Shane Richmond: On the digital equivalent of keeping your money under the mattress

Last month IBM opened a four-million square foot “cloud resiliency centre” in North Carolina. It says the vast building will be followed by similar centres in Mumbai and Izmir, Turkey, as part of an investment in cloud services, which are expected to generate $32billion for the company in 2015.

OPENER ShaneThe move is just one indication of the momentum behind cloud computing. Hardware costs for cloud providers are dropping at around 30 per cent a year, according to Google, while more businesses are moving their infrastructure to the cloud. IDC research expects firms to spend $100billion on cloud services this year and that will increase significantly over the next few years.

Those following this path see a competitive advantage in moving functions such as sales and marketing, customer services and business analytics to the cloud. The cloud is cheaper than managing these in-house, removes the problem of needing to update software and delivers data processing and storage power few companies on the planet could provide for themselves.

What puts companies off, according to research from GigaOM, are concerns about security, privacy and compliance. Security and privacy worries are linked to doubts about the ability of cloud services to withstand hacking attacks or to avoid human errors that expose confidential data.

On top of that are fears about the ability of governments to monitor cloud services, something that material leaked by whistleblower Edward Snowden last year suggests is already going on. The concerns are legitimate but for most firms the risks will be outweighed by the benefits. It won’t be long before managing your own data services is the digital equivalent of keeping your money under the mattress rather than in the bank.

Compliance is potentially a thornier problem, with regulations and laws in different territories often restricting how data can be stored and moved across international boundaries. The UK Data Protection Act, for example, prohibits the sending of personal data outside the European Economic Area “unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects”. Even if you know all of the countries and territories in which your data might be stored, many firms may prefer not to take the risk.

In the short term cloud providers are dealing with these problems with hybrid cloud services that allow companies to partially embrace the cloud while keeping certain functions in their own secure environments. Over the medium term, as business practices change and the benefits for customers become obvious, we are likely to see new protections for cloud customers, similar to those that protect bank customers today. Meanwhile, a more flexible compliance structure is needed to allow for cloud computing without compromising the spirit of the regulations.

I’ve said already that the benefits of cloud computing outweigh the drawbacks but there is a bigger reason for businesses to embrace the move to the cloud: we will soon see services and business models develop that are impossible without it. For example, a company such as Uber, the cab service, could not exist without cloud technology and mobile computing. That will become normal in the next few years, and businesses that don’t prepare themselves for that future risk being left behind.