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Cloud computing: Paradise or peril?

by The Distributor Board

We have talked with many distributors and one of the questions that keeps being asked is "should we be moving our technology to the cloud?" Some of the reasons that this question is being asked is based on the following factors:

• We just had a server failure and we lost a ton of data
• We are trying to reduce our expenses and we heard that the cloud was cheaper than what we are doing today
• Maintaining our current hardware is expensive and it is not what we want to be focusing our time and dollars on
• Technology is changing so fast, we just never seem to be able to keep up

So let's start with explaining some of the terms that you may have heard tossed around:

Cloud - This merely means servers outside of your four walls where you either have software, access someone else's software or store electronic data. Typically, this would be a data center like Amazon, Rackspace, GoGrid or Google. This could also be where you access software solutions like Salesforce.com, Netsuite or GoogleDocs.

CoLo - This stands for "colocation." What that really means is a place (data center) that has many servers and rents out the use of those servers or allows companies to place their servers in this location. It is typically very secure and protected from most natural disasters. You can access the servers via the Internet.

SaaS - This stands for "Software as a Service." One of the most popular SaaS products is Google's Gmail. This is e-mail software that you access through the Internet and do NOT have the software on your servers or local computers. What began with a couple of softwares delivered this way has turned into one of the fastest growing areas of software development. Today, you can literally find any type of software that is delivered as SaaS. Some examples of distributor-focused software are: Netsuite, SAP by Design, DemandCaster, or Infor CloudSuite.

HaaS - This stands for "Hardware as a Service." Companies offering HaaS provide remote access to computer or server hardware. This is similar to CoLo, but is yet another acronym that may be used in place of CoLo.

The way that software is deployed in most distributors today is through a server and PC network. This is most likely what you are doing today. You have your business system and e-mail sitting on a server that everyone accesses through their PC or laptop computer. This also requires that a great deal of software must be loaded onto the individual PCs. It includes software such as Microsoft Office, CRM, and others.

In a cloud environment, the vast majority of software and processing of data is done in the cloud. The distributor's workstations (PC) need to have some type of cloud interface software, but often this is just a Web browser. Now the reality is that moving to the cloud is not a dramatic change in what is currently being done. All this is really doing is shifting the responsibility for the hardware that runs this core software to the cloud.

A mid-sized distributor that we worked with was seeking improvement in the core business system (ERP system) and along the way we discussed how it would be deployed. The company had about 50 employees, of which 30 of them had daily interaction with the ERP system. The company did not have a full-time staff member that focused on technology, but contracted for external technical services with a managed services provider.

After a careful evaluation, the decision was made to deploy their new ERP system in the cloud. There were some key points that helped this client make the decision. They were:

• Lack of an internal technical resource to support the on-site deployment
• Costs of maintaining the servers on-site through managed services
• Concern over backup protection in their internal environment
• Need for a business continuity plan

These factors drove the decision process regarding the ERP system and have now influenced some of the other technology that they had traditionally accessed through local servers. They are now moving all of their file storage to the cloud. It will also provide for a continuous redundant backup of these files and, of course, easy but secured access to these files from anywhere in the world. The costs to have their systems in the cloud rather than on-site was revenue neutral, but the safety and security increased substantially.

There are benefits and risks associated with moving to the cloud.

The key benefits are:

• No Hardware - Not exactly no hardware, but certainly no server or backup drives to purchase and maintain.
• Disaster Recovery - The software will be accessible even if your doors are closed. The cloud is significantly safer than your current building.
• Lower Initial Cost - Getting up and running in the cloud is significantly less expensive than purchasing user licenses and hardware for an on-premise solution.

The key concerns are:

• Rent - you are renting software and, as you know, if you don't pay your rent, you get evicted. With software, if you stop paying the rent, you stop using the software.
• Financial Strength - Will the company whose cloud you are accessing be around tomorrow? If not, neither will your access to the software.
• Customization of software - There is only so much you can do to customize software in the cloud. If you have very unique needs, you may not be able to get the software to exactly fit your business processes.

This should give you some thoughts about the cloud and whether it is the right move for you company. I remember a friend telling me a few years back that this whole "cloud thing" was a fad that would quickly disappear. We can assure you that this "cloud thing" is NOT a passing fancy. It is changing the way software is developed and we believe that it will continue to grow at a meteoric pace.

Take thoughtful steps as you consider moving your company to the cloud. As always, if you need help in this process, The Distributor Board is ready to assist you in navigating this important sea of change.

The Distributor Board provides Advisory Board and Consultative services to wholesale distribution companies. The Distributor Principles have owned, run, managed, and advised successful distribution companies for many years. Areas of particular specialization include Strategic Planning, Mergers & Acquisitions, Technology, Operations and Sourcing.Visit www.TheDistributorBoard.com or e-mail Info@TheDistributorBoard.com.

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