Cloud computing promises to do everything from cutting IT costs to creating new businesses. Entrepreneurs are beginning to reap the rewards

Cloud computing means different things to different people. For some, it amounts to dumping desktop software for Web-based applications; for others, it's about on-demand computing, where extra storage and processing power are available instantly.

In traditional computing, users' software and data is stored on their own computer, or on a local area network, with files kept on a central server. But with cloud computing, the data, and in some cases the software, is put away on another firm's server. For example, if you use Google Docs and Spreadsheets via your Web browser, the software is running on Google's hardware, and your data is stored on Google's hard disks. Similarly, if you use Amazon's S3 storage system, your data is filed on Amazon's hardware.

Companies of all sizes are using the cloud to boost their business. Some of them are using it to enable remote working, while others employ it to cut costs. Some entrepreneurs are choosing the cloud to create entirely new kinds of businesses.

Cullen Allen and Colum O'Sullivan created Cully and Sully (www.cullyandsully.com), an upmarket range of convenience foods, in 2004, and the duo spend most of their time on the road. "We don't have an office, and we don't even have a landline," Allen says. "We have no option but to use cloud computing."

Cully and Sully uses Google Apps, a Microsoft Office-style suite of applications, as a virtual office. "As a small firm you can't afford to have an IT person. If I had, say, Microsoft Exchange, and it went down, that'd be a waste of my bloody day," Allen laughs. "I have no IT issues; if I want to share documents, or share calendars, it works."

Google Apps doesn't just work for SMEs, though. Last July, Taylor Woodrow announced plans to move 1,800 employees from traditional desktop applications to Google Apps. Speaking to ComputerWeekly at the time, IT director Rob Ramsay estimated that the move would save the company £1m over three years. "Google Apps will enable us to scale up and down as required much more easily and in a more cost-efficient way," he said.

Ed Molyneux, co-founder of online accounting service FreeAgent Central (www.freeagentcentral.com), uses cloud computing to collaborate with chief technical officer Olly Headley and Web designer Roan Lavery, and to store the massive amounts of data generated by his customers. "All three of us come from freelance-type backgrounds, and we've all experienced the pain of getting things set up, taking care of admin and book-keeping, and either paying somebody to do that or just struggling along without having a clue," he says. "What I wanted when I was a consultant was something that would give me a big timeline of the next few months: what I had to pay the taxman in his various guises, when bills were due, when invoices were due and so on."

FreeAgent Central was the result. "We've tried to come at it from the freelance or small-business point of view rather than the accounting point of view," Molyneux explains. And so, for example, "instead of typing in transactions you just upload bank statements and FreeAgent does it for you".

The company uses Amazon's S3 service to store that data, and Molyneux is keen to explore other online options. "For us it's more than just a delivery method. At the very centre of FreeAgent is integration with systems that are also online so, for example, we're currently working with PayPal [and] HMRC."

Edinburgh is home to Hubdub (www.hubdub.com), a website that enables visitors to bet on the outcome of news stories (at the time of writing users were betting on 2,125 news stories, including whether atheist bus adverts would be banned by the Advertising Standards Authority and who would win Celebrity Big Brother ). The site has partners including Reuters and The Independent, and the intention is to generate revenue from selling advertising and syndicating content.

Hubdub is the invention of husband and wife team Nigel and Lesley Eccles. Nigel is a veteran of the online publishing and gambling industries, while Lesley comes from a technology sales and marketing background. "When we started out, we leased our own server," Nigel says. "But as our user numbers started to surge we needed to add capacity. That is when we switched to Amazon Web Services.

 "Our traffic has been growing at around 30 per cent a month since we launched, but it grows in spurts, which means it is almost impossible for us to forecast our capacity requirements. If we were on leased servers it would take days or weeks to add additional capacity. With Amazon, we can do it in under an hour, and it costs less because we don't need idle leased capacity to cover the spikes in demand."

As Nigel points out, using a well-known provider tends to reassure clients, too. "Amazon is well known for being secure and having good uptime, which is extremely important for our clients." He doesn't expect 100 per cent uptime—"any Web-based technology will suffer from outages"—but he doesn't believe that the cloud is less reliable than more traditional IT services. "We conducted our own research, which concluded that the major cloud providers have as good as, or better, uptimes than equivalent co-location or leased-line services," he says.

One of the most interesting aspects of cloud computing is that it can create entirely new kinds of businesses. Enterprise 2.0 start-up Huddle not only takes advantage of cloud computing but also delivers cloud-based services to its own customers. The company offers secure online collaboration and networking tools for companies of all sizes, and currently boasts customers ranging from start-ups and SMEs to Boots, Centrica, MasterCard, local authorities and the Department for Culture, Media and Sport.

Chief executive Alastair Mitchell is quick to point out: "We wouldn't have been possible without the cloud, and now we're seeing customers using Huddle whose businesses wouldn't have been possible without it."

With 10 years of online marketing experience under his belt, most recently at Dunnhumby, where he grew its Web-based market intelligence product to £20m annual revenues, Mitchell spotted a problem crying out for a solution. "We saw this crossover happening between social tools and business tools," he says. "We'd seen the issues that people were having working together globally. They were using social tools such as Instant Messaging or Facebook to share files at work, and the IT director was having kittens because that really wasn't secure. So I thought, hang on, can't we take the same principles and make them so that IT directors will be happy with them? And that's how it started.

"What we try to do is to combine two of the biggest forces we've seen in IT in the past few years, forces that are really going to shape the future. The first is the cloud, low-cost software that everyone can access via the Web, and the second force is social networking. If you bring those concepts into the world of work, you have low-cost, centralised ways of working and connecting with all of the people that you have to work with, such as customers, partners, people within your own business, suppliers and prospective customers."

Huddle.net is a thoroughly modern company. Parts of its service come via Zoho, whose cloud-based office suite is broadly similar to Google Apps. The Huddle coffee machine is one of the attractions detailed on its "work for us" page, and the software is available as a stand-alone service or via the LinkedIn social network. As Mitchell explains, social networking isn't just about employees wasting time on Facebook. "LinkedIn, which is a great tool for recruitment, is a social network for business. It replaces the old Rolodex, but it does much more than that. We do all our recruitment via LinkedIn, and the cost of that is $200 [each time] compared to the £5,000-£10,000 for traditional recruitment.

"Cloud computing is no longer scary or just for early adopters. There are more than 30 million people you can connect to on LinkedIn, hundreds of thousands on Huddle, and with the downturn in the economy, I think that people are going to want to do business more cheaply. These tools can help."

Eccles agrees. "If I were launching a new product now, I would go straight to using a cloud provider," he says. "More generally, I think that businesses should move more aggressively towards focusing on their core business and outsourcing everything else."

But Molyneux is more cautious. For now, he's happy to stick with cloud computing for storage, but to keep other systems in-house. "For us, there isn't yet a compelling reason for us to move everything [into the cloud], and there are some compelling reasons for us not to move," he says. "I always caution against technology-driven decision making. It's tempting when everybody is talking about the cloud, but there needs to be a solid reason to use it. It needs to be business-driven."

Cloud control

Is cloud computing reliable enough for mission-critical systems? In January, Salesforce.com, a leading provider of customer relationship management software, suffered technical problems that left 900,000 subscribers unable to access applications for nearly an hour, while last July Amazon.com's cloud computing services suffered their second serious outage of the year. Google's email and Citrix's GoToMeeting and GoToWebinar services have also suffered from availability problems.

Other firms have managed to destroy their customers' data. Web publishing service JournalSpace was wiped out completely when a malicious former employee deleted its database, which hadn't been backed up, and a few months previously online storage provider The Linkup went bust, taking its customers' data with it.

Should companies worry? "I think things have changed over the past two years," Huddle.net's Alastair Mitchell says. "The cloud started as a social phenomenon, but it is rapidly becoming a business phenomenon."

Businesses demand Service Level Agreements with penalties for non-performance, and they increasingly expect their service supplier to offer software for offline working to ensure that if an outage happens, users aren't left twiddling their thumbs. Salesforce.com provides desktop software, while Google and other suppliers use Google Gears technology so that browser-based software can work without an internet connection.

The services that suffer most from availability issues, such as Google Mail, were "not set up to provide high levels of availability to business users," Mitchell says. "The business tools that are coming out are set up to do that." Provided you choose a reputable supplier, "you can have confidence that the service will be available and that you can get your data out again".

But by the very nature of the internet, outages are inevitable, which is why you'll never see a Service Level Agreement promising 100 per cent uptime. If 99.99 per cent isn't good enough, you should keep your critical applications in-house.