence that SaaS applications decreases investment and operational cost for business applications in large enterprises. Furthermore, SaaS applications will make organisations more flexible in managing their ICT to support their business processes.
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