Cloud Computing – How Does It Work?

One article that caught my eye this past week was: 55-year-old woman makes history and $140 million by taking her tech company public. It is a great story, which combines the American Dream with one of the most important trends in technology… Cloud Computing.

The woman is Therese Tucker. She founded her accounting software company, BlackLine, in 2001. Ms. Tucker funded the company herself through 2013, putting everything she had into it. That included draining all of her bank accounts, 401ks, taking a second mortgage on her house, maxing her credit cards, and begging her friends at times to cover payroll. Just the thought of doing that makes me cringe. Nevertheless, she pulled it off…so, kudos to her.

Cloud computing – renting instead of buying software, hardware and services:

The turning point for Ms. Tucker happened in 2007 when she changed strategy and decided to embrace a new trend, Cloud Computing. She stopped making traditional software that clients installed on their computers and decided to “rent” the software, which would reside on Blackline’s servers. Her company would maintain the software, hardware, and each client’s database. Clients would access the software and their data through the Internet. This strategy doesn’t seem all that cutting edge today, but 2007 was the year the iPhone came out, and some people were still using dial up back then. It was also still six years before, Adobe, one of Therese Tucker’s biggest competitors, would follow suit.

graphical representation of cloud computing on great retirement planning with Jeremy Kisner

The electricity analogy:

I like this analogy from R&G Technologies: “Cloud computing enables you to pay for computer usage like you pay for electricity. Power is something you just plug into the wall; you turn a switch on and off and you get charged for the amount you use. You don’t have to worry about building or maintaining the power plant. All you care about is using the service.” Cloud Computing takes the focus away from having to manage, maintain, and support in-house computer servers. End users simply access the program via a web browser, and someone else handles the server configuration, maintenance, and security.
Cloud Computing is sometimes referred to as Software as a Service (SaaS). It has begun to transform the way companies work and its benefits in terms of cost savings, scalability, mobility, and disaster recovery have been proven.

As consumers, we can relate to storing our pictures and address book in the cloud using iCloud or Google. I may be a slow learner, but it only took one lost smartphone when I did not have a backup in order to know that I never wanted to do that again. Businesses have learned the same lesson and are moving more and more of their computing operations to offsite hosted operations (the Cloud).

The undisputed leader in cloud computing…

The undisputed leader in cloud computing has been Amazon with its AWS division. Amazon figured that as long as it had to build huge data centers for its own operations, it might as well re-sell some of its capacity. It had first mover advantage back in 2006. Now, Microsoft, Google, IBM, and Oracle are aggressively pursuing this business. Microsoft is having big success this year in getting companies to upgrade their traditional office programs (Outlook, Excel, Word, PowerPoint) into Microsoft Office 365, which is where all of the programs are hosted by Microsoft in its datacenters and accessed by companies securely through the Internet. A Google technical fellow, Urs Holzle, predicted that Google’s cloud business could be bigger than its advertising business by 2020. Cloud computing is the holy grail for technology companies…and technology investors like us.