Is Anybody Old Enough to Remember the Last Cloud?

Roland is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Not all that long ago I put out ISBN-13 978-0-9770866-6-5 “The Minimum You Need to Know About Service Oriented Architecture”. Some of you may remember that it won a 2008 Best Book Award from USA Book News. Apparently, not enough of you have read it because we are seeing “Cloud Computing” pushed to the masses. Not only will this enable identity theft on a biblical scale, but, it should bring George Orwell’s “1984” to fruition. The last cloud was simply a spectacular failure.

During the 70s and into the early 80s, leased time and proprietary packages ruled the land. It was not until basic mid-range computers got down to under $100,000 where you started to see a boom in the VAR (Value Added Reseller) market along with custom ERP and CRM applications. The time-share and leased application markets died before 1990. There were lots of big vendors trying to sell mega packages to the Fortune 500 with price tags only the Fortune 500 could afford.

Then a horrible thing happened. They realized there were only 500 customers in the Fortune 500. Some package vendors caught onto this before others did. SAP (NYSE: SAP) put up their own Web site where small businesses could pay for accounts that would give them limited use of most/all SAP products. The catch was that all of their data had to remain on SAP servers. Other package vendors tried to follow suit. Some small to mid-sized companies jumped at deals of $99/month for full access, including payroll. Other vendors launched subscription sites for each module. Payroll was one of an early success since many companies were already in the habit of subbing that out to third party payroll services companies like ADP (NASDAQ: ADP).

Small to mid-sized companies started setting up additional locations, which needed bandwidth back to corporate. Even gas station chains started switching over from systems that dialed up and delivered a sales summary to live connections so pricing updates could be effortless. As companies continued to distribute, they continued to need bandwidth, and that bandwidth was in short supply.

The cost of dedicated T1 communications was atrocious. There was an extremely limited amount of fiber optics in the ground and companies were rationing access to it by increasing prices. At some point, well connected companies revolted, forcing the communications industry to come up with lower cost services or risk increased regulation.

Your standard communications carriers: Sprint (NYSE: S), MCI, AT&T (NYSE: T), along with most of the Regional Bell Operating Companies all started pitching “the cloud.” This was a frame relay network where you paid for a minimum level of service and became part of a communications network that would magically expand on demand and shrink as usage dropped. Instead of paying for a dedicated T1 line, you would only pay for what you used along with your nominal monthly connection fee.

Great presentations were drawn up showing the frame relay network as this big beautiful cloud and everything connected by lightning bolts. When customers called to complain that they were only getting their minimum level of service, the communications companies pointed them to the section of the contract which said they were only “required” to provide that much bandwidth.

The view from the IT developer’s desk was abysmal. Month, quarter, and year end jobs which required massive data transfers and had been the reason for getting T1 in the first place now took days, if not weeks to transfer. The dirty little secret started slipping out. There was only a limited amount of high speed fiber available, so very little was actually allocated to “the cloud.” Every MBA signing a contract believed they were getting their own dedicated T1 for $19.95/month dial-up price, but in reality, they were all signing up to share one or maybe a few of these high speed channels which were allocated to this service but seemingly every customer was connected to the same “cloud.”

I cannot tell you just how much gallows humor this created in IT departments.

“Well, maybe if we ran the cables downhill it would speed up transmissions.” “No, you can’t do that, responses would have to go uphill.” “Oh, yea, that’s right.”

“Try jumping up and down on the router. It works for the trash can!”

There used to be a list of all these “cloud jokes” floating around somewhere, but, I couldn’t find it now. Why did this cloud fail? Bean counters and MBAs. Somewhere at each communications company existed a pair of these who decided “the cloud” wasn’t fully sold until all of the minimum bandwidth contracts connected to it greatly exceeded its peak capacity.

You don’t hear much talk about the old cloud anymore, but when you do, it is still bad.

Roland Hughes is the President of Logikal Solutions and author of many titles.  He does not knowningly own a position in any of the companies mentioned.

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