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The cloud computing market is expected to more than double by 2012, with annual revenue reaching $14.8-billion. ((Associated Press))

The fad-mad high-tech industry is touting the idea of "cloud computing" as if it's the answer to the business community's prayers for cheaper, easier computing, but not everyone is convinced.

While cloud computing is the craze of the moment, the idea has been around for years. Instead of buying software packages to install on their own computers, customers rent computer software, processing power and data storage from a service provider's servers and access it on the internet. Employees browse to a URL, log in and work online.

The software running in the cloud — from a simple word processor or spreadsheet to a complex corporate application — can be accessed over the internet using a small laptop or even a cellphone.

The concept of cloud computing has taken such a firm grip on the imagination of the technology industry that in October analysts at Gartner Inc. predicted that despite the shaky economy, online software revenue will surpass $6.4-billion US in 2008. The market is expected to more than double by 2012, with annual revenue reaching $14.8-billion.

"Cloud computing is the story of our lifetime," Google CEO Eric Schmidt told IBM's 2008 Business Partnership Leadership Conference in Los Angeles. "Eventually, all devices will be on the network."

Part of the appeal of working "in the cloud" is that business can outsource the expensive headache of managing and maintaining the IT plumbing — both the software and the systems that run it — to a tech company (sometimes called an application service provider or ASP) that specializes in handling computing infrastructure. In budgetary terms, this turns capital expenses into operating expenses.

It's also cheaper than buying a software licence for every employee's computer, and easier on corporate IT departments, which no longer have to do software upgrades themselves. Moreover, the idea can reduce or eliminate the need for ever-growing corporate storage networks, since documents and files can be stored on the service provider's servers.

'Cloud computing is the story of our lifetime.'—Eric Schmidt, Google CEO 

The idea of software, processing power and storage rented and used online also means ever-more-powerful personal computers are no longer necessary as the bedrock of a modern office. Customers often need only a basic computer with an internet connection to access programs running on servers in the cloud, which reduces the need for regular hardware upgrades. And program maintenance — updates, security patches and so on — is handled by the service provider.

All of this can cut corporate computing costs dramatically, supporters say, and in these perilous economic times companies should jump at any opportunity to save money.

Cloudy issues

At least that's the image presented at four major technology conferences in recent weeks: the Windows Professional Developers Conference, the TechEd EMEA Conference, the Web 2.0 Summit and the Windows Hardware Engineering Conference. In geek-speak, conference-goers were promised cloud computing would be a "paradigm shift."

The trouble is that some fear this silver cloud — so called because engineers like to draw a cloud to represent cyberspace — may have a dark lining.

First, there are concerns over data security and privacy. In cloud computing, data can be scattered over servers in different countries, and those countries might have less respect for the privacy or security of foreign data than would be acceptable to the customer.

Ray Ozzie, Microsoft's chief software architect, told CNET that "cloud computing is ultimately going to be 'do you trust this provider to have more to lose than I have to lose as a company if they mess me up?'"

Savvy corporate IT managers also fear the tech giants that control much of the cloud computing market — such as Salesforce.com Inc., IBM Corp., Apple Inc., Sun Microsystems Inc., Google Inc. and Microsoft Corp. — might offer services at appealing prices initially, but then cash in on the customer's commitment to a proprietary system over the long term. It's a practice called vendor lock-in.

In other words, once a business is running its programs and storing its information with a service provider, it becomes very difficult to move to a different provider. Customers may find themselves over a barrel if the provider starts jacking up its fees.

The ability to lock in customers more tightly is one of the reasons the world's top software makers are embracing this new approach to marketing their products. Microsoft has even taken to referring to cloud computing as its "post-Windows" era. In October it launched its Windows Azure Services Platform, a virtualization technology; soon after, it announced a new generation of Windows Live.

In late October, Microsoft CEO Steve Ballmer sent out an e-mail to select customers summarizing his view of the change the cloud will bring. "Why can't we easily access the documents we create at work on our home PCs?" he wrote. "Why isn't all of the information that customers share with us available instantly in a single application? Why can't we create calendars that automatically merge our schedules at work and home?"

IBM, meanwhile, is building a ninth cloud-computing data centre, and computer maker Dell is focusing on offering products to the largest cloud-computing providers.

Amazon.com's Web Services offering has expanded to include the Elastic Compute Cloud (EC2), in which paying customers rent computers from Amazon.com to run their own computer applications. Google's App Engine is essentially the same as Amazon's approach, except that it allows users to host their own virtual machines on Google's servers.

Salesforce.com, the poster child for cloud computing, is expanding its online services so its customers can build, customize and run applications. Sun Microsystems, the struggling server maker, is banking on cloud computing to put wind into its sales as it revamps Network.com, its collection of online applications. Even Apple's iPhone was designed as a highly portable version of a local computer that works with data in the cloud.

Alternative approaches

With all this activity around cloud computing from major software vendors, the fear of vendor lock-in among potential customers is palpable.

Companies such as Adobe Systems Inc. and VMWare Inc. are aware that customers are skittish, and they're using the issue to gain marketing leverage for alternative approaches.

At a San Francisco conference in October, Adobe chief technology officer Kevin Lynch warned of the "balkanization" of the web among competing cloud-based computing technologies. Adobe is promoting the concept of online computing using its generic Flash player as the means of interacting with a company's existing servers rather than having third-party service providers host data and programs. Instead of running applications "in the cloud" through service providers, Adobe wants its customers to deal with their clients directly through customized online Flash programs that blur the line between the internet and the personal computer.

Adobe boasts about the success of Flash, the engine behind 80 per cent of web-based animations - company bigwigs like to bicker publicly about whether the Flash player is installed on 98 or 99 per cent of the world's computers. Flash applications can reside on either an employee or client's computer, or on a corporate server, and they don't require a specific operating system.

Companies would create their own Flash programs as a front end for their databases, taking advantage of the cloud-computing-like benefit programs that can be accessed over the internet by low-powered desktops and laptops — but without giving up control of their data to a service provider.

"We just want to offer them the tools to do it themselves," Adobe vice-president Jim Guerard said.

The company has developed a platform called Adobe Integrated Runtime (AIR) designed to replace the browser with Flash-based desktop applications that can be run on Windows, Apple and soon Linux systems. (Like the Flash player, AIR is free; the company makes its money selling software development kits to programmers.) AIR-based Flash applications can offer features such as drag-and-drop to and from the user's own file system, access to the personal computer's clipboard for cutting and pasting information between applications, and encrypted local storage.

Paul Maritz, once third in line behind Bill Gates and Steve Ballmer at Microsoft before he jumped in July to virtualization company VMWare Inc., also favours an approach where companies run their own servers.

VMWare's ambitious and complex project is called the Virtual Data Centre Operating System. The virtual machine basically allows people to access computing resources on the network more easily and makes more efficient use of in-house computer servers.

"We are in a big transition from a device-centric world to an information-centric world," Maritz recently told Newsweek. "It's going to be about how do you make the information useful and available and make that the centre of people's lives instead of specific devices.

"Devices will have to cleave to the information rather than the other way around. IT infrastructure, the plumbing, will fade away for most users and businesses, and will increasingly be left to professional providers."

Open source

Not surprisingly, another familiar group is interested in cloud computing: the open source community.

This group has had success with its Linux operating system, and has three major cloud systems in development:

  • Hadoop, a Java-based system for data-intensive applications using large clusters of computers (IBM's Blue Cloud uses Hadoop, which is supported by Yahoo, Hewlett-Packard and Intel); 
  • Eucalyptus (Elastic Utility Computing Architecture for Linking Your Program To Useful Systems), a cloud computing platform for research and testing; 
  • 10gen, designed to help developers make their own cloud services.

And on Dec. 1, a company called Good OS (creators of a form of Linux called gOS), announced a new operating system called Cloud that boots computers straight into a browser. The company is aiming to load Cloud along with Windows XP in ultra-portable "netbook" computers in early 2009.

Momentum builds

Despite the concern of some customers over issues such as security and vendor lock-in, momentum is clearly building around cloud computing among the companies that develop software.

By 2012, for example, Gartner estimates that Web-based freeware such as Google Apps, Adobe Buzzword, ThinkFree and Zoho will account for a nine per cent market share of total software revenue.

With so many players vying for a chunk of the action in the cloud, a storm is surely brewing in the corporate software market.