Gary Audin
Gary Audin is the President of Delphi, Inc. He has more than 40 years of computer, communications and security...
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Gary Audin | November 18, 2011 |


The Cloud Begets Startups

The Cloud Begets Startups The cloud allows many startups to begin with little capital. This is both positive and negative for the enterprises that want to do business with the startups.

The cloud allows many startups to begin with little capital. This is both positive and negative for the enterprises that want to do business with the startups.

We hear about cloud services companies coming to the market in droves. But have you also noted that the cloud allows many other forms of startups to begin business with little capital? This is both positive and negative for the enterprises that want to engage the startups in a business relationship.

This is the focus of "How Cloud Computing is Fueling the Next Startup Boom" by Joe McKendrick of Forbes. The article points out: "I'm not just referring to companies that are offering cloud services--rather, companies of all types can now be created and supported. I’m talking about law firms, travel services, insurance brokerages, scientific ventures, entertainment sites and just about everything you can imagine. I’m also talking about groups or departments within existing large organizations, as well as individuals working out of home offices."

The Positive Points
Companies want to be in business and make a profit. Starting any company requires some capital, enough capital until the profits roll in. The very low cost of entry for cloud services can reduce the capital needed for the startup. Cloud services can cost pennies to about $2.50 per hour of service time. Anyone can set up an account.

The other positive points are:

* The startup can gain access to cloud services for about the cost of one employee working at the startup.
* Startups can stretch their investment dollars much longer when the IT service costs are low.
* New ideas that may not fly with big enterprises can be implemented quickly and cost effectively through cloud services.
* There is no significant geographic limitation for the startup location. Truly the garage will do.
* It will take two to three years for the cloud service costs to approach on-site IT costs. Only then will the startup have to plan for more capital for internal IT systems and staff.
* The startup can focus on their core competency, not on IT.

The Negative Possibilities
As with any venture, there are possibilities for negative conditions to abound. One of the frightening outcomes is the easy entry of criminals using the cloud for their purposes. I mentioned this in my recent blog “Crime Comes to the Cloud” If the FBI or other law enforcement group wants to investigate criminal activities at a cloud service, they may not be able to pinpoint the exact servers to analyze. The law enforcement group may confiscate many servers, including those of reputable and legal organizations, putting them out of business. I pointed out some of these issues in my article "The Legal Side of the Cloud: Worrisome?".

The cloud based startups and their customers can also experience these negative aspects:

* The commonly required business plans for attaining venture capital do not need to be written. Ill-considered startup ventures are more likely than when venture capital is not required.
* Since the startup requires less IT staff, the startup will depend on fewer individuals for delivering products or services. There will be little depth in staff. This makes the startup vulnerable to staff changes.
* Cloud failure means startup failure. Consider the two Amazon EC2 failures as an example. EC2 goes down; so does the startup, especially if the startup is using EC2 to deliver the service to the customer. See my blog "Cloud Collapse"
* Cloud security is a constant theme in many articles and blogs. Startup security depends on cloud security. If the startup customer has a security problem, the startup may not be able to handle the issue. The solution may be limited by the cloud service agreement, to the detriment of the customer.
* There is danger to the enterprise from internal departments and subsidiaries. These can now go off on their own to gain IT services beyond the control of the enterprise management. Eventually IT will have to spend time and effort to regain control of the cloud-based IT services that they did not know about.
* Internal departments and subsidiaries can potentially also not comply with regulations and legislation. I know of one case where a hospital clinic was using a cloud based video service without complying with HIPAA requirements. The CIO only found out by accident and became livid upon this discovery.
* Since it is so easy and low cost to start a business using cloud services, criminals can create what appear to be legitimate services that are really a scam, without the customer having a clue.

Check into the financial health of the startup. Review the startup's agreements with cloud service companies to see how well the enterprise is protected. Consider a backup for the possibility of a cloud service failure and/or security problem.


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