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Before Facebook and Google—even before the Internet—scientists at MIT had a radical vision they called the computer utility.

“Computing may someday be organized as a public utility just as the telephone system is a public utility,” Professor John McCarthy said at MIT’s centennial celebration in 1961. “Each subscriber needs to pay only for the capacity he actually uses, but he has access to all programming languages characteristic of a very large system … Certain subscribers might offer service to other subscribers … The computer utility could become the basis of a new and important industry.”

Those words presciently describe a phenomenon sweeping the Internet today: cloud computing. Instead of buying their own computer systems, companies, individuals, and even governments can share time on a common computing infrastructure, which consists of interchangeable parts providing computation, data storage, and communications. If one piece malfunctions or needs updating, programs and data automatically move to others. Multilevel security prevents users from interfering with one another. This vast system is cheaper to operate than many individual computers scattered among different businesses and agencies, because both the hardware and the administrative staff can be utilized much more efficiently.

What has changed since McCarthy’s time is the advent of advanced “virtualization” systems that can generate just the computing resources needed at any time, letting them be returned to a general pool when they are not. This means that service providers such as Amazon can offer a pay-as-you-go utility billing model to customers on a very large scale. The consequences of this shift are far reaching: one of the clearest is that today there’s very little need for businesses to purchase a computer system other than PCs and laptops for employees. Whether they need a mail server or a rack of computers for a high-performance computing cluster, companies can almost always save money and get better performance by hiring a service in the cloud instead of buying their own. (See our sidebar defining key terms in cloud computing.)

Consider the economics of handling e-mail in a company. Today the cost of an entry-level Dell server to receive, store, and route the messages is less than $300. But by the time you add Windows Server software to run the machine, a second hard drive for redundancy, Microsoft’s Exchange Server 2010 to let an administrator manage the e-mail, and employee licenses of $35, you’re up to at least $3,250 for a department with 50 employees. Alternatively, you can have your employees use Microsoft’s cloud-based service, Exchange Online, for $10 per user per month, with unlimited storage. On the surface, a $6,000 annual cloud bill might not seem like the better deal, but doing it yourself carries high hidden costs, from hiring someone to manage e-mail servers to keeping up with security updates to paying air-conditioning bills for your IT room. The cloud service is backed up at multiple locations, and it connects to mobile phones and group calendars. Most important, you take advantage of the utility model that John McCarthy envisioned in 1961: you purchase only what you need. Microsoft has enough capacity to let you keep adding employees as quickly as you want.

Despite such advantages, many businesses say they are avoiding the cloud because they aren’t fully confident about its security and reliability. Yes, Google has had a few Google Docs outages, and Amazon had an embarrassing situation in April 2011, when some customers lost service and data. But companies that manage their own data have downtime, too—typically more than a few hours each year. What’s more, Google and Amazon responded to these outages as only publicly traded companies would: they issued detailed reports on what happened, how big the problem was, and what they were doing to prevent it from happening again. When was the last time you got a detailed report from your IT group because you couldn’t read your e-mail?

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Credit: Jason Madara

Tagged: Business, Business Impact, Business in the Cloud

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