Flying Above the Cloud by Guest Blogger Chris Aaron, CPAPosted: July 18, 2016
Whether it’s sports, hunting, fishing, automobiles, cooking, golf, photography or your business…the list is endless…technology has permeated them all. If your pocketbook (and spouse) allows, having the latest and greatest technology *may* help you catch more fish or smoke a better brisket. However, most of us frequently make the purchase because it’s cool rather than it stands a decent chance of a positive ROI. One’s marital relationship notwithstanding, in the area of business, this propensity can have wide-ranging negative effects. Certainly, there are pockets of technology whose purchase price is so small as to be essentially neutral, like buying the latest iPhone. But when we consider offerings at the tip of the technological spear, such as the Cloud, the choices made will ripple through the coming years.
Libraries of books (or should I say petabytes of data) have already been written on the Cloud. My goal here is to fly above the Cloud, as it were, in the hope that when I’m done, you’ll look at it again for your business or practice with different eyes. Given that our readership ranges from newly-minted CPAs to those who received their certificate in the haze of the groovy ‘60s, let’s start with a general description and move progressively into the deeper layers…always at a high level.
To my father, a child of the 1930s, I would say that the Cloud is millions of computers around the world which can talk to each other. He would respond, “No, that’s the Internet”, and he would be right. So what’s the difference? For regular users, it’s a matter of perspective, albeit an important one. Generally speaking (and there are many exceptions), the Internet is used primarily for communication. When we talk about the Cloud, we envision a place where we can do things far beyond email and Facebook. The ability to create, interact and accomplish much more than ever before are the key attractions.
For most of us, we doubtless touch the Cloud now every day, knowingly and unknowingly. The role of some very important women (Siri, Cortana and Alexa) greatly affect where we eat, how we get to our destination and what we’ll wear today. All of these are Software-As-A-Service (SAAS) services, which silently handle our interactions with the Cloud. While these services typically just “come with the phone”, there are many SAAS services that we intentionally purchase and use, such as Office 365 or Google Docs. Because of the Cloud, these services are ridiculously inexpensive for the commensurate productivity they provide. Imagine ten years ago paying $10/month to use the full suite of Microsoft Office products (either on your desktop, your phone or in a browser), have email and a place to store terabytes of your files. Oh, and you automatically get the newest versions, don’t have to worry about maintaining the servers on which they reside and can rest assured that your data is backed up in triplicate at one datacenter and then replicated at least 500 hundred miles away in triplicate again in another datacenter. In the case of a SAAS service, you can count on the fact that the companies that offer them have spent large sums of money to tie together disparate offerings made possible by the Cloud to bring you a seamless application that just works…most of the time.
Travelling a bit further down the rabbit hole, we enter the domain traditionally occupied by your IT person. While SAAS is the face that most of the public sees, other acronyms like IAAS (“Infrastructure-As-A-Service”) and PAAS (“Platform-As-A-Service”, which we will not discuss in this post) are the lingua franca of this layer. IAAS basically amounts to having a network and/or a server in the Cloud. While there is hardware involved, you don’t own any of it. You pay for it by the minute or hour…sort of like electricity or a rental car or a massage. The proper terminologies are “virtual network” or “virtual machine (VM)”. Most people “spin up” their own virtual machine and use it in a myriad of ways. Even though it’s virtual, it offers everything your computer in the closet does, with some nice exceptions. For example, if it’s month-end and you need a bit more horsepower, then literally drop down a selection box, pick a stouter offering and you’re off to the races. When things cool off, then lower the heat (and the cost). What if you like to have the latest operating system? No problem. Go to the library of different operating systems, make your selection and “voila” your VM is created right in front of you. Also, no one can walk in, cut the cables and slink away with your virtual machine. But how does my office network “see” this server? That would be another Cloud offering, called a Point-To-Point VPN (“Virtual Private Network). It’s about $35/month and lets you connect your whole office to the Cloud. Instead of your server down the hall, it’s now your server in the Cloud. But what if you like the server that you have, but could use some extra help on occasion? Again, not an issue. You can have your on-premises server (geeks say “on-prem”) on the same network as your Cloud server, talking to each other. This is called a “hybrid” environment.
So, since we’re accountants, all discussions lead to the question “How much is this going to cost me?” Cloud pricing is very competitive and continues to drop every month. As you would expect, the big players are Amazon, Microsoft and Google. However, there are many 2nd-tier providers that may meet your needs even better and/or cheaper. How they provide their services differs more than what they provide. Most billing models are “Pay-As-You-Go”, but if your monthly charges normally exceed $500, then you can take advantage of up to a 25% discount if you commit to a twelve-month subscription. That’s a decent amount of beans. So, using the Microsoft Windows Azure Cloud as an example, you can use their pricing calculator to translate your needs into dollars. Even though it has greatly improved, because of the overabundance of services, sometimes you actually need to be a CPA to achieve a high level of confidence. This is why you team up with your IT person. In the end, the most common scenario is that you want one server (a Virtual Machine). So, let’s say we want a fairly solid virtual machine with a 100Gb SSD hard drive, 7Gb of RAM and 2 Cores. Given that there are between 672 and 744 hours in any given month, the cost to run this VM all month long is, at most, $208.32 (roughly 28 cents an hour). But you likely don’t need to run it every hour of every month. So you have your IT person write a handful of lines of code to automatically shut it off when you don’t need it and turn it on when you do need it. So, if you have no use for it during the weekends (except tax season, of course), then you can eliminate 192 weekend hours or $53.76. This drops our monthly cost to $154.56. If you also turn it off from 1:00am to 5:00am every weekday, the monthly cost drops to $132.16. Of course, if you need more power or more VMs, then it costs more. However, it’s pretty straightforward to calculate the ROI. So does this mean that you can get rid of your IT person? Eh, probably not. But their current skill set is more than adequate for Cloud work.
The Cloud also allows for much more complex work to be done than we’ve discussed thus far. The best way to wrap your head around the possibilities afforded by the Cloud is to imagine that you have personal access to more computing power than many of the Fortune 500 companies individually had 20 years ago. This means that you can store oceans of data (the first 5 terabytes are free) and perform as many types of analyses as you desire. Imagine paying $9.60/hour for a VM with 444GB of RAM, 32 Cores and over 6 terabytes of disk space. Let’s say you are an energy company and need to crunch a lot of data every night. Five of these high-end virtual machines for five hours will cost you $240. Even the company in this example could find it hard to justify the purchase of the firepower to accomplish this task. But the “rentable” Cloud makes it not only doable, but hard to pass up the business case.
This leaves us with two huge topics which could fill multiple blog posts; security of and accessibility to the Cloud. In the continued context of our high flyover, I will address both very briefly. Regarding the security of the Cloud, many may ask “What about the data breaches at Target or Sony or Anthem Health?” I might add, “What about the thousands of breaches each year of smaller and/or private companies that no one ever hears about?” Now I’m not saying that since it seems like breaches are everywhere, there is nothing one can do. A deeper analysis of the larger breaches tends to show that the stated security policies were not enforced, followed and/or updated. Use of the Cloud is an extension of your current on-premises environment and should likewise be subject to the same level of scrutiny and consideration. Insofar as the top-tier providers, there have been very few breaches and none where the data of the majority of affected users has not been recovered. This means that, just as a disaster recovery plan calls for an alternative location in the case of a fire or other catastrophe, it may be prudent to implement a fallback plan for your Cloud services (which could be the use of the current server in your closet). The greatest potential loss in regard to a Cloud breach is not the loss of data, but the loss of business time (which historically has been measured in hours to a couple of days).
Insofar as the argument that if you’re in the Cloud and you Internet goes down, you’re sunk…it just doesn’t have basis anymore. The fact is, you already rely heavily on the Internet being up. And honestly, when did your Internet last go down and, if so, for how long was it down. With the abundance of cell and Wi-Fi options as temporary alternatives, this contention is no longer viable. Nor is the concern about bandwidth. Most of us can get 20-50Mbps down and 1Mbp up. Within the first half of 2016, AT&T has put in place or announced its GigaPower 1Gb service in the Dallas/Fort Worth and Houston metroplexes, San Antonio, Austin and El Paso. Google Fiber is already in Austin and kicking off in San Antonio. So, clearly, Internet speed and accessibility is largely a non-factor in most of the populated parts of Texas.
You know, this is such a deep and wide topic. With so many viewpoints about the Cloud, mine is certainly just another one. But I have had the opportunity to view the Cloud from many perspectives, both for my own business and my clients’ businesses, as a CPA and a software developer. Yet the conservative thinking that seems to be part and parcel of CPAs in public practice and in industry (in which I have participated in both) is the largest part of the lens through which I view technology. Technology may be cool, but at the end of the day, it serves business…not the other way around. My greatest hope is that you dust off the green eyeshade and take another look or a deeper look at what the Cloud offers today. You may not have a need for some of the more complex Cloud services, but your clients might. Regardless of the fact that those in the IT department (even a department of one) are the ostensible keepers of the technology, it is always the company owners or those in the “C” position who ultimately determine the technology purchased and used to serve the needs of the business. As trusted advisors, we are whom they consult when important business decisions are to be made. The Cloud is now at a tipping point where it’s portends some level of business upside for those who partake. It’s worth your time to see for yourself.
Chris is a Senior Software Architect, Analyst and Developer having spent 20 years in formal software development for both an international software development company and his own firm. He also has 10 years of experience in Chief Financial Officer and Controller positions for local and Fortune 500 manufacturing concerns. He currently chairs the TSCPA’s Technology Committee.