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Cloud Computing: Small Companies Take Flight

Small businesses are flocking to the new services, which provide secure IT infrastructure with little up-front investment and no heavy lifting

When hurricanes Katrina and Rita passed over Schumacher Group's multimillion-dollar data center in Louisiana in 2005, Doug Menefee, the company's chief information officer, breathed a sigh of relief. His company manages the staffing for emergency room physicians at more than 145 hospitals in the Southeast, and if the center had gone down it could have hampered efforts to get doctors to the locations where they could care for injured patients. "It was a high risk to our organization," says Menefee.

Menefee realized he had to hurricane-proof his company's technology. His budget was limited, though. So he turned to an evolving technology known as "cloud computing," where companies can get software and services with relatively little up-front investment. With such an approach, service providers such as IBM (IBM), Amazon (AMZN), Hewlett-Packard (HPQ), and others do all the heavy lifting. They maintain the servers in their own data centers, fix any problems that might occur, manage disaster recovery planning, and continually upgrade the software. Customers like Schumacher typically pay by the month and by the user, so they don't need to spend lots of cash to get started. Employees have access to the software through the Internet.

While many large companies have been hesitant to use the new services, small and medium-size businesses are flocking to them. About 31% of medium-size companies (defined as those with 100 to 999 employees) currently use these software services, double the uptake in 2004, according to a March 2008 report from consulting firm Access Markets International Partners (AMI-Partners). That popularity stems from a need for IT solutions that are easy to use and maintain by companies that have limited infrastructure and budgets.

"More than 50% of our processes are now in some type of software as a service or cloud environment," says Menefee. Schumacher Group, with 750 full-time employees, relies heavily on (CRM), a customer-relationship management service, to keep tabs on 2,500 independently contracted emergency room physicians. About 70% of hospitals outsource the staffing and management of emergency room physicians, partially because there's a shortage of ER doctors and the recruiting is highly specialized. helps the company keep track of individual contracts, pay rates, and the hospitals where each doctor can work.

Create Your Own Applications

Aside from software services, small and medium-size companies now have a range of other options, including platform services and hardware services. Schumacher is also creating its own custom applications using another service from, called This service lets developers rapidly create their own business applications over the Internet without the hassle of dealing with hardware or software and is known as "platform as a service." It essentially provides a plug-in architecture so companies can build custom software, with many of the underlying building blocks already in place. That's different from infrastructure services such as Amazon's Elastic Compute Cloud (EC2), which may give you server capacity but few of the other tools you need to get up and running.

"The trade-off is that the platform service is much more built out, so you lose some flexibility," says Michael Crandell, CEO of RightScale, which provides management tools and consulting to companies that want to develop applications on Amazon Web Services like EC2. In contrast, developing for Amazon Web Services can be more complex, but developers can choose from a wider range of programming and scripting languages.

Photo- and video-sharing service Phanfare decided to use Amazon's S3 service, designed for developers who want easy access to storage over the Internet. The average Phanfare user stores about 5 gigabytes worth of photos and video on the site, which means that the company needs about 83 terabytes of storage. When Phanfare started using Amazon's S3 service, its storage costs were cut nearly in half. "It went from $5 or $6 per gigabyte to about $2 or $3," says Andrew Erlichson, CEO and co-founder of Phanfare. Erlichson says his company could have built out the storage itself, but it would have taken an engineer about a year. "Our differentiator is software development; it's not storing data on generic disks," he says.

A Buffering System

Still, handing over the keys to part of your business has its risks. On July 20 the Amazon S3 storage service suffered an outage. Erlichson estimates that his company was affected for about 8 hours. But because he and his partners had some foresight and anticipated potential outages, they'd created a buffering system that essentially can manage down times for a day or two before it would create problems on the site. Erlichson spent July 20 at the pool. "If we'd been down that afternoon, it would have been horrible but not catastrophic," says Erlichson, "We're not running an ATM network here."

Schumacher's Menefee says he feels comfortable with the level of reliability he's getting with He's got a 99.99% uptime service level agreement and he knows the data center is monitored 24 hours per day. The advantage is that he gets the technology infrastructure to do what his company wants, without the costs and headaches. "As a midsize business, I can't afford that kind of infrastructure support [myself] while driving innovation," he says.

Business Exchange related topics:

Cloud Computing

Cloud Computing Research

Marketing Strategy

Small Business Technology

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