Cloud computing: Not pie in the sky, but big business

But why does it matter to anyone else?

Almost 20 years ago someone at Sun Microsystems – I can’t recall exactly who – said that the desktop PC was doomed, and that everyone would access files and programs through a “dumb” terminal. They wouldn’t need an expensive machine with a hard drive full of software; everything could be located on remote servers. People (including myself) have been saying it ever since and many companies now run their systems on secure cloud-based platforms.

Sun was absorbed in a $5.6bn deal by software giant Oracle in 2009, but back in the day it was one of Silicon Valley’s great innovators, in both hardware and software. Unix, Java, Virtualised computing, RISC processing and Network File System (NFS) are all Sun inventions.

As a proponent of open computing, Sun was very keen on freeing businesses and consumers from what it saw as the “tyranny” of expensive hardware bundled with pricey software. Much better to have a very simple device and access your work and programs through some sort of NFS, the company and other like-minded souls said.

Many saw the value of this at the time, but concerns over security and access problems meant that it was an idea more talked-about and admired than actually developed. With the access of secure online storage, along came ‘the cloud’ and many companies quickly made use of this opportunity to store data securely.

Why bother shelling out for machines that get out-of-date quite quickly? And expensive “boxed” software that has to be loaded, configured and – usually – updated with some frequency, and which needs a big IT department to maintain it? For many businesses, which may typically use hundreds or even thousands of desktop and laptop computers, this is of course a critical question. However, in many cases this has not been addressed until now when we are seeing the rapid reduction in data storage prices, the growth of easy-access business online file and storage systems such as Dropbox, SugarSync etc (as opposed to the familiar personal ones we use everyday – Facebook, LinkedIn, Flickr), coupled with the development of improved tablets and smartphones.

I don’t dispute that until we can be certain of no internet dropout, constant connection everywhere and blisteringly quick speed for all, there will be a need to hold and run a number of core business software packages on decent hardware (high-end design and development applications, for example). But this shift has meant a number of companies which offer ‘tertiary’ services - for example CRM, accounting packages, timesheet systems - have been able to move from needing to have the software in-house on a client’s machine to being able to deliver it all over the internet in an easy to access and setup SaaS (software as a service), and often app driven, environment. This has also enabled major media publishers to create data repositories, which they can control, for users to access.

For the uninitiated, under this model, the program sits on a remote secure server, and is accessed via a browser or app, in return for a subscription. As a user, you don’t have to worry about updates or compatibility, as the software supplier takes care of that. Bugs and problems can be fixed much more quickly, and often invisibly, because nothing is actually hosted on your device. This has the concomitant benefit of not taking up disk space on your machine, or slowing it down due to more registry entries being needed.

Of course people will still be buying PCs, Macs and MS Office software for many years to come, but SaaS is already one of today’s big stories as more businesses see the benefits to their bottom line. Already many marcomms agencies are using it as part of their offer to clients – dashboards for CRM, for example.

The rise of SaaS and products like Dropbox means that storage and security take on a new importance. For the big players like Amazon, Google, Microsoft, Apple and Yahoo, this represents a new revenue stream (which they are all of course exploiting already).

But some people will want a more local, more “personalised” service; the idea of having someone to speak to on the phone increases confidence. As does some sort of explicit assurances about security and disaster recovery (ie, what happens if there’s a fire at the server farm, and how long will it take me to access my stuff?). Which is where the Iomart/BTL deal – the former’s biggest to date - comes in.

AIM-listed Iomart has obviously got its finger on the pulse, and senses where things are shifting. For this reason, it’s an interesting as well as an astute buy.

First of all Iomart’s purchase brings a host of new blue-chip clients into the fold including Siemens, British Red Cross, Lloyds Register, Suzuki and Pernod Ricard as well as Liverpool and Everton football clubs. Rule One of M&A: buy what complements, not what duplicates. (As an aside, Iomart also bought Redstation, a provider of dedicated servers and managed services based in Hampshire, only last month – an indication of the Scottish company’s ambition).

Second, it gives them scale, and third, BTL’s expertise in disaster recovery adds another string to the Iomart bow.

Last, but most importantly, there’s the sheer potential size of the markets Iomart operates, or may seek to operate, in. Last year the analyst Gartner upped its estimates of the 2015 value of the global SaaS market by $1bn to $22bn.

Then, if one looks at Gartner’s March 2013 estimates of the business value of cloud computing (including SaaS), it is a staggering $131bn! Marketing communications has already made inroads into the cloud – Salesforce.com alone has annual revenues of $3bn and some analysts estimate that it may account for around 45 per cent of all cloud business already. This figure is likely to grow, as more advertising migrates online, and more agencies become “virtual”. And how long before improved connectivity results in a major company deciding not to renew all those Macs and PCs, with all those copies of Office, iOS and Windows, and instead opts for tablets or bare-bones laptops? Add in the boom in data, and all of a sudden SaaS offerings look like a very exciting business to be in.

The area that I feel companies still need to have confidence in before going the whole hog, however, is cloud security. While many cloud providers can get you up and running in a blink of an eye, the question of ‘how secure is my data’ and ‘what is the cloud company’s liability in respect of data hacking or intrusion’, is a thorny one. Companies have been buying on the basis of storage costs, but more recently the overall security of data has become a bigger issue and I am not convinced cloud providers are in all cases addressing this properly.

That said, because of its nature, the marketing communications industry is inherently “cloudy” and, as the now inextricable links between tech and marketing march on, we at Green Square are finding ourselves increasingly involved in these kind of deals and expect to see many more as we move forward.

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector.