How Cloud Computing Can Help Small Businesses

Outsourcing computer applications to providers over the Web gives you flexibility and saves money, too

By Jeremy Quittner

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Jimmy Turrell

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.

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