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12/30/11
Will a Major Cloud Computing Provider Fail in 2012?
Filed under: General, Contingency Planning & Disaster Recovery, The Economy
Posted by: Tom @ 6:00 pm

This warning was in a list of 10 predictions that a friend sent to me recently. The implication was that if a cloud provider’s business failed, users would lose digital images and other data. I did not believe that this was likely at first, but now I am not so sure. I have seen other concerns about bubbles bursting and started to connect some dots. Here are things to think about.

1.  Benefits of Cloud Computing

Cloud computing involves shared services.  Instead of everyone needing to have and maintain their own data and Internet services, a provider does it for them and it is much cheaper.  The provider’s computer servers are divided up to provide small virtual servers for users on a shared machine.  Smaller businesses find this especially attractive since they avoid the hassles of ownership and receive better service and support than they could afford for themselves.  However, the downside is that this requires reliance on others.

2.  Growth in Cloud Computing

A short article in a technical journal caught my eye.  The writer reported that a major cloud computing provider had a standing order for truckloads of brand new computer servers delivered weekly to expand their data center.  I was interested to learn that the servers were made in the United States by a little known company that made one of my own computers that I especially like.  It takes lots of money to buy this many servers and to pay for all the infrastructure, installation and on-going service and support.  Growth must be phenomenal to support this.  I wonder how long demand for storage will continue at this rate. Is it really necessary to save all this data?

3.  Underlying Business Models

I rely on a number of Internet Service Providers and e-Commerce vendors.  Some of them provide free services including large amounts of on-line storage for photos and messaging.  Although the cost of storage media has dropped considerably, someone still must pay for it and the related costs.  Businesses certainly expect to eventually recover expenses and profit through fee-based services, but I wonder how long they can operate in the red without becoming profitable.

4.  Level of Inactive Accounts

With all the competing products and services, no one has time to use them all.  However, when a new one comes along, they probably want to try it out to see if it is better than what they already have, especially if there is no cost to sign up.  I have several free accounts that I do not use regularly.

5.  Growth of Built-in Waste

Although many aspects of the Internet are automated, the infrastructure must be maintained.  The more e-mail and instant messages that are sent, the more server capacity that is required for logging, tracking and storage.  Multiple copies add to waste as do trivial messages and spam.

6.  Failed Business Models

What is troubling is how cloud computing and social networking compare to business models used by telephone companies in their heyday.  Back then, high costs discouraged usage of services.  Capacity was only added when revenue growth supported it.  Now low costs attract users in the hope that they will buy value added services.  If customers don’t rise to the bait, profitability goes out the window.  If value is not there when something is free, no one will be able to start charging. At some point, too many players chasing too few paying customers will no longer be sustainable. What will happen then? The recourse will likely be to pull the plug.

Maybe some of us really will lose our data if we don’t back it up.  

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