Although the precise definition of cloud computing varies, most definitions appear to converge. Many definitions have been promoted, and it is beyond the scope of this article to review them in detail, but one commonly-cited is that proposed by US analysts Gartner:

“A style of computing where scalable and elastic IT capabilities are provided as a service to multiple customers using Internet technologies.”

The US expert analysts Gartner estimate that, over the course of the next five years, enterprises will spend $112 billion cumulatively on cloud computing. The US share of the worldwide cloud services market was 60 percent in 2009 and will be 58 percent in 2010. By 2014, this will be diluted to 50% as other countries and regions begin to adopt cloud services in more-significant volumes.

The critical importance of understanding the business plan to the strategic advice of the lawyer

A fundamental theme in the provision of strategic legal advice is that the lawyer can play a pivotal role in empowering a business to succeed in its plan.

Various stakeholders are ready to consult on the business plan, which is produced once a business mandate has been given. SMEs are often seeking ways to transform their businesses as most cannot implement change faster than their IT services can support, and financial modeling assesses the cost of upfront investments when deploying new applications. Knowledge has always a major contributing factor in the business world to the good performance of a firm, but knowledge management has become increasingly significant in the functions of business and law firms. Indeed, many successful corporate law firms have ‘knowledge teams’, or similar.

In today’s corporate world, knowledge and the processes to generate and manage it have proven to be significant sources for establishing a competitive advantage (and therefore the profitability of a business). Establishing the business strategy is not divorced from the legal issues; for example, the SWOT analysis will include threats of weaknesses which are covered in the law, such as privacy, and the PEST analysis will consider the competitive advantage of the business adopting cloud computing, which does an understanding of how competitive both the supplier and the customer is.

A real practical issue is that a lot of businesses find it very hard to measure the real cost of IT services. IT decisions makers do not understand the true cost of providing a service from a datacentre because they lack accurate metrics, according to analysts. Recently, the UK company Romonet has launched software, known as Prognose, that uses modelling to work out the costs of having a service delivered from a datacentre by accurately modelling and comparing performance and operational efficiency .

SWOT analysis

Strengths

Many of the strengths of cloud computing have been described in a previous section. There is little to add here, save for the very important issue of the customer’s ability to scale up services at a very short notice obviates the need for underutilized servers in anticipation of peak demand.

Weaknesses

From the literature thus far, data privacy and security have remained the key areas of concern for cloud computing customers at all levels, and it is therefore perhaps unsurprising that corporate legal firms now have intellectual property seats devoted to cloud computing.

Opportunities

SMEs can now exploit high-end applications such as business analytics that were hitherto unavailable to them. While it can be argued that some of the more involved features of such applications might not be available on their cloud-based counterparts, such omissions will matter very little for their intended customers (Tucker 2009a) .

Threats

Several concerns have centreed on the lack of standards. The cloud has been described as “a trap” by GNU creator foundation founder Richard Stallman – one where companies like Google will force customers into locked, proprietary systems that will gradually cost more and more over time.

Competitive advantage in the business: PEST analysis

As a result of increased competition and globalization, Laszlo (2002) conveys that companies are forced to focus beyond the enterprise itself in order to learn more about external factors, such as competitors .

The 5 Forces model came from Michael E Porter in his book “Competitive Advantage” (1985).

The model analyzes every market on five parameters – intensity of competition, barriers to entry, threat from substitutes, bargaining power of customers, and finally bargaining power of suppliers. The first four parameters or forces, act upon the fifth and determine the competitiveness, and hence attractiveness of an industry. The more the competition in an industry, and the closer it approaches conditions of “perfect competition” the lesser the chances of companies earning a profit.

Porter’s five forces in cloud computing

Threat of new entrants There is likely to be a large number of new entrants from SMEs, that will raise the level of competition. The reasons that there is likely to be a large number of new entrants are low fixed costs, low cost of switching to this new technology, and relative lack of government restrictions.

Bargaining power of suppliers Unfortunately, the bargaining power of suppliers is high, and this is reflected in the way the terms and conditions (“T&C”) are drafted, many much more in the suppliers’ favour in the buyer-supplier relationship. The reasons for the bargaining power of suppliers being so high is that there are many potential customers amongst SMEs and few dominant suppliers (such as Google and Amazon), and the suppliers integrate in positioning themselves in the marketplace.

Bargaining powers of buyers The bargaining power for SME clients can potentially improve, if the cloud computing products become standardized (and a large driver for this could be regulatory compliance with the law), and there are more emerging suppliers of cloud computing (although it has to be conceded that Google, Microsoft and Amazon have achieved a healthy dominance in the market due to their innovation rather than abuse of competition).

Threat of substitutes The main competition of cloud computing is open source computing, and SME clients might consider adopting cloud computing in preference to open source computing, as the switching costs are not prohibitive, SME directors might find the business case for switching attractive, and, not least, because cloud computing is cheaper. However, factors in favour of sticking to open source computing might be brand loyalty and current trends.

Competitive rivalry The question of whether the market is truly competitive is an area of controversy. Analysis of this depends on whether any particular provider is dominant in the market (all the main providers, such as Google, Amazon and Microsoft, have all been called ‘main providers’ at some point), and whether there is true differentiation between the products being offered by the cloud computing providers. For example, Google Apps’ strategy is a mix of differentiation and cost leadership. It seeks to distinguish itself from the market as bringing a purely online collaboration model, where companies would need to give up traditional desktop based document software like MS Office.

(c) Dr Shibley Rahman 2010 – not to be reproduced.