Ahead in the Cloud

Retailers review advantages of ‘cloud' technology, weigh convenience vs. control.

Angel Abcede, Senior Editor/Tobacco, CSP

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C-store operators can look at clouds from both sides now. The popular Judy Collins song aside, retailers have been using “cloud” technology for several years, opting for third-party services that use off-site applications and hardware to support functions such as email, back-office work or transportation logistics. Then there are all the other potential uses, including data-heavy market-basket analysis, human-resource functions or even driving “mission-critical” activity at the point-of-sale (POS).

David Banks, CIO of Cumberland Gulf Group of Cos., Framingham, Mass., rented server space from cloud-service giant Amazon to conduct market-basket analysis about a year ago. The company initially tried to run the marketing studies on existing hardware. “Our marketing group wanted to run it over 36 months,” he says. “We had it at 12 [months] and we were already choking” on the amount of data.

For minimal cost, the company set up in the cloud and the studies ran “plenty fast.” Banks considered the speed impressive for a chain of 600 stores with 25 million transactions per month. Cumberland Gulf did the studies again six months later and was happy with the results and the convenience.

“Cloud, loosely defined, is using someone else’s infrastructure,” Banks says, referring to actual servers, facilities to house them, heating and cooling, and the expertise to run the devices. “You get the benefits of having the capacity available when you need it, without having to lock in and pay for it all.”

While cost savings is a primary benefi t of a cloud, scalability is a close second. Using cloud providers, a company can scale up quickly after an acquisition, for example. But it can also let go just as fast if some of those stores get flipped over to dealers.

Still, while the benefi ts are clear, a few less attractive attributes “cloud” the reality of cloud-based computing:

  • Anything New? Pinning down the meaning of “cloud” is a diffi cult fi rst step, mostly because the industry is already doing quite a bit of what could be considered cloud computing. Many chains already handle much of their high-tech tasks through third parties. A popular example would be turning over email to a service provider. So the question becomes, “What does the cloud offer that I don’t already do?”
  • Loss of Control: Many retailers want to have hands-on access to their data, software and hardware. If something goes wrong, they want to be able to fi x it.
  • “Mission-critical” Processes: Operating as a 24/7 business means devices such as the store register must be online all the time. Retailers have been hesitant about considering cloud solutions for such fundamental critical processes. Loss of a Supplier: If a key provider declares bankruptcy, the question of access to data and applications arises. Is there a safety net?
  • The Inevitable: Many believe the cloud business model may ultimately drive all processes as a track record for the technology catches up to the obvious cost benefits.

Many software companies have used an off-premise model for years. Greg Iverson, general manager of TelaPoint, a Louisville, Ky.-based fuel logistics provider owned by Wright Express, Portland, Maine, says the company has had a cloud, or browser-based model, since its inception in 1999.

 “Back then the fear was of my data residing on someone else’s server,” he says. “Today it’s more common with so many more applications. Security fears have gone away. That’s been the primary evolution—one of trust.”

Not to mention greater broadband affordability. Iverson says Internet connectivity and bandwidth are relatively cheap. “You get more with less,” he says. “Access is quicker, and you’ve got bigger pipes on the Internet.”

In many ways, Banks of Cumberland Gulf says cloud computing “is here today and pervasive, depending on how tightly you define it.” And companies are deciding to forgo the “captive” data center, he says: “They’re finding a better way by using someone else’s infrastructure.”

Defining Moment

The business of being a cloud provider means handling everything that comes with supporting and maintaining hundreds of servers. This includes redundancies, data security, power, heat and cooling, all in addition to hosting the databases, applications and solutions on the computers.

Cloud setups can vary based on how much of the equation rests on the provider, says Greg Gilkerson, president of PDI, Temple, Texas. For instance, the business model for iTunes is for customers to download and store songs on their personal PCs and then on their individual electronic devices. Switch to iCloud and the songs are stored on Apple’s servers; customers download the media wirelessly to their devices without the need to save them on their personal computer.

Two of the more popular versions of this model are Software as a Service (SaaS) and Infrastructure as a Service (IaaS), Gilkerson says. With SaaS, everything is in the cloud (essentially the Internet), and the customer, while having the right to the data, pays a monthly fee to access the application and store his or her data. With IaaS, a c-store chain rents server space, and potentially applications, from a third party. That chain may still have its own servers and software, but with IaaS, it’s definitely about renting hardware capacity. As retailers become more and more savvy, they’re looking to suppliers to provide cloud options. “While they may not choose to implement a cloud, hosted or SaaS model today, retailers expect their technology suppliers to offer these options now,” says Drew Mize, COO of The Pinnacle Corp., Arlington, Texas. In the future, cost and convenience are going to move all business to a cloud model, says Siamak Farah, CEO of Info- Street Inc., Tarzana Calif., which provides cloud-based services.

“When you think about electricity, at first everyone had their own generator,” Farah says. “Now everyone doesn’t need a generator; we just pay the electricity company. Same with tap water.”

Unavoidable Benefits

For many businesses, cloud-based alternatives make economic sense on multiple fronts. The cost of the software and hardware is merely a starting point.

Retailers can benefit with regard to convenience, speed and, in many ways, security, according to Melanie Squires, president of sales and operations for SIGMA Oil Corp., Surprise, Ariz., a company that produces a SaaS product called S2K. As consumers, people already trust their photos and video to cloud services such as Facebook and YouTube, but then they can conveniently access the information from any device, be it a computer, iPad or smartphone.

With dedicated servers in the cloud, retailers don’t have to compete internally for computer space, so reports and other electronic processes can run unfettered, Squires says.

And while security concerns can compel retailers to keep their technology in house, Squires takes a different stance. “In the cloud, someone else is taking care of it, backing up information and making it safe and secure,” she says. “Fire can destroy a paper trail. Your computer can get hacked. In the real world, you’re going to have a lot more issues on your server vs. allowing a professional to maintain the system.”

Banks of Cumberland Gulf says the trouble with buying the kind of processing capacity it takes to run certain dataheavy reports lies in buying too much. A retailer may use the processing power full on for only three weeks every six months. What does the company do with it the rest of the year?

Cloud-service providers such Amazon, IBM and Microsoft can provide economical solutions. Gilkerson of PDI says his company sometimes has to test its software against “enormous” databases.

“We don’t have spare capacity,” he says. “So we load stuff on Amazon, they charge us for few hours of use, then they turn it all off and we just get charged for what we used.”

For short-term projects, such options are a good fit. But a concern for many retailers as cloud opportunities proliferate is mission-critical activities, says Mize of Pinnacle.

“The biggest obstacle for cloud technologies is loss of connectivity to the cloud, which may have nothing to do with the provider hosting your applications and data,” he says, citing how storms or other outages can destroy a store’s connectivity. “So unless you’re operating in an environment where the application can run when connected or not connected to cloud, you can’t rely on a complete cloud solution for 100% uptime in a 24-7-365 environment.”

Some believe the downtime concern can be addressed. “Consistent delivery of mission-critical applications, such as point-of-sale, can be achieved ... with a managed solution [connected] to wireless or dial backup,” says Bill McCollough, executive director for petroleum for Heartland Payment Systems, Plano, Texas. “It can keep uptime in the 99.99% range across the network.”

Addressing Failure

Related to the failure of connectivity is a fear that the third-party provider will disappear, along with a retailer’s database and the applications that the chain depended on. In the event of a bankruptcy, for instance, a multitude of questions, concerns and barriers to a successful transition would arise, says Gilkerson of PDI. He says to consider the following, some of which he has actually observed:

  • Vendor uses a data center that shuts off its servers for nonpayment. The data would not be accessible until the matter is resolved.
  • Vendor goes under and data just “disappears.”

The initial process of putting a company’s data on an SaaS system is arduous to begin with, as would be the reverse task of retrieving data.

“It takes months to set up a system,” Gilkerson says. “You can import some of the data, but due to differences between systems, much of it has to be keyed in manually or developed in spreadsheets for import.”

In the event of a supplier “disappearing,” the retail chain would likely incur “enormous switching costs that could put it out of business,” he says. “There really is no safety net unless you have your data and their software immediately accessible to you or a third party.”

Those in the business of providing services to retailers via a cloud model believe that part of their responsibility is to offer stability. Nate DaPore, president and CEO of Charleston, S.C.-based PeopleMatter, a human-resources solutions provider, says first and foremost, the company’s customers own their data.

“In the event they leave us, we have a process to transfer the data so they can use it on another platform,” he says. PeopleMatter also uses third-party providers that specialize in redundancy and security. Four data warehouses ensure that if any one goes down, the data and applications remain intact and accessible.

“We’re running mission-critical data—we recognize that importance,” DaPore says. In time, more companies will start to trust in the cloud model and move to implement or increase its use, says Farah of InfoStreet. “It’s as if I went to my grandma and said, ‘One day, we won’t have to sit at home to wait for a phone call; there would be an answering machine, or I could take a phone with me.’ These things would have seemed like a fad.” The cloud is a new way of delivering software and solutions, he says: “It’s not a fashion or fad. It’s a paradigm shift.”   

Clouds Amass

The use of software as a service (SaaS) is predicted to grow at an exponential rate, according to IT research fi rm Gartner Group, Stamford, Conn. In a study released last year, 95% of 525 organizations polled said they will maintain or increase their investment in SaaS in 2012, with more than a third having migration projects under way from on- to off-premise.

95% Percentage who say they will maintain or increase use of SaaS

About 70% Percentage who say they have used SaaS for less than three years

More than one-third Amount who say they have migration projects under way, and also who say they have encountered problems with SaaS, including limited integration with existing systems, network instability and longer-thananticipated implementation cycles

60% Percentage of federal government organizations that planned to use SaaS in 2012 and beyond, ranking highest in the survey

46% Percentage of retailbusine

sses that intend to use SaaS in 2012 and beyond, ranking the lowest in the survey 

Defining Cloud

As retailers investigate the economics and logistics of taking its computing technology off-site, several acronyms have emerged. The abbreviated terms tied to cloud services define system configurations, giving a sense of who owns and operates what.

  • SaaS: Software as a service generally means that a solutions provider houses and maintains the software application and data that builds over time. Many businesses already have turned over functions such as email to third-party providers.
  • IaaS: Infrastructure as a service refers to the hardware. Often companies opt to own the software applications as well and simply pay for space on third-party servers.
  • PaaS: Platform as a service refers to the hardware and essential software needed to provide a functional software solution. It sits between Saas and IaaS.   

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