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The Golden Age Of The Cloud
This article looks at a new technology which is taking the business and IT worlds by storm: “cloud computing”. As this new industry has a lot of clients with a lot of money, it is not particularly surprising that commercial lawyers have become acutely sensitive to the cloud clients’ needs, concerns and expectations.
Why get involved in the cloud?
Small and medium sized enterprises (SMEs) have been fast to appreciate that the internet offers a golden opportunity for them, and equally lawyers have been quick to realize that they can offer specialist advice to the benefit of SMEs. Businesses remain fascinated by ‘cloud computing’.
But what is cloud computing? In the simplest of terms, it is IT-as-a-Service. Your company has access to its data and software over the internet (which in most IT diagrams is shown as a cloud). This, like many new technologies, it has its own set of benefits and challenges.
Benefits
Cloud computing fans claim five key benefits, and these contribute to the overall competitive advantage of the business.
- Cheap: your IT provider will host services for multiple companies; sharing complex infrastructure is argued to be cost-efficient, and you pay only for what you actually use. This is very attractive to SMEs.
- Quick: The most basic cloud services work ‘out of the box’ – it’s perfect for start-ups, especially in the current harsh economic client.
- Up-to-date: Most providers constantly update their software offering, adding new features as and when they become available.
- Scaleable: If your business is growing fast or has seasonal spikes, you can go large quickly because cloud systems are built to cope with sharp increases in workload.
- Mobile: Cloud services are designed to be used from a distance, so if you have a mobile workforce, your staff will have access to most of your systems on the go.
Market uptake
A report by the Centre for Economics and Business Research (CEBR), was published shortly before Christmas last year. Widespread adoption of cloud computing could give the top five EU economies a 763bn-euro (£645bn; $1tn) boost over five years; the CEBR also said it could also create 2.4m jobs. The US analysts Gartner estimates that, over the course of the next five years, businesses will spend $112 billion cumulatively on Cloud Computing.
Potential issues which businesses and lawyers can address
Cloud computing is not without potential problems.
- Usability is an important issue. Some people, firmly wedded to “their” software, whether it’s Lotus Notes or Microsoft Outlook, are reluctant to switch to plainer online applications.
- Perhaps the greatest concerns that customers face when using a cloud computing solution are those relating to security and privacy. In a traditional commercial relationship, providers will typically split up the servers for a specific customer, and a customer may even be able to impose certain physical and logical security requirements. This may not be possible once data are transferred to the cloud.
- To the extent that personal information is stored in the cloud, customers must also consider compliance with applicable laws governing the privacy and security of personally identifiable information.
Who are the providers?
Cloud computing is at an early stage, with a small group of large providers delivering a slew of cloud-based services, from full-blown applications to storage services to spam filtering. Currently, Amazon, Google and Microsoft are key suppliers of cloud services.
Further reading
An interested reader is strongly recommended to go to the ‘cloud computing’ page of Taylor Wessing LLP. Taylor Wessing LLP is one of several firms with a specialist interest in the international commercial law of cloud computing:
http://www.taylorwessing.com/download/cloudcomputing.html
Is 1p too low for 'The Next Generation'?
Ed Miliband yesterday offered membership to the Labour Party for a penny to anyone under the age of 27. This is apparently part of Ed’s firmly-held belief that young people should have a political voice, as part of his “Speak out for your generation” campaign. The membership offer for the smallest subscription rate possible will last for just one year. This article looks at whether 1p is too low. It is beyond the scope of this article to consider whether it’s too high! I have discovered, in a totally non-scientific way, that non-Labour members overall reckon it’s a terrible idea. On the other hand, people who are Labour supporters think it’s terrific.
One of my Twitter followers said (in less than 140 characters),
“It is good.. we need a mass membership party and I hope many will take up the offer”
Another provided,
“Absolutely excellent idea. Encourage young people to join but must make it relevant to them when they”
Whilst elsewhere the well-known contrast between cost and value has been discussed, offering membership for 1p only threatens to send out the message that being a member of Labour has both low cost and low value. This is not a particularly desirable message.
The Labour movement doesn’t just want eligible voters, although that, of course, is a major ambition! Labour, as a large members’ organization, wishes to empower individuals with the shared values as Labour to contribute to future policy. However, appealing to young voters with a relatively low cost product is pursued as a successful business strategy by IKEA.
To put a downer on all this, one is forced to acknowledge that the problems with such ‘discount retailing’ are well known in the different worlds of economics and commerce. For example, the 2001 Nobel Prize winner in economics Prof. George Akerlof, from the University of Berkeley in California, has illustrated a key problem with a simple thought experiment.
Imagine that a carton of ‘real’ milk wholesales for £1, but that a carton of watered-down ‘subnormal’ milk wholesales for 60p. A typical buyer might willingly pay up to 80p for the subnormal milk, but £1.20 for the real milk. Mutual gains are made from the transaction by both the customer and the buyer. However, Akelof argues that, if the buyer is unable to discern the quality, both grades of milk must eventually for the same price – about 90p. He concludes, under this system, honest retailers of real milk go bankrupt, while retailers of subnormal milk flourish. The problem with the relevance of this example is that the low price Labour membership is of lower quality, for which there is absolutely no evidence.
Furthermore, more fundamentally, discounting may imply that a product is not particularly desired in the marketplace at full price. The price of discounted products is what economists call “elastic”. Price elasticity of demand is a measure of how much the demand of a product varies with price. A product is very elastic if a small change in price leads to a massive change in demand. It remains to be seen whether the price of Labour membership in young voters is at all elastic. That sort of data genuinely would be interesting.
Finally, Ed Miliband early on in his leadership has made it clear that he will support something he believes in, such as the ‘Yes to AV’ campaign. Economists have previously observed that low price is only made possible in the modern global world because of massive innovation in the information technology industries. In practical terms, given that computer wizardly is so cheap (and social networking through Facebook and Twitter is currently free), it would make no sense to offer a product for a much higher price than your most immediate competitor. The opposite argument is, if the price or cost is too low, then motivation for improvement of the actual product, in Labour’s case the development of policies fit to govern the UK, is poor.
It will be evident therefore from this short article that the issues concerning ‘discount retailing’ are potentially complex. Whether lessons from economics or marketing should be brought to the political world itself is a thorny issue in itself. However, when you consider voters or political parties as buyers and suppliers, you’re on a slippery slope? Of course, you’d never tolerate a “Vote one party – get one free”, or would you?
The business of cloud computing
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.
Nat Wei's 'Big Society' – badly received and ill conceived, but only so far
I really think, that with all the goodwill I can possibly muster for Lord Wei’s ‘Big Society’, politically it has been badly received. More crucially, academically, it is poorly conceived. The Big Society is the flagship policy idea of the 2010 Conservative Party general election manifesto and forms part of the legislative programme of the Conservative – Liberal Democrat Coalition Agreement. According to the Civil Society website,
“The Big Society is struggling to capture the imagination of the public as a poll shows that more than half of voters claim not to have heard of the idea. But while many have not heard of the Conservative policy to encourage personal responsibility and community spirit, a similar proportion of voters (54 per cent) believe it is a good idea once it is explained to them, according to the Ipsos Mori poll commissioned by the RSA and released today. “
An important aim is to create a climate that empowers local people and communities, building a big society that will ‘take power away from politicians and give it to people’. It was launched in the 2010 Conservative manifesto and described by The Times as “an impressive attempt to reframe the role of government and unleash entrepreneurial spirit”.
Lord Nat Wei, one of the founders of the Big Society Network, was appointed by David Cameron to advise the government on the Big Society programme.
The stated priorities are:
1. Give communities more powers
The arguments that this has been the focus of the work of charities, communities and the Labour Party have been exhaustively discussed elsewhere. A greater concern is that no government appears to value certain sectors of society, e.g. lollypop ladies, whilst the inequality gap has got substantially wider under Labour, while governments always safeguard bankers. Take, for example, the ode to wealth creators David Cameron is going to produce in his speech this afternoon.
2. Encourage people to take an active role in their communities
At the end of the day, you can’t force people to take an active role in their communities. In other words, a person is not voluntarily likely to do bus driving for free, when he or she feels that someone else is doing it, and being paid for it. Many unemployed people will be too terrified about their long-term benefits, and what may or may not threat them, whilst actively looking for salaried employment, to engage with their local community.
3. Transfer power from central to local government
Thatcher effectively tried to bribe local voters to vote for the Conservative Party by generating a lower poll tax in the 1980s. People know full well how shallow and unintelligent this was, and there has been much healthy interest in the Labour/Co-operative movement which has been a successful model in transferring power from central to local government.
4. Support co-operatives, mutuals, charities and social enterprises
From what I can understand, Lord Wei envisages the business part of the ‘Big Society’ as a social franchising model. The main problem from that, unless they are managed correctly, such business entities can suffer from lack of investment, recruitment, shared resources, and, ultimately, profitability. It is indeed an answerable case why functions of the private sector or public sector should be offloaded onto charities aka the third sector.
It’s all very well the? Big Society Network’s? chief? executive? Paul? Twivy? providing that,
“its? three? goals? are? to? encourage? people? to? take? action? in? their? local? area,? to? encourage? people? to? take? part? in? groups? and? to? help? community? groups? and? social? entrepreneurs? to? access? the? local? powers? that? the? government’s? Big ?Society ?legislative? programme ?will? create. ?”
however I would strongly argue that we have yet to have the academic business debate about it. The word ‘social entrepreneur’ undoubtedly has a ‘feel-good’ factor, but the merits of social franchising requiring some detailed security, if we are to invest millions into promoting it; into investing into it, through the Big Society Bank for example.
Don’t get me wrong – it could be a wonderful success?
5. Publish government data.
This is a useful function, provided that one essential assumption is met. That is, “The Big Society” is separate from government. Otherwise, this point has absolutely no credibility whatsoever.
Early days – it could be an incredible success or unmitigated disaster. A real marmite policy, if ever there were one.
Vince's speech at the LibDem conference: Many themes should be a top priority for us too
Vince’s speech, unlike the misreporting of it mainly from the BBC who patently didn’t understand the business or legal issues involved, made for very interesting reading for me as a Labour member with an interest in both business and commercial law. I would like to discuss various intriguing aspects of it for me.
But to hold our own we need to maintain our party’s identity and our authentic voice.
This is now being an increasingly difficult problem for the Liberal Democrats. There has to be by necessity an alignment of the beliefs and values of the leadership of the Party and its grassroot members. It was interesting to eavesdrop on the discussion that the Party had earlier this week on brand strategy, as it was clear from the floor that there is much confusion about the brand identity and brand equity of the members of the Party. Of course, the position on the rate of cuts which ultimately emerged from Vince Cable and Nick Clegg remains for many quite unfathomable, and certain issues are pretty straightforward by the Liberal Democrats, for example strong Liberal (anti-statist) values in civil liberties. However, certain grey areas see problems for the leadership and activists alike; for example, free schools is an incredibly perplexing area for the Liberal Democrats to embrace in a way so enthusiastically as Michael Gove’s fervour.
We will fight the next general elections as an independent force with our options open. Just like 2010. But coalition is the future of politics. It is good for government and good for Britain. We must make sure it is good for the Lib Dems as well.
Yes, indeed. It is now ‘do-or-die’ for the Liberal Democrats. There won’t be an end of ‘boom-and-bust’ in this context, unfortunately, because if the Liberal Democrats get the economic recovery and cuts wrong, even if the recession ends, they will be unelectable for a decade. However, it is argued that if the Liberal Democrats make a success of their new Coalition policy, the Coalition politics of pluralism could become accepted.
There was, of course, a global financial crisis. But our Labour predecessors left Britain exceptionally vulnerable and damaged: more personal debt than any other major economy; a dangerously inflated property bubble; and a bloated banking sector behaving as masters, not the servants of the people. Their economic model combined the financial lunacies of Ireland and Iceland. They built a house on sand and thought that they were ushering in a new, progressive work of architecture. It has collapsed. They lacked foresight; now they even lack hindsight.
If Cable feels Labour is in denial over the deficit, undeniably he has been slow to come to the conclusion that the crisis was global. I remember him pontificating in the Commons about how it was an academic philosophical issue of where the financial crisis came from, but it was necessary to find a solution for it. Vince Cable’s lack of acceptance that this was a global crisis historically speaks volumes.
We know that if elected Labour planned to raise VAT. They attack this government’s cuts but say not a peep about the £23bn of fiscal tightening Alistair Darling had already introduced. They planned to chop my department’s budget by 20 to 25%, but now they oppose every cut, ranting with synthetic rage, and refuse, point blank, to set out their alternatives. They demand a plan B but don’t have a plan A. The only tough choice they will face is which Miliband.
This statement is totally ridiculous. If Vince Cable is so self-effacing, can he not at least give a suitable explanation for this poster?
But I am not seeking retribution. We have a pressing practical problem: the lack of capital for sound, non property, business. Many firms say they are already being crippled by banks’ charges and restrictions.
This is undoubtedly a sensible line of attack for Vince and George to pursue, as it encompasses the Liberal
Democrats’ values of fairness, and Labour’s lack of engaging with the public about how the bankers, who had largely caused this crisis, were not been punished for their recklessness. If anything, it is perceived that Labour pumped lots of taxpayers’ money in it, whilst the leading CEOs in the investment banks received knighthoods and huge bonuses. Labour’s fundamental error, if there is to be one single one amongst the plethora, is the unforgiveable increase in the rich-poor divide, which will forever be a legacy of Labour. It began in earnest with Thatcher, progressed with Blair, and compounded through Gordon Brown’s long stint as Chancellor. This should be a top priority for Labour too.
And the principle of responsible ownership should apply across the business world. We need successful business. But let me be quite clear. The Government’s agenda is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them?
This is an incredibly important paragraph in my opinion, as short-termism has been identified by many academics in leadership, including William George at the Harvard Business School, as a major cause of irresponsible leadership in business. This, together with failures in corporate governance and corporate social responsibility in a post-Enron age, remain admirable targets for Vince’s wrath. This should be a top priority for Labour too.
??But the big long term question is: how does the country earn a living in future? Natural resources? The oil money was squandered. Metal bashing? Mostly gone to Asia. Banking? Been there, done that. What is left? Actually quite a lot. People. Skilled and educated people. High tech manufacturing of which we already have a great deal. Creative industries, IT and science based industries and professional services. In my job I meet many outstanding, world class, British based companies. But we need more companies and more jobs in the companies we have. It is my job as Business Secretary to support business growth. And this knowledge based economy requires more high quality people from FE, HE and vocational training. Here, we have a problem. Businesses cannot grow because of a shortage of trained workers while our schools churn out young people regarded by companies as virtually unemployable. The pool of unemployed graduates is growing while there is a chronic shortage of science graduates and especially engineers. There has to be a revolution in post 16 education and training. We are making a start. Despite cuts, my department is funding 50,000 extra high level apprenticeships this year – vital for a manufacturing revival. My Conservative colleague David Willetts and I want to sweep away the artificial barriers between universities and FE; between academic and vocational; between full time, part time and continuing life long learning; between the academic and vocational.
The ‘Yeah, but’ is that Vince Cable is making savage cuts in universities such as Cambridge, currently top in the world, at a time when we should be investing in basic research, translationary research and applied research, with a view to investing in our country’s future. This should be a top priority for Labour too.
Aspirational socialism: socialism should be about quality too
I am about to commence my MBA in a leading business school in London. Latterly, therefore, I have been reading the autobiographies of successful entrepreneurs, such as Duncan Bannatyne, Richard Branson and James Caan. Whilst they seem somewhat mystified about how they have become successful, or what the precise purpose of a business in, they are all absolutely certain about the focus of a business: to put the customer first.
I am socialist, and proud of it. I have two messages for Sir Stuart Rose, and Richard Branson, not I expect them to be hearing this. I was incredibly impressed by the standard of service of Marks and Spencers when I was in the Marble Arch branch off Oxford Street yesterday. I went with my family, and it was a joy to be there.
Furthermore, I travelled as a disabled passenger from London Euston on Virgin Trains to Coventry this afternoon. The train was immaculate, the train left bang on 14:23 (I know because my laptop is synchronised to the atomic clock), and the disabled assistance was faultless. The assistance was respectful, and avoided totally being patronising.
It does make me wonder though about my ideals in socialism. I am clear that I want socialism to improve standards for the ‘underclass’ as Tony Blair calls them, admitting it is a loaded term, in “The Journey”. I do not want to see rich, successful, leaders to be dragged down in level out of some drive towards punitive equality. I think this is perfectly possible, if socialism can be aspirational, as indeed Andy Burnham tried to argue, before he was much maligned for it.
The trademarks (brands) of Virgin and Marks and Spencer are known for affordable quality inter alia. It is incredibly important that people in the public sector feel incentivised to work with appropriate levels of pay for the amount of work they’re putting in. But equally, also, it is essential that rich bankers are not paid excessive bonuses, where their performance has not been good at all, such that there is no incentive to deliver a good result for the country even if they are profiting in the process.
