When hurricanes Katrina and Rita passed over Schumacher Group's
multimillion-dollar data center in Louisiana in 2005, Doug Menefee, the
company's chief information officer, breathed a sigh of relief. His
company manages the staffing for emergency room physicians at more than
145 hospitals in the Southeast, and if the center had gone down it
could have hampered efforts to get doctors to the locations where they
could care for injured patients. "It was a high risk to our
organization," says Menefee.
Menefee realized he had to hurricane-proof his company's technology.
His budget was limited, though. So he turned to an evolving technology
known as "cloud computing," where companies can get software and
services with relatively little up-front investment. With such an
approach, service providers such as IBM (IBM), Amazon (AMZN), Hewlett-Packard (HPQ),
and others do all the heavy lifting. They maintain the servers in their
own data centers, fix any problems that might occur, manage disaster
recovery planning, and continually upgrade the software. Customers like
Schumacher typically pay by the month and by the user, so they don't
need to spend lots of cash to get started. Employees have access to the
software through the Internet.
While many large companies have been hesitant to use the new
services, small and medium-size businesses are flocking to them. About
31% of medium-size companies (defined as those with 100 to 999
employees) currently use these software services, double the uptake in
2004, according to a March 2008 report from consulting firm Access Markets International Partners
(AMI-Partners). That popularity stems from a need for IT solutions that
are easy to use and maintain by companies that have limited
infrastructure and budgets.
"More than 50% of our processes are now in some type of software as
a service or cloud environment," says Menefee. Schumacher Group, with
750 full-time employees, relies heavily on Salesforce.com (CRM),
a customer-relationship management service, to keep tabs on 2,500
independently contracted emergency room physicians. About 70% of
hospitals outsource the staffing and management of emergency room
physicians, partially because there's a shortage of ER doctors and the
recruiting is highly specialized. Salesforce.com helps the company keep
track of individual contracts, pay rates, and the hospitals where each
doctor can work.
Create Your Own Applications
Aside from software services, small and medium-size companies now
have a range of other options, including platform services and hardware
services. Schumacher is also creating its own custom applications using
another service from Salesforce.com, called Force.com. This service
lets developers rapidly create their own business applications over the
Internet without the hassle of dealing with hardware or software and is
known as "platform as a service." It essentially provides a plug-in
architecture so companies can build custom software, with many of the
underlying building blocks already in place. That's different from
infrastructure services such as Amazon's Elastic Compute Cloud (EC2),
which may give you server capacity but few of the other tools you need
to get up and running.
"The trade-off is that the platform service is much more built out, so you lose some flexibility," says Michael Crandell, CEO of
asp?capId=44005402'>RightScale, which provides management tools and
consulting to companies that want to develop applications on Amazon Web
Services like EC2. In contrast, developing for Amazon Web Services can
be more complex, but developers can choose from a wider range of
programming and scripting languages.
Photo- and video-sharing service Phanfare
decided to use Amazon's S3 service, designed for developers who want
easy access to storage over the Internet. The average Phanfare user
stores about 5 gigabytes worth of photos and video on the site, which
means that the company needs about 83 terabytes of storage. When
Phanfare started using Amazon's S3 service, its storage costs were cut
nearly in half. "It went from $5 or $6 per gigabyte to about $2 or $3,"
says Andrew Erlichson, CEO and co-founder of Phanfare. Erlichson says
his company could have built out the storage itself, but it would have
taken an engineer about a year. "Our differentiator is software
development; it's not storing data on generic disks," he says.
A Buffering System
Still, handing over the keys to part of your business has its risks.
On July 20 the Amazon S3 storage service suffered an outage. Erlichson
estimates that his company was affected for about 8 hours. But because
he and his partners had some foresight and anticipated potential
outages, they'd created a buffering system that essentially can manage
down times for a day or two before it would create problems on the
site. Erlichson spent July 20 at the pool. "If we'd been down that
afternoon, it would have been horrible but not catastrophic," says
Erlichson, "We're not running an ATM network here."
Schumacher's Menefee says he feels comfortable with the level of
reliability he's getting with Salesforce.com. He's got a 99.99% uptime
service level agreement and he knows the Salesforce.com data center is
monitored 24 hours per day. The advantage is that he gets the
technology infrastructure to do what his company wants, without the
costs and headaches. "As a midsize business, I can't afford that kind
of infrastructure support [myself] while driving innovation," he says.
Business Exchange related topics:
Cloud Computing
Cloud Computing Research
Marketing Strategy
Small Business Technology
King is a writer for BusinessWeek.com in San Francisco.
