Contractors face their own cloud demons

Everybody in government is talking about the cloud as the information technology future. But what about contractors themselves—the companies that provide cloud services to the government? Is the cloud in their future too?

The answer is decidedly yes. In some respects, it’s a matter of two sides of the same coin, although for companies in the private sector there are cloud issues that don’t impact government agencies, such as the tax repercussions going to the cloud. But, broadly, the business drivers for contractors making the decision to move some operations or applications to the cloud are similar to those for agencies. For example, the cloud can help a company consolidate an IT infrastructure, reduce the need for IT capital investments, and, as mobile technologies proliferate across enterprises, improve “anywhere” access to information.

“If a company can save huge hardware costs, simplify the operation and make the access easier for the worker, why wouldn’t you do it?” said Bill McDermott, co-CEO at SAP AG and president and CEO of SAP America Inc.

Potential savings on IT costs are a major consideration for companies, but it’s not a cut-and-dried issue. At ITT Defense and Information Solutions, for instance, officials have developed a comprehensive cloud strategy to help cut IT costs but a big factor was the decision to build a private cloud environment.

“We believe in the cost argument for the cloud,” said ITT Defense CIO Ray DeLuke. “We’re a fairly big organization with IT that’s spread across North America and other areas of the world. We think our current methods of localization of data centers and things like that are unsustainable in the future. Certainly we need to leverage technology that would help us control cost so we have the ability to invest those dollars in other areas.”

In creating a cloud strategy, however, ITT officials weighed cost against risk in deciding to go with a private cloud. “We’re looking at a trade-off between cost and control associated with public and private clouds,” DeLuke said. “Public clouds offer the lowest cost but also the lowest control. A private cloud offers higher cost but a higher level of control. Low control means high risk and we’re not at the point right now where we’re ready to embrace the public cloud.”

Charles Beard, CIO at Science Applications International Corp., agreed that cost isn’t a simple matter when it comes to the cloud decision for companies. “If you’re being directed to do this just to cut your costs, run do not walk to the nearest exit,” he said. “The question of how to take advantage of the cloud is much bigger than, ‘What’s it cost me?’ There are massive conversations that need to take place.”

Those conversations, Beard said, relate to contractual issues, such as continuity of operations and service level agreements; which services or operations can be moved to the cloud and which can’t; and whether services should go to a public cloud, a private cloud or hybrid cloud.

Then there’s the security question. “There will be some things that are mission critical and so sensitive that companies will want them on premise,” McDermott said. “Sometimes they may consider them worthy of a private cloud. It will be the things that are less strategic or less sensitive that they’ll put in a public cloud. All these environments are relevant and all of them have their place, it’s just choosing the right venue for the right application.”

For ITT Defense, the security hurdle is mitigated by the decision to use a private cloud. “Our view is that everything is a risk-based decision,” DeLuke said. “Our goal is to provide secure information sharing. ‘Secure’ and ‘sharing’ pull in opposite directions. We want to conduct business but we don’t want to overly burden the organization with risk, so starting with an internal private cloud strategy is part of that mitigation of risk.”

There are also the more abstract legal implications that companies should consider, some of which are still fuzzy because the cloud approach is still early in its evolution, Bob Fecteau, CIO for intelligence and security at BAE Systems, said.

“When you move an application to the cloud, you’re asking [a provider] to assume liability for operations,” he said. “What is the transfer of liability when using a cloud solution hosted on someone else’s infrastructure? It’s beyond a [service level agreement] refund kind of concept. It’s liability for potential revenue losses in the future due to the breach of the agreement. How do you calculate that in a contract?” He cited the potential liabilities of putting a payroll system in the cloud as an example. “There are huge liabilities to not paying people on time,” he said.

“This is a very complicated area of the future,” Fecteau said. “Some of the legal test hasn’t occurred yet.”

Fecteau also noted some financial and tax considerations for private companies. “There are long-term financial issues of moving to the cloud when the service becomes an expense as opposed to a capital investment,” he said. “You do capital investments because they are tax advantageous. What happens when I go to the cloud and everything all of the sudden is now a huge expense annually rather than being capital?” As a result, companies looking at cloud services will have to examine how their capital investments are managed, he said.

Despite such sticky-wicket issues, key business drivers, such as the exploding use of mobile devices, will prompt more use of the cloud by companies.

“Now that mobile is new desktop, it’s no longer about having all these servers and all this hardware in the office next to your cubicle,” McDermott said. “You’re on the fly so you don’t care where the information is coming from. You just want to get it. This has played very nicely to the cloud.”

Mobile devices are “forcing our hand,” said DeLuke. “I like the cloud because we can keep all the information resident on the cloud and be less concerned about what the end points are or how they are protected because a lot of our data would remain with us behind our firewalls. The users are driving us in that direction.”

Then there’s this: Companies using the cloud themselves are better positioned to sell their government customers on the advantages of cloud services, sources said.

“A lot of the things our clients struggle with, we have to solve for ourselves before we start going to them and telling them how do it,” Beard said. “What we’re doing internally should be an exemplar for our clients.”

Fecteau agreed. “I wouldn’t think you would want to pick a company that didn’t do anything in the cloud,” he said. “If they don’t use any cloud services themselves, then they don’t understand the challenges of working within the cloud.”