Toomre Capital Markets LLC

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Value Proposition of Cloud Computing

As Gartner senior analyst Ben Pring has said, cloud computing has "become the phrase du jour." The problem, though, as with its predecessor Web 2.0, everyone seems to have a different definition of just what cloud computing exactly means.

Many would agree that "the cloud" is a familiar metaphor for the Internet. However, when "the cloud" is joined with the term "computing", the combined meaning becomes even larger and murkier. Some analysts and vendors define cloud computing narrowly as an updated version of utility computing: basically virtual servers available over the Internet. Others go very broad, arguing anything you consume outside the firewall is "in the cloud," including conventional outsourcing. With such ambiguity, no doubt there is considerable confusion just what the value proposition of cloud computing might be.

The value of cloud computing becomes more clear when one focuses only what IT always needs: a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. This focus helps one understand that cloud computing is really an aggregated way of referring to "Software as a Service" ("SaaS"), utility computing, web services in the cloud, incremental storage services (outside the firewall), and Internet integration.

To the extent that financial organizations are able to effectively and securely integrate these external services outside their firewalls (and tightly controlled internal environments), they will be able to take advantage of near ubiquitous and commodity-priced technology. In time, cloud computing is highly likely to force financial institutions to reexamine their "buy vis-à-vis build" decisions and force them to reconsider just what portion of the value proposition they truly need to control internally.

Toomre Capital Markets LLC ("TCM") welcomes the reader's comments and thoughts.