Read the three categories of cloud-based services offerings and the ‘Falcon Security’ case study in Chapter 6 in the textbook. Identify the advantages and disadvantages associated with

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Chapter 6 The Cloud

“What’s your plan, Toshio?” Mateo Thomas, CEO of Falcon Security, is meeting with Toshio Sato, IT director, and Joni Campbell, CFO, to discuss Falcon Security’s data storage costs.

“Right now, Mateo, we’re fine. We just got our new NAS online, and we’ve increased our storage capacity by almost 30 percent, but …” Toshio trails off.

Joni can’t stand this. “Well, we’re fine until you look at the bills we’re running up. The money we’ve spent on storage has increased 350 percent in 1 year.”

“Yes, Joni, it has, but our volume’s gone up 400 percent,” Toshio replies.

“True enough, but …”

Mateo has had enough and interrupts. “We’ve been over this before. No need to rehash it. We all agree that our storage costs are too high. Toshio, I’d asked you to look into alternatives. What have you got?”

“The cloud.”

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“The what?” Joni hopes he’s not losing it.

“The cloud,” Toshio repeats. “We move all of our video to the cloud.”

Mateo is curious. “OK, Toshio, I’ll bite. What’s the cloud?”

“It’s a movement—I’d call it a fad, except I think it’s here to stay.”

“So how does it help us?” Mateo asks.

“We lease storage capacity from a third party.”

Joni’s confused. “You mean we’d lease hard drives rather than buy them?”

“Well, not exactly,” Mateo explains. “We wouldn’t be installing any more hard drives in our data center. We can lease online storage on very, very flexible, pay-as-you-go terms. If we get a large new client, we can acquire more storage and scale it to meet our needs.”

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“You mean each day? We can change the terms of our lease on a daily basis?” Joni thinks that’s not possible. “OK, so how much does it cost? This can’t be cheap.”

“How about $10 per terabyte?”

Mateo’s puzzled at that. “What do you mean, $10 per terabyte?”

“I mean we can get 1 terabye of online storage for about $10 per month.” Toshio grins as he says this.

“What?” Joni’s dumbfounded.

“Yeah, that’s it. We can get as much storage as we want, and our systems automatically upload all incoming data from our drones. The net difference would be that our average monthly storage costs would be at least 50 percent less than they are now. And that’s not counting the power savings, the time saved doing backups, or the fact that we wouldn’t have to configure any more new hardware.” Toshio isn’t quite sure, but he thinks the actual storage costs could be less.

“Toshio, you’ve got to be kidding. We can save tens of thousands of dollars in storage costs. This is huge.” As Joni says this, in the back of her mind she’s thinking, “If it’s true.”

“Well, it’s good; I don’t know about huge. We’d have additional development costs to set up our systems, and that will take some time.”

“Toshio, give me a plan. I want a plan.” Mateo’s thinking what these savings could mean to their next two quarters … and beyond.

“I’ll give you something next week,” Toshio says.

“I want it by Friday, Toshio.”

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Image source: rommma/Fotolia

“How about $10 per terabyte?”

Study Questions

1 Why is the cloud the future for most organizations? 2 What network technology supports the cloud? 3 How does the cloud work? 4 How do organizations use the cloud? 5 How can Falcon Security use the cloud? 6 How can organizations use cloud services securely? 7 2026?

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Chapter Preview If you go into business for yourself, there’s an excellent chance you’ll have a problem just like Falcon Security’s. What is the best way to support your Web site or other information systems? Should you use the cloud? Most likely, the answer will be yes. So, then, which of your applications should use it and how? You need the knowledge of this chapter to participate in the conversations you’ll have. Of course, you could just rely on outside experts, but that doesn’t work in the 21st century. Many of your competitors will be able to ask and understand those questions—and use the money their knowledge saves them for other purposes.

Or what if you work for a large company that has embraced the Internet of Things (IoT)? Will you make products that send and receive data across the Internet? How will your products connect to the cloud? Will a cloud offering make sense for you and your customers? How will you know without some knowledge of the cloud?

We begin this chapter with an overview of why the cloud is the future for most organizations. Then, in Q6-2 and Q6-3, we will discuss background technology you need to know to better understand how the cloud works and what organizations can do with it. We’ll discuss local area networks, the fundamentals of the Internet, how Web servers function, and the purpose of basic cloud technologies. Then we’ll return to discussing how organizations can use the

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cloud, basic steps for setting up a cloud presence, and cloud security. We’ll wrap up with the cloud in 2026.

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Q6-1 Why Is the Cloud the Future for Most Organizations? Until 2010 or so, most organizations constructed and maintained their own computing infrastructure. Organizations purchased or leased hardware, installed it on their premises, and used it to support organizational email, Web sites, e-commerce sites, and in-house applications such as accounting and operations systems (you’ll learn about those in the next chapter). After about 2010, however, organizations began to move their computing infrastructure to the cloud, and it is likely that in the future all, or nearly all, computing infrastructure will be leased from the cloud. So, just what is the cloud, and why is it the future?

What Is the Cloud?

We define the cloud as the elastic leasing of pooled computer resources over the Internet. The term cloud is used because most early diagrams of three-tier and other Internet-based systems used a cloud symbol to represent the Internet (see Figure 5-13 for an example), and organizations came to view their infrastructure as being “somewhere in the cloud.”

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Elastic Consider each of the italicized terms in the definition. The term elastic , which was first used this way by Amazon.com, means that the computing resources leased can be increased or decreased dynamically, programmatically, in a short span of time and that organizations pay for just the resources they use.

Suppose a car manufacturer creates an ad to run during the Academy Awards. It believes it has a fantastic ad that will result in millions of hits on its Web site. However, it doesn’t know ahead of time if there will be a thousand, or a million, or ten million, or even more site visits. Further, the ad may appeal more to one nationality than to another. Will 70 percent of those visits arise in the United States and the rest in Europe? Or will there be millions from Japan? Or Australia? Given this uncertainty, how does the car manufacturer prepare its computing infrastructure? The car manufacturer knows that if it cannot provide very short response time (say, a fraction of a second), it will lose the benefit of an incredibly expensive ad. On the other hand, if the ad is a flop, preprovisioning of thousands of servers will add to the accumulation of wasted money.

Figure 6-1 Example Video Banner Ad Customer

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Figure 6-1 shows an example of this situation, based on a real case supported by Amazon.com’s CloudFront. Suppose Figure 6-1 shows the processing on the car manufacturer’s Web site during the Academy Awards. Throughout the day, the car manufacturer is delivering less than 10 Gbps of its content to users. However, as soon as its ad runs (2 PM in the Hawaii-Aleutian time zone where the data was collected), demand increases seven-fold and stays high for half an hour. After the announcement of Best Picture, when its ad runs again, demand again increases to 30 and 40 Gpbs for an hour and then returns to its base level.

Without an increase in servers, response time will be 3 or 5 seconds or more, which is far too long to maintain the attention of a charged-up Academy Awards viewer. However, the car manufacturer has contracted with its cloud vendor to add servers, wherever needed worldwide, to keep response time to less than 0.5 seconds. Using cloud technology, the cloud vendor will programmatically increase its servers to keep response time below the 0.5-second threshold. As demand falls after the ad runs a second time, it will release the excess servers and reallocate them at the end of the awards.

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In this way, the car manufacturer need not build or contract for infrastructure that supports maximum demand. Had it done so, the vast majority of its servers would have been idle for most of the evening. And, as you’ll learn, the cloud vendor can provision servers worldwide using the cloud; if a good portion of the excess demand is in Singapore, for example, it can provision extra servers in Asia and reduce wait time due to global transmission delays.

Pooled The second key in the definition of cloud is pooled. Cloud resources are pooled because many different organizations use the same physical hardware; they share that hardware through virtualization. Cloud vendors dynamically allocate virtual machines to physical hardware as customer needs increase or decrease. Thus, servers that advertisers need for the Academy Awards can be reallocated to CPA firms that need them later that same day, to textbook publishers who need them for online student activity on Monday, or to the hotel industry that needs them later the next week.

An easy way to understand the essence of this development is to consider electrical power. In the very earliest days of electric power generation, organizations operated their own generators to create power for their company’s needs. Over time, as the power grid expanded, it became possible to centralize power generation so that organizations could purchase just the electricity they needed from an electric utility.

Figure 6-2 Apple Data Center in Maiden, NC

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Source: Google Earth

Both cloud vendors and electrical utilities benefit from economies of scale. According to this principle, the average cost of production decreases as the size of the operation increases. Major cloud vendors operate enormous Web farms. Figure 6-2 shows the building that contains the computers in the Web farm that Apple constructed in 2011 to support its iCloud offering. This billion-dollar facility contains more than 500,000 square feet. Amazon.com, IBM, Google, Microsoft, Oracle, and other large companies each operate several similar farms worldwide.

Over the Internet

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Finally, with the cloud, the resources are accessed over the Internet . “Big deal,” you’re saying. “I use the Internet all the time.” Well, think about that for a minute. The car manufacturer in the previous example has contracted with the cloud vendor for a maximum response time; the cloud vendor adds servers as needed to meet that requirement. As stated, the cloud vendor may be provisioning, nearly instantaneously, servers all over the world. How does it do that? And not for just one customer, like the car manufacturer, but for thousands?

In the old days, for such interorganizational processing to occur, developers from the car manufacturer had to meet with developers from the cloud vendor and design an interface. “Our programs will do this, providing this data, and we want your programs to do that, in response, sending us this other data back.” Such meetings took days and were expensive and error- prone. Given the design, the developers then returned home to write code to meet the agreed-on interface design, which may not have been understood in the same way by all parties.

It was a long, slow, expensive, and prone-to-failure process. If organizations had to do that today, cloud provisioning would be unaffordable and infeasible.

Instead, the computer industry settled on a set of standard ways of requesting and receiving services over the Internet. You will learn about some of these standards in Q6-3. For now, just realize those standards enable computers that have never “met” before to organize a dizzying, worldwide dance to deliver and process content to users on PCs, iPads, Google phones, Xboxes, and even exercise equipment in a tenth of second or less. It is absolutely fascinating and gorgeous technology! Unfortunately, you will have the opportunity to learn only a few basic terms in Q6-2 and Q6-3. Before we define and explain those terms, however, let’s consider factors that make the cloud the future.

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Why Is the Cloud Preferred to In-House Hosting?

Figure 6-3 compares and contrasts cloud-based and in-house hosting. As you can see, the positives are heavily tilted toward cloud-based computing. The cloud vendor Rackspace will lease you one medium server for less than a penny per hour. You can obtain and access that server today, actually within a few minutes. Tomorrow, if you need thousands of servers, you can readily scale up to obtain them. Furthermore, you know the cost structure; although you might have a surprise in regard to how many customers want to access your Web site, you won’t have any surprises as to how much it will cost.

Another positive is that as long as you’re dealing with large, reputable organizations, you’ll be receiving best-of-breed security and disaster recovery (discussed in Chapter 10 ). In addition, you need not worry that you’re investing in technology that will soon be obsolete; the cloud vendor is taking that risk. All of this is possible because the cloud vendor is gaining economies of scale by selling to an entire industry, not just to you.

Figure 6-3 Comparison of Cloud and In-House Alternatives

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The negatives of cloud computing involve loss of control. You’re dependent on a vendor; changes in the vendor’s management, policy, and prices are beyond your control. Further, you don’t know where your data—which may be a large part of your organization’s value—is located. Nor do you know how many copies of your data there are or even if they’re located in the same country as you are. Finally, you have no visibility into the security and disaster preparedness that is actually in place. Your competition could be stealing your data and you won’t know it.

The positives and negatives of in-house hosting are shown in the second column of Figure 6-3 . For the most part, they are the opposite of those

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for cloud-based computing; note, however, the need for personnel and management. With in-house hosting, not only will you have to construct your own data center, you’ll also need to acquire and train the personnel to run it and then manage those personnel and your facility.

Storing valuable information online can be risky. The Security Guide on pages 236–237 looks at why your information may not be as safe as you think.

Why Now?

A skeptic might respond to Figure 6-3 by saying, “If it’s so great, why hasn’t cloud hosting been used for years? Why now?”

In fact, cloud-based hosting (or a version of it under a different name) has been around since the 1960s. Long before the creation of the personal computer and networks, time-sharing vendors provided slices of computer time on a use-fee basis. However, the technology of that time, continuing up until the first decade of this century, did not favor the construction and use of enormous data centers, nor did the necessary Internet standards exist.

Companies can save a lot of money by using the cloud, and these savings translate into profit. This profit does not come without ethical concerns, however. The

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Ethics Guide on pages 210–211 examines these concerns.

Three factors have made cloud-based hosting advantageous today. First, processors, data communication, and data storage are so cheap that they are nearly free. At the scale of a Web farm of hundreds of thousands of processors, providing a virtual machine for an hour costs essentially nothing, as suggested by the 1.5 cent-per-hour price. Because data communication is so cheap, getting the data to and from that processor is also nearly free.

Second, virtualization technology enables the near instantaneous creation of a new virtual machine. The customer provides (or creates in the cloud) a disk image of the data and programs of the machine it wants to provision. Virtualization software takes it from there. Finally, as stated, Internet-based standards enable cloud-hosting vendors to provide processing capabilities in flexible yet standardized ways.

When Does the Cloud Not Make Sense?

Cloud-based hosting makes sense for most organizations. The only organizations for which it may not make sense are those required by law or by industry standard practice to have physical control over their data. Such organizations might be forced to create and maintain their own hosting infrastructure. A financial institution, for example, might be legally required to maintain physical control over its data. Even in this circumstance, however, it is possible to gain many of the benefits of cloud computing

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using private clouds and virtual private clouds, possibilities we consider in Q6.

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Q6-2 What Network Technology Supports the Cloud? A computer network is a collection of computers that communicate with one another over transmission lines or wirelessly. As shown in Figure 6- 4 , the four basic types of networks are personal area networks, local area networks, wide area networks, and internets.

Figure 6-4 Basic Network Types

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Ethics Guide Cloudy Profit?

Alliance Partners (a fictitious name) is a data broker. You’ll learn about data brokers in Chapter 9 , but for now, just know that such companies acquire and buy consumer and other data from retailers, other data brokers, governmental agencies, and public sources and aggregate it into data profiles of individuals. Alliance specializes in acquiring and analyzing market, buyer, and seller data for real estate agents. Alliance sells an individual profile to qualified real estate agents for $100 to $1,500, depending on the amount of data and type of analysis requested.

Alliance is owned by three partners who started the business in 1999. They endured tough times during the dot-com collapse at the turn of the century, but crawled out of that hole and were doing well until they encountered severe revenue shortfalls in the 2008 real estate collapse. In late 2008, in order to reduce operational costs to survive the downturn, Alliance transitioned its data storage and processing from its own Web farm to the cloud. The elastic flexibility of the cloud enables Alliance to improve the speed and quality of its data services at a fraction of prior costs. Furthermore, using the cloud enabled it to reduce the in-house hardware support staff by 65 percent.

The partners meet twice a year to review their financial performance, evaluate strategy, and plan for both the next six months and the longer term. In 2008, in the midst of their revenue shortfalls, they met in a small suite in the local Hamilton Inn, ate stale doughnuts, and drank watery orange juice. This year, they’ve rented a facility in the British Virgin Islands in the Caribbean. The following conversation occurred between two of the partners at the onset of this year’s meeting:

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“Bart, what are we doing here?” Shelly, the partner in charge of sales and marketing, is challenging Bart Johnson, Alliance’s managing partner.

“What do you mean, Shelly? Don’t you like it here?”

“I love it here. So does my husband. But I also know we’re paying $15,000 a night to rent this island!” Shelly rubs sunscreen on her hands as she talks.

“Well, we don’t have the entire island.” Bart sounds defensive.

“No, I guess not,” she says. “They have to let some of the staff stay here. We’re the only paying customers . . . the only nonlocals.

“But,” Shelly continues, “that’s not my point. My point is, how can we afford this level of expense? We’ll pay nearly $200,000 for this meeting alone. Where are we meeting next? Some five-star resort on the moon?”

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Source: Eunikas/Fotolia

“Look, Shelly, as you’re about to hear, our gross margin last year was 74 percent. We’re a money machine! We’re swimming in profit! We can’t spend money fast enough. One of the items on our agenda is whether we want to issue a $1 million, a $3 million, or a $5 million partners’ distribution.”

“No!” Shelly sounds stunned.

“Yup. Using the cloud, we’ve reduced our operational expense from 62 percent of our revenue to 9 percent. I’m plowing money back into R&D as fast as I can, but there’s only so much that Jacob and his crew can absorb. Meanwhile, order the lobster and wait until you taste tonight’s wines.”

“That’s disgusting.”

“OK,” Bart says. “Don’t drink the wine. You want your distribution?”

“No; I mean yes, but this is crazy. It can’t last.”

“Probably not. But it’s what we’ve got right now.”

Discussion Questions When answering the following questions, assume that Alliance has done nothing illegal, including paying all federal, state, and local taxes on a timely basis.

1. From the perspective of Kant’s categorical imperative (pages 22–23), are Alliance’s partners’ meeting expenses and intended partner distribution unethical?

2. From the utilitarian perspective (pages 58–59), are Alliance’s partners’ meeting expenses and intended partner distribution

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unethical? 3. Milton Friedman, world-renowned economist at the University

of Chicago, stated that corporate executives have a responsibility to make as much money as possible as long as they don’t violate rules embodied in law and in ethical custom.

a. Do you agree with his statement? Why or why not? b. Friedman defined ethical custom narrowly to mean no

fraud or deception. Using his definition, has Alliance acted ethically?

c. Define, using your own words, ethical custom. d. Using your definition of ethical custom, has Alliance

acted ethically?

4. Do you find any of the following excessive? Explain your answers:

a. Spending nearly $200,000 on a five-day partners’ meeting for three partners and their spouses?

b. Earning a 74 percent gross profit? c. Paying a semiannual distribution of $1M, $3M, or

$5M? If so, which level is excessive to you?

5. Describe the primary driver in Alliance’s current profitability. �. From the data presented, what else might Alliance have done

with its excess profits? 7. Do you think profitable companies, especially very profitable

companies, have an ethical obligation to: a. Contribute to charity? b. Lower prices when it is possible to do so and continue

to earn a reasonable profit? c. Contribute to environmental causes?

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d. When possible, pay large bonuses to all employees, not just senior management?

�. To most students, someone who earns $500,000 a year in income is rich. To someone who makes $500,000 a year, partners who pay themselves $1M to $5M every 6 months are rich. To someone making $2M to $10M a year, billionaires are rich. What do you think classifies someone as rich?

9. Do you think rich people have an ethical obligation to: a. Contribute to charity? b. Contribute to environmental causes? c. Forego governmental benefits to which they are

entitled, for example, not take Social Security that they don’t need?

A personal area network (PAN) connects devices located around a single person. Most PAN devices connect wirelessly to other devices located within 10 meters. A local area network (LAN) connects computers that reside in a single geographic location on the premises of the company that operates the LAN. The number of connected computers can range from two to se

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