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Flying high

Cloud computing brings growth and new jobs to Virginia companies

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Print this page by Garry Kranz

Cloud computing is taking Appian’s business to new heights. License sales for the Reston-based company’s business-process software soared nearly 220 percent last year, with half the growth from cloud deployments. “And cloud licenses should account for the majority of our sales in 2012 and every year thereafter,” says Chairman and CEO Matthew Calkins. In response, Appian needs to fill 40 new jobs, which would bump its force by about 20 percent.

Appian isn’t alone. Experts say the cloud phenomenon will provide job growth and capital investment for Virginia during the next decade. “We’ve got all the ingredients in place to be the dominant state in serving the cloud market,” says James R. Duffey, Virginia’s secretary of technology. Those advantages include a high concentration of Internet bandwidth, dozens of data centers, reasonable electricity rates and a diverse technology sector.

Once a nebulous idea, cloud computing is moving from mystery to mainstay for many businesses, nonprofits and government agencies. A study out last month by research firm International Data Corp. said spending on cloud services will generate nearly 14 million jobs worldwide by 2015 and generate as much as $1.1 trillion a year in new business revenue, with the private sector pushing the biggest gains.

Experts say the methodology will forever change how organizations purchase, store, manage and use computing resources. Here’s why: physical data centers are costly and provide finite capacity, meaning companies eventually will need additional facilities.  Cloud computing, conversely, enables organizations to offload costs to a hosting provider. It provides a “pay-as-you-go” model via the Internet to increase or decrease processing power.

Momentum for cloud computing has been building for decades. IBM Corp. introduced timesharing in the 1970s, whereby multiple users could share capacity and memory on a single mainframe computer. Today, the newest iteration is “shared services,” in which organizations lease software, network infrastructure and technology platforms, typically for a monthly fee.

Cetrom Information Technology Inc. in Vienna launched a “hybrid” cloud service five years ago.  The term refers to an arrangement in which customers choose to retain control of certain applications and authorize Cetrom IT to secure and maintain other specified data.  The response has been significant. Three in four of the company’s IT customers have moved some portion of their data to a cloud environment, says CEO Christopher Stark.

In fact, the uptick helped Cetrom IT close 2011 with year-over-year revenue growth of 35 percent, the fifth consecutive year with a double-digit increase. “Our growth is due entirely to the acquisition of new cloud customers,” says Stark.  “We’re seeing demand from companies of all sizes,” from small family-run businesses to corporations employing thousands of people.

As more organizations turn to the cloud, construction of massive data centers is on the rise.  The latest entrant is Sacramento, Calif.-based StrataScale Inc., set to open a 140,000-square-foot cloud data center in Ashburn in April. Nearly 32 new data centers have been announced in Virginia since 2010, generating capital investment of $2.6 billion and 1,331 in expected new jobs, according to the Virginia Economic Development Partnership. State officials predict another 20 data centers will be erected during the next decade.
Agencies head to the cloud

Last year, the Obama administration poked its head in the cloud with an initiative directing federal agencies to start migrating software and other computing resources to secure cloud environments. As outlined, the “Cloud First” policy would help consolidate hundreds of federal data centers and reportedly save the government $20 billion — roughly one-quarter of its current outlay for information technology.

As a result, systems integrator Computer Sciences Corp., or CSC, is going after federal cloud business. Based in Falls Church, CSC has fulfilled eight cloud assessments for federal customers during the past six months, says Yogesh Khanna, a vice president and chief technology officer of the company’s North American public-sector business unit. All eight of those consulting agreements resulted in follow-up proposals to help implement cloud strategies, including several contracts with the Department of Homeland Security, potentially worth up to $20 million.

The push by the feds has kindled greater interest in the cloud among commercial enterprises as well, says Sunil Bhargava, the global portfolio executive of CSC’s cloud and hosting services.  CSC saw its once-small commercial cloud business expand steadily the past two years, particularly among retailers, financial services and health-care firms. “They like the fact they can rapidly scale up or down and add resources they didn’t originally need,” Bhargava says.

Not every day is sunny
Keeping data in a cloud necessitates a change in thinking for organizations. “They have to get comfortable with the idea that they don’t always know where their data is stored and won’t always have control over it,” says Timothy Lockhart, an intellectual property lawyer at Willcox Savage in Norfolk.

Lack of a common security standard for cloud data presents another impediment. Various trade associations have proposed cloud-security standards, but as yet broad industry agreement has been lacking. That means organizations should take a cautious approach, Lockhart says, negotiating written contracts with vendors that provide negotiable terms and specific warranties. That may sound elementary, but “cloud computing is an evolving area of law,” with no history of standardized contract terms, Lockhart says.

Despite those issues, analysts predict 2012 will be a watershed year for cloud computing. Eighty percent of new commercial applications will be hosted on cloud servers, according to IDC. Typifying the move is Charlottesville-based SNL Financial Inc. The company used Appian’s software-development platform to create a cloud-based application that analysts use to manage work flow. “Like many companies, our data center was bulging at the seams. But we really wanted to avoid purchasing new hardware to store our applications,” says Dave Woods, a senior process manager at SNL.

He estimates the company saved $200,000 in hardware costs by moving to the cloud, along with annual maintenance costs of $100,000. 

Not every firm will pocket those kinds of savings, but the sky appears to be nothing but sunny for cloud computing.

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