We are all living in the Digital Age where a proliferation of smart devices and computing devices are leading to the rapidly expanding web of global connections through the Internet. It has resulted in a greater level of convenience and changed our everyday life in a way that is difficult to imagine even a decade ago.
Cloud computing is one of the major areas of technological breakthroughs in recent years. The speed of adoption of cloud computing and its impact are hard to ignore, and this is further accelerated by the Covid-19 pandemic.
What is cloud computing?
Cloud computing refers to the delivery of computing services over the Internet. Some of its services are computing power, servers, storage, databases, networking, software, applications, analytics and intelligence. Benefits include faster innovation, better allocation of resources, and lower costs through economies of scale.
Rather than owning physical computing infrastructure or data centres, which requires large amount of initial capital, companies rent anything from applications to storage from a cloud service provider. By doing so, companies are able to significantly reduce their upfront costs, as well as maintenance costs for IT infrastructure, paying the service provider only for whatever they use. The freed-up capital will allow companies to focus on sharpening their competitive advantage or increase spending on the R&D of their core offerings.
In turn, cloud computing providers enjoy economies of scale from offering the same services to a wide base of customers. This ecosystem would create a sustainable model of operation for both the service providers and clients.
Types of cloud services
A fundamental concept behind cloud computing is that the location of hardware or operating systems is largely irrelevant to the business user.
Cloud computing services fall broadly into three categories: infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). Each is different, with its individual benefits and limitations. Currently, IaaS and SaaS are the more common categories utilised by companies.
Infrastructure as a service
IaaS eliminates the need to run an in-house data centre with its dedicated servers.
Instead, IT infrastructure is rented from an IaaS provider on a pay-perusage basis. With the hardware part covered by the provider, businesses can focus on software applications for their operations.
In the IaaS model, businesses handle their own applications, data, operating systems, middleware and runtimes, while the IaaS vendor provides the virtualisation, storage, network and servers. IaaS clients usually have complete control over the infrastructure through a dashboard or application programming interface. This means they have complete control over infrastructure usage most of the time, without the need to maintain or manage physical infrastructure.
IaaS is considered the most flexible cloud model. It allows businesses to scale up, upgrade or add resources on short notice, without having to anticipate long-term needs or set aside pre-allocated future capital expenditure for IT upgrades for business expansion.
Examples of IaaS are Microsoft Azure, Google Compute Engine and Amazon Web Services.
Platform as a service
PaaS is a cloud computing model that provides customers with a complete platform for developing, running and managing applications without the cost and complexity of building and maintaining a platform or infrastructure on their premises. The provider hosts everything from servers to networks, storage, operating system software and database at its data centre. The customer uses its services for a fee based on usage and can purchase more resources on demand.
In the PaaS model, users focus on building their software without worrying about operating systems, updates and IT infrastructure. The model allows them to build, test, deploy, maintain, update and scale applications, as well as innovate in response to market changes much more quickly and less expensively than running their own platforms.
Some examples of PaaS are AWS Elastic Beanstalk, Windows Azure and Google App Engine.
Software as a service
Where PaaS provides the platform for client to carry out software development, SaaS directly delivers the software and applications to users over the Internet. Users can access them anywhere and anytime through web browsers, and are freed up from complex software and hardware management.
SaaS is one of the most popular forms of cloud computing as it offers ready-to-use solutions. Services can range from email management to customer relationship management, billing and payroll processing, sales management, human resource management, financial management, database management, enterprise resourcing planning, content management, and document editing and management.
Users pay for the services either on demand or through subscriptions. Usage of SaaS is not only limited to businesses, but for individuals as well — end-consumers of products and services such as media, work productivity or entertainment.
Examples of SaaS are web-based email services such as Yahoo! Mail and Gmail; Zoom; YouTube; Google Apps; Salesforce; Dropbox; MailChimp; DocuSign; and HubSpot.
Although cloud computing as a concept has been around since the 1960s, its adoption only gained traction and speed with the improving Internet speeds through fibre-optic or WiFi, the increasing popularity of SaaS solutions, and hyperscale cloud computing providers such as AWS making the option more cost-efficient.
Advantages and limitations
IaaS’ key advantages are flexibility and ease of automating deployment for more storage, server or processing power. Clients also get to retain control of the infrastructure and are able to purchase more hardware or resources, which provides for scalability when required.
Best for who: Start-ups with scalable businesses and larger companies would benefit from IaaS, given their control over the applications and infrastructure and long-term needs.
Limitations: Security threats remain from system vulnerabilities and the possibility of compromise by IaaS providers. Resources are still required for training and maintaining an experienced team of IT staff in the management and use of the infrastructure.
PaaS’ key advantages are scalability and customisation of apps while reducing the need for coding and maintenance of operating system software. PaaS provides a streamlined platform for various business teams within a company to collaborate, and is also able to create customised applications.
Best for who: Businesses adopting SaaS currently but wishing to increase their customisable features to be their differentiating factor would benefit from PaaS. Start-ups without an experienced team of IT professionals can also use PaaS to save on costs compared to the IaaS model, while retaining some level of flexibility in their customisation.
Limitations: As a company’s data still resides in cloud servers, there are security risks. Dependency on vendors is another limitation where it might not be easy to migrate between vendors due to the database compatibility issues. Additional work is also required for companies with legacy systems to configure for integration.
SaaS’ key advantage is a reduced need for technical staff to perform the repetitive and tedious tasks of installing, managing and upgrading software. This saves significant time and money for companies, especially start-ups.
Best for who: SaaS is most beneficial for start-ups, small companies with limited resources, or companies with projects and tasks that are not common or are one-time events.
Limitations: The protection of sensitive information is a major consideration in SaaS. Other issues are the interoperability and integration of companies’ existing systems when they migrate to the cloud, as well as dependency on vendors. Although SaaS usually offers some customisation, the degree of customisation is limited. Users are constrained by the features and functionalities that the solution provides when subscribed to the application. One also has no control over the downtime and performance of the SaaS, which can be affected by a sudden spike in usage or maintenance required.
Impact of cloud computing
Cloud proliferation has changed how many sectors operate. Since we are currently in the middle of a global pandemic, it would be apt to see how cloud computing has affected the healthcare sector.
In a 2021 global healthcare digital transformation survey by BDO, 93% of the healthcare organisations polled globally already integrated digitalisation or were in process of digital transformation. About 78% were already deploying cloud computing in operations.
The pandemic has vastly accelerated digital transformation, arising from the need to deploy digitalised services such as remote patient care and monitoring. Digitalisation is also believed to reduce medical errors through an automation of tasks. Automation improves work processes while reducing workloads for staff.
In Singapore, the government also launched Healthcare-Cloud (H-Cloud) as a consolidated cloud computing platform to support over 50,000 healthcare staff in all the nine public hospitals, eight specialty centres, 20 polyclinics and nursing homes. The cloud allowed for the retrieval and access of patient records, with the aim of cutting operational costs by 55% by 2025 and improving infrastructure availability to 99.95%.
Other than the healthcare sector, the pandemic also drove a spike in SaaS adoption for video-conferencing and file-sharing across industries as workers started working from home. Companies turned to the cloud for solutions to enable the continuation of their business operations when countries around the world locked down. Companies were incentivised to shift to cloud solutions, which were cheaper and faster over the long term, to continue business operations, replacing legacy technology systems that were unable to adapt to the needs and urgency of the changed working environment resulting from the pandemic.
Beyond enabling remote working through cloud services, businesses are now looking to improve collaboration and business processes using the cloud. Sectors such as finance saw the benefits of migrating financial services to the cloud, including the opportunity to increase the outreach of their online banking services and products.
How big is the cloud?
Building the infrastructure to support cloud computing now accounts for more than a third of all IT spending worldwide, according to research from IDC.
Meanwhile, spending on traditional, in-house IT continues to slide as computing workloads continue to move to the cloud, be it public clouds offered by vendors or private clouds built by the companies themselves.
451 Research predicts that around one-third of enterprise IT budgets will be spent on hosting and cloud services this year, “indicating a growing reliance on external sources of infrastructure, application, management and security services”. Gartner estimates that half of the global enterprises using the cloud now would fully adopt cloud services by 2021.
According to Gartner, global spending on cloud services will reach US$332.3 billion ($447.3 billion) this year, up 23.1% from US$270 billion in 2020. The industry is growing at a faster rate than what most analysts are expecting, though it is not entirely clear how much is coming from demand from the businesses that actually want to move to the cloud and how much is being created by spending from expansion plans of vendors which now only offer cloud versions of their products.
IaaS services are dominated by tech giants such as Amazon, Microsoft and Alphabet. Gartner forecasts that public cloud end-user spending will grow 18.4% in 2021 to US$304.9 billion from US$257.5 billion in 2020. AWS’ revenue alone jumped 32% y-o-y in 1Q2021, accounting for 12% of Amazon’s total revenue and nearly 47% of its operating income. Microsoft Azure’s revenue also catapulted 50% y-o-y in 1Q2021. Microsoft’s Intelligent Cloud segment, which includes Azure, delivered the highest operating income of all segments during the quarter, at US$6.4 billion. Google Cloud reported revenue of US$4.05 billion in 1Q2021, up 46% y-o-y.
As of April 2021, Canalys’ data suggests a 35% spike in the worldwide cloud market in the first quarter to US$41.8 billion, with the top three cloud service providers accounting for 58% of the total spending: AWS 32%, Microsoft Azure 19%, and Google Cloud 7%.
The future of cloud
Cloud computing is already one of the hottest buzzwords in the tech world. Its usage is set to explode further, with the ongoing roll-out of 5G globally and continued evolution of the Internet of Things, both of which are sustained by interconnectivity and the transmission of data. The massive scale of data processing and data storage required across the spectrums of digital transformation make cloud computing all the more indispensable.
In an apt summary of the prospects of cloud, Matt Riley, co-founder of search and index startup, Swiftype, declared that “a decade from now, every business will be operating primarily from the cloud”.
Teo Huan Zi is a branch manager from Phillip Investor Centre (Toa Payoh)
Cover photo: Bloomberg
