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Cloud vs. In-house IT for SMBs

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By Dr. Nino Vidovic, Dr. John Waclawsky, & Dr. George Vanecek

SMBs require both software-based and traditional hardware-based services, such as computing, connectivity, security and voice, provided via a plethora of in-house, networked hardware. But, as desktop functions transition to powerful mobile devices, and connectivity becomes ubiquitous, in-house boxes are nearing obsolescence. Their utility has diminished in a cloud-enabled world, as they contribute to office cost, complexity and clutter; there is now an emerging alternative.

Opportunity is knocking

There is enormous opportunity in delivering IT services to the small and medium business/enterprise (up to 500 employees) market. Huawei has estimated there to be 150 million small and medium businesses (SMBs) in the world, with their total IT spending easily exceeding USD500 billion in 2011. Exploiting this is difficult because the SMB environment is rapidly churning. The SMB market is the ultimate trial & error environment for business models and technology vendors. Many SMBs are replaced by new ones within three years. However, SMBs have been largely ignored by IT vendors because there is little a multimillion dollar business and a ten-person startup have in common. Existing IT technology is far too complex and costly for most SMBs, both in terms of staff and equipment. Only 10 million SMBs use IT in any meaningful way; a roughly 8% penetration rate.

Accelerating change

Enormous technological change is driving new usage patterns centered on mobility and fundamental human desires to collaborate, both socially and economically. Wider bandwidths in wire & cable media have amplified core and peripheral network capacity tremendously, with accelerating wireless speeds (4G and 802.11n) relentlessly adding to the fray. Connectivity has literally exploded; the Internet can be accessed almost anywhere via various mobile technologies such as WiMAX, 3G, NFC, UWB, LTE, Bluetooth, and 802.11's various incarnations.

With prices-per-bit plummeting, speeds increasing, and connectivity expanding, remote infrastructure has become viable, with no significant detriment to network performance, while intuitive & drastically more powerful end-user devices are now available. Tablets and other convenient mobile devices are now taking on desktop functionality; these devices can effectively create a personal WAN, with enterprise-caliber access to applications. This powerful combination of mobility & connectivity will inevitably push IT hardware infrastructure into the cloud.

Small start-ups are already experiencing resistance from venture capital firms when soliciting funds for rudimentary IT facilities. Many already rely on cloud computing for initial and ongoing growth needs. Eventually, start-ups will develop into the next Googles and Facebooks, driving cloud computing growth along with their own. Early technology adopters are increasingly purchasing their IT infrastructure as a service; thereby sowing the seeds for our future in the cloud.

Desired SMB technology characteristics

The vast majority of SMBs qualify as, and are staffed by, IT novices. When modest SMBs intend to deploy IT infrastructure, they look for products that are inconspicuous, inexpensive, intuitive and versatile. However, SMBs cannot eliminate upfront hardware costs or those that stem from laborious configuration of multipurpose devices. The most logical step for many of them is to migrate entirely to the cloud.

The choice: Site vs. Cloud

Should an SMB choose an office-based or cloud-based solution? With office-based solutions, the SMB owner does not obtain any material office features from a service provider; equipment has to be acquired and investments must be made in human capital to install, configure, manage, and operate the hardware and embedded software involved with generating IT services. There are often ongoing and hidden costs (maintenance, electricity, cooling) incurred with office-based IT services. Remote support of employees is also a burden that office-based users must bear while cloud-based users largely do not.

Cloud-based users need in-house hardware for system access only; the system itself is someone else's problem. The service provider is responsible for provision to all terminals, no matter their location. Cloud-based services also allow customers to easily match service levels to their changing needs. Do SMBs really want to be responsible for building, managing, and maintaining IT infrastructure for their evolving needs?

Hosting: Office vs. Cloud

This decision comes down to choosing between satisfying the instinctive need to have your vital hardware in hand or letting go and using hosted apps and laptop computers that any child could manage; it is about where to host critical business applications, while satisfying concerns about availability, security, interoperability, data portability and cost. As Internet access accelerates, expands, and grows more reliable, the economics behind hosted applications are increasingly compelling.

Because business services can now be effectively offered over the Internet and are often accessed through web browsers, they rarely conflict with your existing business technology; the primary benefits are reduced costs, near-instant deployment, simplified maintenance and greater autonomy. If a business is seasonal or has flexible staffing needs, cloud-based processing and storage on demand are all the more viable.

Security: Office vs. Cloud

Maintaining security involves solving a very large, expensive and difficult set of problems. An SMB cannot possibly match the skills of a professional, cloud-based security solution managed by a large staff of experts that focuses full-time on security and deploy the latest measures. Cloud-based technology is rapidly evolving; providers are making substantial investments in security technologies, skills, certifications and auditing techniques, while its multitenant architecture allows every SMB to enjoy the same level of security as those with the greatest security needs. In other words, SMBs can now be on a level playing field with larger competitors who are also utilizing the cloud.

VoIP: Office vs. Cloud

Voice-over-IP (VoIP) holds immense potential for SMBs and offers features that are either unavailable or cost-prohibitive on older phone systems, such as integration with desktop & office software, advanced call routing, find-me-follow-me and IVR (Interactive Voice Response). If SMBs wish to enjoy the business advantages of VoIP, the key issues are how and where to deploy the key infrastructure. Existing office-based voice system vendors offer this ‘upgrade,' but ‘office means hardware costs. To extract the greatest value from office-based systems, SMBs must take the time to understand them and integrate them into existing business processes. Purchasing, installation and setup of in-house VoIP solutions can be exceedingly complex and costly. There are also other issues involved, such as services for a distributed workforce; many companies end up with a collection of incompatible, excessive, expensive and redundant phone systems, such as PBXs at branch offices, satellite locations, and residential phone service for telecommuters. This adds to administrative burdens, as charges must be justified and accurate reimbursements generated.

Cloud computing is ideal for a distributed workforce. VoIP delivered from the cloud eliminates the need for a large, initial financial outlay and provides greater service flexibility and scalability. SMBs avoid any network management or maintenance burdens because the switching and intelligence of the system is moved off site and managed by the provider. SMB purchases are limited to phones, a modest amount of dedicated routing equipment, and perhaps a switch to provide emergency backup to a traditional telephone network. This makes cloud-based VoIP services typically quicker and cheaper to install and set up while still offering more resilient service and smoother business continuation, all of which result in an enhanced bottom line.

In practice

Consider an SMB that has grown to 35 people, based in three locations. The headquarters has a staff of twelve, including administrative, sales, marketing and sales engineering (SE) support personnel; a remote office has ten staff members, primarily sales and SE support, while an overseas location is staffed with engineers and a QA team. Ten employees routinely work from home while the twelve combined sales & SE personnel primarily visit customers. All employees need IT-enabled voice, remote access, and business-enabling services. Support for such services could range from PCs to more expensive enterprise-level equipment that requires highly specialized technical staff to set up, configure and manage.

Internet connectivity is provided by cable/xDSL/fiber. Local network services are provided through routers, hubs, and one or more switches connected to an Internet delivery box. Access to the local network is protected by a firewall. Access to servers and the local network from remote offices is enabled via Virtual Private Networks (VPNs). Voice services are provided by onsite IP PBX. Home and remote workers use VPN boxes and IP phones. For increased reliability and improved backup and recovery capabilities, many devices would have to be replicated.

Typical IT requirements for this firm would include employee workstations (including OS & application software), one or more servers, NAS for data backup and hardware/software recovery, network switches/plugs/cables, routers, security appliances & software, Internet connection, handsets, and other miscellaneous office supplies, many of which would have to be replicated if multiple sites are involved.

In-house IT infrastructure will likely interfere with an entrepreneur's need to focus on business growth, which requires a steady increase in CAPEX and OPEX. IT departments are a money sink; the amount of labor needed to manage office equipment and business software grows as a corporation becomes more complex. More people mean more problems and more distractions.

A cloud-enabled SMB office would have PCs and servers fully virtualized and hosted within the cloud. Internet connectivity would be provided by wireless 3G or 4G or through 802.11 hot spots. The local network in each office could be wireless 802.11. Firewall and VPN services would now fall under cloud-based hosted desktop services, including redundancy and backup. Voice services to all workers, including home-based and roaming, would be provided via cloud-based hosted IP PBX and VoIP services. Leveraging the cloud reduces complexity while all but eliminating technology management and lowering costs.

Why cloud?

A viable alternative to the traditional "Buy, Manage & Maintain" in-house IT service method is now available. Cloud-based services leave businesses free to focus on their core operations; only the most tech-savvy and tolerant SMBs would dare retain in-house hardware. Cloud-based services reduce IT service costs by 30-50%, while lowering the employee learning curve and minimizing equipment investments. Many providers already offer over 99% availability, and services can be discontinued with a minimum of fuss. Cloud-computing is also future-proof, as it is up to the provider to keep infrastructure up to date and disaster-resistant, as a provider's equipment is more likely to withstand a flood than the typical SMB's.

The cloud can deliver the latest business services conveniently, securely and inexpensively, while going a long way to help SMBs level the playing field with their bigger competitors. Even if IT products for SMBs are claimed to be designed to be less expensive than their enterprise counterparts, or claimed to be simpler and easier to deploy and maintain, they are still not a viable long-term solution. The cloud can provide the same IT business experience as a fully-managed local IT service and is a far better alternative to owning and managing in-house IT infrastructure. Cloud computing requires only a reliable Internet terminal; no servers, software installation, configuration, or maintenance are involved. The best part is that the office is always a click away, and features fully mobile and customizable suite of collaborative applications. Users will be part of a new generation that lives and works online.

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