Let's Be Futuristic for a Moment

I am fascinated by the artificial intelligence (AI) technology. It excites me but at the same time it scares me. I worry about becoming an obsolete species on the earth. Even though I tend to believe that it will be human being's ultimate fate like dinosaurs, but this time it will be AIs who may replace us! Nevertheless, AI technology promises to take the civilization much further. Does cloud computing share any link with AI technology? Can AI affect cloud computing or vice versa? Please remember that the current AI technologies are not even close to what scientists and researchers predict it to be. Watch the video to find out the current state of AIs:

Its functionality is extremely limited even though it still affects the everyday world especially the world wide web in a big way. I wanted the last post of this blogging cycle to be looking towards the future so that you will have some thoughts for the week. Here is a video that provides research findings on how AI can perform surveillance.:

Cloud computing promises to be a great enabler for trading services since it can make the trading process faster. Currently, trading technology operates on millisecond scale (http://www.bis.gov.uk/assets/foresight/docs/computer-trading/11-1222-dr3-technology-trends-in-financial-markets) . In other words, it takes milliseconds to a price data packet or r volume data packet from exchange to the traders' desk. By using proximity server and real time computing power, cloud computing promises to bring down the trading time to microsecond in the near future.

After the financial meltdown of 2008, the relevance of cloud computing has increased manifold for financial services industry. Especially the governance and compliance issues of financial services industry can be addressed by using cloud computing since the technology is a great aggregator and can make the idustry more transparent. There is ongoing research (http://www.iseing.org/emcis/emcis2010/Proceedings/Accepted%20Refereed%20Papers/C70.pdf) that uses service software engineering to lower the political, social and technical barriers and to build a global infrastructure for financial services.

Here is a video that explains how cloud computing can address specific needs for finance industry:

The European Organization for Nuclear Research, famously know as CERN, is the home of the large Hadron collider that empower high energy physics research. On March 12, 2012, CERN  announced (http://press.web.cern.ch/press/pressreleases/releases2012/PR03.12E.html) that  it will collaborate with European Molecular Biology Laboratory (EMBL), European Space Agency (ESA) and a consortium of leading IT providers to launch the "Helix Nebula-the Science Cloud" that will host the massive IT requirement of European Science community and later will be available to industries and various governments institutions. You have to remember, that CERN's grid computing facility is considered to be able to handle extremely high volume data. Here is a video that explains CERN's current computing capabilities:

So as you can see, people in healthcare sector are not only aware of cloud computing, they are interested in the technology and are exploring various aspects of the technology before they can decide to adopt it.

Potential Benefits for Healthcare Industry

• Healthcare databases are characterized by the presence of fragmented, redundant and inconsistent data. Cloud computing can provide better database management that would lead to higher quality of patient information and better update processes.(http://newsroom.accenture.com/images/20020/HealthcareCloud.pdf )

• Effectiveness of Electronic Medical Records (EMR) has been low (http://www.johnseelybrown.com/cloudcomputingdisruption.pdf ) because it was primarily driven by demand of the healthcare providers, had a high cost of implementation, generated low ROI, demanded high level of change management and was characterized by technological challenges such as integration difficulties and security and privatization. Cloud computing can change the scenario by introducing collaboration among participants, high performance, ease of usage and open standards into the system. These phenomena will accommodate demand  of proactive consumers, attend to wellness and chronic illness management, facilitate share management of care for aging parents/relatives and would improve patient safety. 

• Cloud computing will also be able to facilitate collaboration among different systems of different healthcare organizations that in turn would lead to efficient information sharing among organizations. This would lead to better care for patients. 

• The three most important benefits of cloud computing that we have already discussed in the first post of this blog are cost reduction, enhancement of the speed of the operating process and flexibility or on-demand scalability that are generic to all industries and healthcare is not an exception.

Accenture (http://newsroom.accenture.com/images/20020/HealthcareCloud.pdf) provides the example of Pathwork Diagnostics, a developer of diagnostic tests. Pathwork helps oncologists identify hard-to-find tumors. It uses a machine learning algorithm to match the specimen of a tumor with the specimens of other tumors, specifications of which  are stored in a very large library. This process is extremely time consuming and can take months to complete using a mid-level server. Thus Pathwork opted for cloud computing that enabled on-demand scalability for the company. 

• Small hospitals and nursing homes usually do not have an extensive IT infrastructure and cannot afford enough IT stuff to maintain their existing IT needs or to integrate new IT innovations. For such organizations, cloud computing will prove to be a great enabler by providing all such facilities that won'e need to be maintained in-house. 

• In the article titled " A cloud computing solution for patient's data collection in health care institutions". Rolim et al. introduced a cloud based system (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3222190/ ) that enables automation of the process that collects vital patient data via a network of sensors which are connected to legacy medical devices. The main benefit of the system is that it eliminates manual data collection and enables real-time data collection under all circumstances. 

• Another obvious benefit of cloud computing is that it enables physicians to access patient data anytime and anywhere through mobile devices such as smartphones and tablets. 

• Cloud computing potentially can provide unlimited computing power. Thus diagnosis of various illnesses, human genome sequencing, image analysis, drawing analogies among different genomes, identifying pathogens etc. using cloud computing is cost effective, reliable and fast. The bioinformatic research sector has been the early adopter of cloud computing to leverage such benefits. (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3222190/)

Thus it is evident that healthcare industry can benefit tremendously by adopting cloud computing. So why don't we see widespread adoption of cloud computing among healthcare providers? The providers are still concerned about data security in the cloud. They also do not trust the cloud service providers to protect the privacy of the patients. Government regulations in the healthcare arena are extremely strict and sometimes providers do not possess enough knowledge about the minute details of such regulations. Thus healthcare providers tends to be extremely cautious so that they do not break any law unintentionally. Healthcare sector is also characterized by loss of governance and organizational inertia (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3222190/) that keep them away from introducing technological change in their systems. 

But its not all bad news. The scenario is changing over time as healthcare industry has been witnessing other sectors adopting cloud computing. Such strategies of other sectors encourage the healthcare providers to explore benefits and relevance of cloud computing. The following video discusses the change in attitude  of healthcare providers towards cloud computing:

Graphene which is one-atom-thick layer of carbon, conduct electricity 30 times faster (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/08/20/BUV81KPF77.DTL) than silicon.Semiconductors made of this material would not only speed up the computer but also would consume very little energy. Scientists predict a very new type of transistors can be produced using this materials. Similar phenomenon are expected from single walled carbon nanotubes as well (http://www.eet.bme.hu/~mizsei/Nanoelektronika/nanotubesemi.pdf).

Thus I believe demand of efficiency, reliability and availability of cloud computing would encourage semiconductor companies to experiment with these new materials that in turn would lead to achieving the full potential of nanotechnology. Firms such as Intel and IBM with history of futuristic research are deploying substantial resources towards finding new materials in their purest form to facilitate the growth of nanotechnology. Such efforts will lead to new innovations in material science and nanotechnology which in turn will change the current landscape of semiconductor industry and future cloud computing sector.

Current Business Model of Cloud Computing Providers: Financial Aspects

In this post, I want to tell you how the cloud computing providers generate profit and how they can improve their profitability in the future.

Current State

Let's start with the financial aspects of the current business models of cloud computing providers. There are three components that are important in the business model.

• Value Proposition
• Pricing Mechanism (Revenue Model)
• Cost Structure

The diagram below shows how business model of cloud computing is described by Osterwalder, A. in 2004. (http://www.hec.unil.ch/aosterwa/PhD/Osterwalder_PhD_BM_Ontology.pdf) 

As I understand it, the value proposition of a particular provider would determine what the provider's cost structure would be and what kind of price the provider can demand from its customers. Thus a short discussion of the current value chain is necessary to understand the cost structure and pricing mechanism. 

Value Chain

The diagram below( http://www.happiestminds.com/services/it-services/cloud-business-solutions) describes the cloud computing value chain and was developed based on the work of Jaekel and Luhn (2009) titled "Cloud Computing – Business Models, Value Creation Dynamics and Advantages for Customers", Leimeister et al. (2010) titled "The business perspective of cloud computing: actors, roles, and value networks", and Zhang et al. (2010) titled "Cloud computing: state-of-the-art and research challenges". 

By now, you probably understood that firms choose to serve any number of components of this value chain according to their capabilities and long term strategies. Moreover, firms form strategic relationships, technical alliances and consortium memberships to integrate functions so that they can deliver a value added service to the consumers. 

Pricing Mechanism

Osterwalder, A. in 2004 (http://www.hec.unil.ch/aosterwa/PhD/Osterwalder_PhD_BM_Ontology.pdf) developed the probable pricing strategies for cloud computing providers which I have summarized in the diagram below. If you want to read the detailed discussion on each type of pricing, you can consult this article: http://www.intertic.org/Policy%20Papers/Jaatmaa.pdf, page 27-28.

 Most of the current cloud providers offer fixed pricing and volume dependent pricing. Some of the industry giants provide some customization as most of the consumers are SMEs and look for little to no customization. Thus you can find some differential pricing in the market mainly because of volume dependent pricing. The market pricing category, in my opinion, would be relevant mainly for big enterprises which are yet to move their entire ICT need to Clouds. As I discussed in the previous post, providers need to innovate more to offer additional value added services to attract big enterprises. 

Cost Structure

 In the Service Delivery Book, Office of Government Commerce (2001) lists hardware, software, people, accommodation, external service and transfer as traditional ICT cost types. Because of the presence of elastic resource utilization and virtualization, cost structure in the cloud computing paradigm differs significantly from that of the traditional ICT. In the article titled "The Method and Tool of Cost Analysis for Cloud Computing (2009)", Li et al. listed two cost types that are to be included while calculating the accounting cost of cloud computing for the providers. 

• Total cost of ownership (TCO): Its the fixed cost of providers that they incur to build the cloud infrastructure and to operate the cloud. 
• Cloud utilization cost: Its the variable cost that is incurred by the users depending on extent of usage. 

Li et al. developed the following diagram to depict the cost structure of cloud computing:

Greenberg et al. have come up with four cost elements in their article titled "The cost of a cloud: research problems in data center networks". These elements are summarized below (http://www.intertic.org/Policy%20Papers/Jaatmaa.pdf):

Because of automation, operational staff cost is below 5% are thus is not included in the cost calculation.
Depending on the existing capabilities and long term strategies, providers design their value propositions. Cost structure and pricing strategy or revenue model are direct dervatives of the value propositions. Thus ROI of the providers depends how attractive their value propositions are. 

Recommendations

I believe that in the near future, cloud service providers would have to come up with more customization and value added services either by themselves or by collaborating with other firms that possess different capability sets to convince big enterprises to move their ICT capabilities and need to clouds. Here is a video that emphasizes the important of product differentiation in cloud computing paradigm:

An analogy can be drawn from Citibank's e-business strategy (Citibank's E-business Strategy for Global Corporate Banking, HKU797, October 24, 2008). I have came across this case study in my Digital Marketplace class at Carey Business School. The case describes how Citibank developed and consolidated its e-business strategy according to the customers need. Citibank targeted big corporations for whom it not only offered a truly global e-banking service that provided transaction services, corporate finance services and treasury market services, but also offered to perform back office tasks for the corporations. Thus Citibank offered a complete solution package along with consultancy to integrate customers' need while developing a consolidated global e-business strategy. 

The cloud service providers should follow a similar strategy while formulating their service offerings. The companies that are already in the cloud computing sector or are contemplating entering this sector, have already been in the ICT field offering other ICT related services. Firms such as IBM and Cisco have established themselves in the IT consulting arena and can use this capability to work with both SMEs and big enterprises closely to provide a complete solution package. Such solution package should include a road map for the clients complete ICT need including infrastructure, platform,  softwares and applications and storage, agility consideration, data monitoring, risk assessment, measures against failures, data monitoring and security. To enable such offerings, the providers should built capabilities to accommodate customization and develop their strategies accordingly. 

New entrants should have some advantages because they do not have an existing cloud and thus can built one that is scalable and agile and can accommodate customers's need. Last but not the list, every cloud provider should address the issue of security which seems to be the main concern of the consumers and some experts in the field. Many companies hesitate to move their ICT needs to cloud because of the security issue. As I described in my post titled "Critical Notes on Cloud Computing", scientists and engineers are producing extremely promising research in this arema. Cloud computing providers should pay close attention to new finding in this area and should facilitate such research to come up with innovative ways to ensure security in the cloud. Here is a video that discusses efforts of Professor Ken Birman in this area:

As Forbes points out (http://www.forbes.com/sites/tomgillis/2011/05/24/criticism-abounds-but-cloud-computing-is-here-to-stay/), the benefits of cloud computing is overwhelmingly more than the cost associated with the risk of cloud computing. Some isolated incidents such as the one with Amazon's EC2 is not intentional and inherent. Emerging technologies always face problem in the beginning because its new and untested. But over time and with increased usage such problems are usually detected and solved. 

Let me conclude this post by discussing why cloud computing could emerge as a marketable technology now, even though the concept of cloud computing existed since the 1960s. It has to do with emergence of supporting technologies and customer readiness. First of all, companies in all industry sectors uses information and communication technologies (ICT) either as their main business or to support their main lines of businesses. Growing dependence on ICT makes ICT expenditure a significant cost driver. Now companies are interested in cloud computing because of its potential as an ICT cost reducer. Increasing usage of smartphones and tablets increases demand of cloud computing among individual users as well. Thus there are enough demand in the market for cloud computing. Secondly, the success of cloud computing depends on several supporting technologies. Realization of high storage capacity with smaller sized chips, availability of high speed internet all over the world and power of virtualization enable cloud computing to be a sustainable and successful technology in this current era. 

My next series of posts will be about the particular benefits of cloud computing relevant to a specific industry. I will start with the business model of cloud computing service providers and later will move on to various user industries such as Financial Services, Communication, Internet Content Providers, Social Media and Healthcare.