How Cloud Computing Can Help Small Businesses

For Det Ansinn, server capacity is critical. His 10-person software company, BrickSimple, in Dublin, Pa., develops applications for mobile phones. In December the company released an application called Xbox Live Friends that lets people use their phones to play Xbox games with each other and shows which other players are online. Nearly 2 million people have downloaded the app, with half signing up in the first month. Requests to log in and play on BrickSimple's applications have jumped to nearly 3 million on any given day, compared with the few hundred thousand the company had a year ago.

That certainly sounds like good news, but, Ansinn says, "We hit a wall." His $5 million company was using an off-site facility to host the application, and as more people logged on to play, the server system slowed to a crawl. Yet when usage was light, Ansinn was stuck paying $100 a day for capacity he didn't need. "We built all this success and reached this turning point, but we couldn't afford to spend more money every month to support this," he says. In April the company decided to host Xbox Live Friends on Google's App Engine, largely solving its capacity problems. Gamers download the app directly from iTunes, then connect through Google to play. BrickSimple pays just $15 a day, on average, to use App Engine.

The App Engine is just one of a recent explosion of services using an outsourcing model called cloud computing. Cloud computing makes use of the excess server capacity of specialized providers. Your work may be split among many machines, sometimes called virtual servers, that also work on the tasks of other individuals or companies. (Software-as-a-service, often confused with cloud computing, is a subset of it.) Cloud computing can help small businesses ease capacity issues such as the ones BrickSimple experienced. You don't need to invest in your own servers or employ staff to take care of them. Instead, you pay only for the capacity you need at a given time. And as demand rises, capacity increases without interruptions. "In the old model, where you have the servers set up and occupying space, you are paying a fixed amount whether those servers are busy or not," Ansinn says. "This changes the economics of what we do."

Still, you have to have something of a stomach for it and be comfortable being an early adopter. Using cloud computing, in some sense, means giving up control—perhaps of your intellectual property, customer lists, or proprietary applications, depending on which tasks get outsourced. And vendors' systems, like your own, can go down: "We have had instances of outages, but that happens elsewhere [as well]," says Ansinn. Even if you're not a techie, you'll need to have a thorough understanding of how your current system works before you can outsource any of it.

So what can be outsourced to the cloud? Just about all of your business computing needs. Some businesses and consumers simply use the cloud to host productivity applications, such as e-mail, document creation and sharing, and calendars, relieving them of the time and expense needed to run and maintain the software on their own computers. Some, like BrickSimple, use it to host their own applications. But there are also entrepreneurs who use the cloud to sell services that would have been impossible to offer before, and those who capitalize on this model to build virtual companies.

So far only an estimated 2% of businesses with fewer than 100 employees are using cloud computing, according to a May 2009 report by Forrester Research. "The most common way that small business is using this already is for Internet-based services," says Frank Gillett, vice-president and principal analyst at Forrester. "It is at the level of [software] applications." An additional 2% said they planned to implement cloud computing in the next 12 months, but 37% say they are interested in learning more about it.

You can choose from a wide range of providers and pricing, depending on the complexity of your tech needs and the amount of capacity you require. Amazon has something it calls EC2. Google has Google Apps, Google Docs, Google Sites, and Google App Engine. Microsoft offers a service called Azure. But there is a sizable group of smaller players as well. These include such companies as 3tera and 37Signals, one of the best-known small providers specializing in project management applications for entrepreneurs.

REAL-TIME UPDATESNDH Group, a 12-person, $5 million accounting firm in Chicago, wanted not only to serve as accountants for its small and midsize business clients but also to perform CFO duties for them. The multitude of different software packages used by its clients, however, and the necessity of accessing them remotely was a huge hurdle. NDH used a dedicated portal from Intacct, so the firm could get real-time updates on its clients' financial reporting. "The complexity of setting up the infrastructure in the [old] client server world would have been extraordinarily difficult," says Seth Pomeroy, NDH's partner in charge of CFO outsourcing and accounting technology. The outsourced CFO service now accounts for about 65% of the firm's business. Adds Pomeroy: "There is no way we could have done 10 years ago what we are doing now."

Seattle's 1000 Markets, which provides online marketplaces for artisans, is using cloud computing to create a virtual company. The 10 employees of the $10 million company are scattered throughout the U.S.—from Boston to rural Tennessee and from the mountains of Colorado to Puget Sound. "We have no central office, and the only hardware we own is the laptops and desktops we have at home," says Matthew G. Trifiro, the company's founder and CEO. "All of our servers and other capital infrastructure is outsourced. That is our growth plan for the company."

The company runs 100 online marketplaces and has to manage large swings in customer demand. It also has hundreds of thousands of images that need storing, and it must be able to process customer payments. "We don't want to be in the business of buying hardware and determining routing optimization and load balancing," says Trifiro. Instead, he's using two cloud computing providers: Engine Yard handles the load balancing and page serving, while Amazon does image storage and payment processing. In this way, Trifiro says he has saved $30,000 on servers, not counting the cost of a techie to oversee them. His current yearly expense on cloud computing, while about $70,000 annually, "is not anything like what it would be if we had to do it ourselves." Now they can concentrate on their business instead.

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