Jan Gabrielsson, Per Karlsson and Robert Skog

Cloud computing is not just a lot of hype. The entire IT industry is, in fact, repositioning its value propositions around the cloud computing concept, which stands for the collected best practices for packaging, deploying and running applications in today’s networked world. Taken together, this is a very broad context, which explains why cloud computing is difficult to define as a distinct market. In general terms, however, the “cloud market” consists of three parts (figure 1): software as a service (SaaS), platform as a service (PaaS – sometimes also called cloudware), and infrastructure as a service (IaaS).

SaaS is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. The services – typically web-based applications, such as e-mail, customer relationship management (CRM) and collaboration tools – are delivered over the network. A lot of Web 2.0 services fall into this category.

PaaS is the delivery of a computing platform and solution stack as a service. It facilitates the deployment of applications and essentially eliminates the cost and complexity of buying and managing the underlying hardware and software layers. The use of remotely administrated application execution platforms enables enterprises to offload applications to application platform providers.

IaaS is the delivery of computer infrastructure (typically a platform virtualization environment) as a service. According to this model, raw “hardware” capabilities – such as storage, processing, and networking – are offered as a remote service.

Figure 1. The three market segments of cloud computing: SaaS, Paas and IaaS

A main driver of cloud computing is the potential to cut costs, primarily through three value propositions, namely decoupling, on-demand and utilization.

Decoupling
Virtualization technologies decouple the dependencies between applications and hardware platforms, giving CIOs the ability to separate investments in applications from investments in hardware platforms. This, of course, is a requirement for creating the market segmentation outlined above.

On-demand
Because resources are dynamically allocated from a virtualized pool, it makes sense to offer them via a pay-per-use business model instead of making users pay for static pre-allocated resources.

Utilization
The decoupling (virtualization) of hardware and networks facilitates greater sharing of resources between applications. Today, a typical server spends 80 percent of its time waiting for jobs to process.

Cloud computing has become a hot topic within the telecommunications industry as operators explore new business opportunities and begin to position themselves as service providers. Operators are also investigating how these technologies might help them to increase their flexibility, reduce internal operating costs, and support greener telecommunications – for instance, by improving utilization. 

Two examples of new business opportunities in the area of IaaS are content distribution services and computing infrastructure services.

Content distribution services compete directly with established players like Akamai for the distribution of content originating from centrally located content providers. New providers of content distribution services include AT&T, Level 3 and Deutsche Telekom.

Computing infrastructure services that target enterprises compete with established players such as Amazon and Google. Examples include AT&T’s “Synaptic Hosting,” BT’s “Virtual Data Center” and Verizon’s “Computing as a Service.”

How well operators will succeed in this market will be determined by how well they can capitalize on their potential strengths. Operators can, for example, exploit local presence (nearness to end users) and control of the access network to ensure that applications and services that require low latency and high bandwidth (such as VoD, web TV and interactive gaming) perform well and deliver the expected quality of experience (QoE).

Operators may also offer a bundled pay-as-you-grow scheme for both bandwidth and processing with associated security and service level agreements (SLA).

Likewise, they can make the most of existing customer and trust relationships.

One other trend that operators are beginning to investigate is the use of virtualization techniques to build internal clouds to increase utilization and flexibility and thereby reduce the costs of their own operations. They might also transfer some service execution to a cloud infrastructure and buy SaaS rather than hardware or software from equipment vendors. This latter trend in particular will have a direct impact on how vendors develop, package and price their products.

Many of the applications and services in today’s products are bundled with hardware and dimensioned according to a traffic model. These hardware/software bundles must cater for a peak load scenario that leaves the hardware underutilized most of the time.

In addition, operators with many such “bundles” in their data centers will see their margins dwindle as the costs of maintenance, electricity, and floor space rise. A viable alternative is to unbundle the software from hardware and employ virtualization technologies to make better use of the underlying hardware.

Ericsson is looking into how it can support operators in a cloud environment. Among other things, it is researching solutions that empower operators to further exploit their main strengths and enable them

• to fully harness low latency and effective distribution by moving storage and processing services out of data centers and further into the network; and
• to offer more dynamic and flexible ways of setting up network connections between a variety of cloud infrastructures.

Jan Gabrielsson joined Ericsson in 1997 to work at Ericsson Research with agent-based telephony services, and later, with smart home projects. From 2001 to 2005 he worked with technology strategies at Service Layer R&D. Today, as an Expert in software product strategies, he works with portfolio and market strategies in the Portfolio Management Group at business unit Mulitmedia. Jan holds an M.Sc. in computer science from Uppsala University.

Robert Skog is an Expert in the service layer at Ericsson’s Multimedia business unit. After completing an M.Sc. in electrical engineering from the Royal Institute of Technology KTH (Sweden), he joined Ericsson's two-year trainee program for system engineers. Since then, he has mainly worked in the service layer area with everything from the first WAP solutions to today’s connected home. In 2005, Robert was awarded the prestigious Ericsson Inventor of the Year Award.