Throughout 2008, the concept of cloud computing has been at the edges of an incredible number of conversations, blogs, events, and reports. This coming year expect the hype to grow and the topic to be front and center across all facets of the IT industry: the change that this new approach to computing delivers will start to be truly felt not just in the space of consumer applications like social networking, chatting, or multiplayer gaming, but also across the business functions that impact your daily professional life.

Cloud computing includes all those IT usage models for which the common theme is reliance on the Internet for fulfilling the computing needs of the users, without requiring their knowledge of, expertise with, or control over the technology infrastructure that supports them. These IT models include Web 2.0, software as a service (SaaS), and platform as a service (PaaS) -- the latter of which moves software platforms from the traditional ownership model into the cloud.

The upshot of cloud computing is that computing services are becoming more like utilities to a business.

Instead of purchasing a new server for your company, paying to have it installed and setup, and managing this server in house, you can simply rent the computing power you need, run your business applications, and only pay for the power you use. Like your business already does for electricity or water. No upfront investments, no hardware management, no troubleshooting. This option frees your company from the overhead of maintaining a complex IT infrastructure, but still provides you with the flexibility of running your own software -- such as a custom database for sales or a dedicated inventory management system that perfectly fits the needs of your business.

Software as a utility

That same utility model can be applied to software. Instead of owning a software application, you can just rent its functionality. That is exactly what you do when you use Google Mail, Facebook or LogMeIn. You are utilizing software provided to you as a service (SaaS), rather than having to install it on your computer. This “virtual software” is run in “virtual computers” that utilize the resources of clusters of real computers all working in perfect concert in the “Internet Cloud” and transparently and with zero overhead from the end user point of view. This approach, however, imposes limitations on how you can customize such software and integrate it with other applications, since you do not directly control it.

To obviate the customization issue there currently are two distinct approaches: the mashup and the PaaS.

Mashups are becoming very popular with the newest generation of Web 2.0 applications, where users can actually integrate SaaS from multiple vendors across the Internet and with little effort, such as opening a document stored in the Basecamp project management system directly with Zoho and from there sending it via e-mail using your Gmail account, with no need for multiple logins. This approach works if the SaaS products you want to integrate are developed according to rigorously established interoperability standards.

The PaaS approach consists of utilizing the customization and development tools provided by the SaaS vendor to leverage an established development platform and extend the functionality of its offering. is the most popular example of such an approach. You can utilize their SaaS, extend it with a large library of third party add-ons, and customize it using their development tools to meet your specific needs. The technical skills needed though are substantially higher that what is required to use mashup techniques, but the level of customization possible is much higher.

No need for installation

In the practical world of small businesses, the most evident manifestations of cloud computing are the hundreds of software applications that are becoming accessible via the Web with no need for any local installation and available as free or paid services. The proliferation of these applications is providing small businesses with not only inexpensive alternative to traditional, costly software, such as office suites, accounting packages and customer relationships management, but also with a whole roster of useful products that fulfill very specific niche markets needs and would not normally make sense for vendors to develop as conventional software. Some examples are Zoho for office productivity, for accounting and Basecamp for project management.

Another example of cloud computing that is directly affecting small businesses can be found in all those business services that heavily rely on the Web to interface with customers, such as online banking, bill payment, hotel reservations, airlines tickets booking, and teleconferencing. These transactional services are all leveraging the Internet as a service conduit, independently from the computer the customer is utilizing to access them and make heavy use of cloud computing technologies. Examples in this category are for bills payment and for credit card processing services.

A third area of significance in cloud computing applications is e-ommerce. Services that offer simple, end-to-end e-ommerce platforms that require little or no knowledge of Web design or programming to be setup -- such as Amazon WebStores or eBay Stores -- are becoming more popular and more sophisticated, giving small businesses the possibility to setup a professional e-commerce site in just a few days.

In the small business markets cloud computing is evolving into a truly disruptive technology, enabling low-cost computing, commoditized software, and low barriers to entry for more technology entrepreneurs to create the next generation of software services.

In my next column, I will review practical ways a small business can move its computing almost entirely to the cloud lowering costs, reducing its IT overhead, and increasing its flexibility and responsiveness. I will explain how to leverage the cloud for office productivity, collaboration, data security and storage, financial management, project management, and more. Stay tuned.

Andrea Peiro is the Small Business Market Expert at the Palo Alto Research Center (PARC). Founder of the Small Business Technology Magazine, a recognized authority, author, analyst and speaker on high-tech marketing and use of information technology in small and mid-sized businesses, he has been frequently interviewed and featured in such media outlets as The New York Times, The Wall Street Journal, and Inc. You can reach him at