All of the business literature is abuzz these days about Cloud Computing. Many executives are not sure they completely understand what is meant by Cloud Computing and in many cases CIO’s are not sure what is meant by the term. However, many feel that it is the answer to all of their information technology woes. Oh if it were only that simple!

Let’s start by defining the term Cloud Computing. In its most general form it means any scenario in which computer resources outside the company are used to provide software and/or hardware systems for the company. So the ultimate in Cloud Computing would be a scenario in which the company engaged an information technology hosting company to provide all hardware and software needs for the company on a monthly or annual fee basis. This is the opposite end of the classic spectrum in which all computer hardware, software and technical expertise is owned by the company.

Cloud computing or hosting has been available in one form or another for 30 years. The big difference now is communications via the internet and the ease of current platforms that provides for multiple outsource options. In most cases the justification for the move to cloud computing is reduced cost. However, in the majority of situations the reduced cost is primarily a lower cost of entry. Over the long term the cost of outsourced hosting is often more expensive than in-house hosting. Having said that, there are excellent reasons for outsourcing or using cloud computing. What is important is to understand the various options for outsourcing and the advantages/disadvantages to the company for the option being considered.

Some of the key options for using cloud computing are the following:

1. Website Hosting – many don’t think of this as cloud computing or outsourcing but it is the simplest form of cloud computing. There are still some companies that host their own websites. This results in significant bandwidth and server capacity requirements for the company. The infrastructure required to support hosted websites is very expensive and today web hosting is incredibly inexpensive. Most web hosting companies provide hosting services for less than $100 per month.

2. Microsoft Exchange Server hosting – the larger the company and the more email addresses, the more expensive this type of hosting. However, for smaller companies outsourcing Exchange Server is a very good option. The outsource company takes all the responsibility for maintaining the Exchange software and will provide bandwidth and server capacity on demand. The only gotcha in this cloud computing option is that the company must have bandwidth to support all email transactions.

3. Hosting particular applications such as CRM (Customer Relationship Management), ERP or other key operating applications. This use of cloud computing should be evaluated closely. Since the pricing for these types of applications are generally based on per user per month, this model can become expensive very rapidly especially as the number of users increases. In addition, operating applications generally need to integrate with other applications frequently in real time. This can create communication problems when the applications are hosted in different locations. Prior to making a decision to host operating applications in the cloud, key questions such as – who will be using the application, how it will be used and what options are available to move the system in-house – need to be evaluated.

4. Hosting of corporate owned applications on cloud servers – This option provides the ability for the company to own their applications and have technical support provided a professional IT infrastructure team. This is another excellent cloud computing option, which needs to be evaluated before a final decision is made. If all the applications for the company are hosted on the cloud servers then the primary area of concern is the communication bandwidth between the hosting location and the company. However, is limited applications are hosted on the outsourced servers and other applications are hosted internally or on other cloud servers, then the issues identified in option 3 come into play.

Cloud computing options definitely have a place and should always be evaluated as part of a system decision making process. However, it should not be seen as a panacea or a solution to every IT issue. Business executives should have professional IT evaluation either from internal IT personnel or external IT experts prior to making IT outsource decisions.