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09.26.2011
The evolving federal tax laws concerning the taxation of goods and services on the web are causing some problems at the state tax level. As the cloud begins to have a stronger influence on business, there is some concern about how the various states will approach taxation. A recent report on Bloomberg looks at the current concerns many states have regarding the ability to tax transactions that are being challenged by the very notion of how business is conducted on the web. Where does a traditional point-of-sale tax fit in here?
Defining a Transaction
Part of the problem is that the transactions that were once considered the sale of “goods”, such as buying a piece of software off the shelf at your local office supply store, are now more like service transactions when it is part of a service package for your web business being run in the cloud. It can get even more complicated. A good example is when a company in New York purchases server space and cloud-based software from a company in California. This California company could easily have servers in several states. Add a factor such as the New York company having employees in several states that access that software, while traveling via their smart phones or laptops, and you have a taxing nightmare.
Some states have tried to make online retailers such as Amazon change the definition of their business, the end result of which is a split between the company and the state governments. More importantly it has caused Amazon to break agreements with some of its key partners due to the new laws creating an extra layer of taxes for Amazon.
Washington and the States
Verneda Smith is part of a Washington group that represents state revenue departments. He sees the cloud as a new business model that will affect every tax type. With companies like IBM, Amazon, and Google fighting it out over a global market expected to increase from $40.7 billion today to $241 billion by 2020, there is a lot at stake. And Forrester Research, whose trend analysis predicts this growth, sees more of the same in the coming years.
But these companies are not waiting around to see what kind of taxes they will be dealing with; they have gotten involved with the House Judiciary Committee by backing federal legislation that would regulate and limit a state’s authority to tax when it comes to any kind of digital goods and services. Reid Okimoto, a senior member of KPMG LLP, summed it up by saying “It’s akin to the difference between renting a bus and paying to ride on one.”
According to Smith, what is decided in the next little while could be a game changer. He sees a lot at stake and the potential to change the way just about any company on the web does business. How that business is to be taxed and why still remains to be worked out. But anyone considering doing business in the clouds would be well advised to keep an eye on what is decided in Washington.
Our newsletters and blogs are written to provide you with tools and information to meet your IT and cloud solution needs. We invite you to engage in our online community by following us on Twitter @GMOCloud and ‘Liking’ us on Facebook.
09.22.2011
Spending over $80 billion a year on information technology, the U.S. Government is easily one of the largest consumers of technology and technology products in the world. Therefore it is no wonder that when President Obama created the office of Federal Chief Information Officer, one of the prime reasons was to look into ways to cut those costs.
Vivek Kundra was appointed the first official for the office and, during his two and a half year tenure, has created and implemented a view of the government that is leaner and much more internet-centric. One of the biggest changes he has made is to initiate cloud usage to various government departments by his implementation of “Cloud First”, a policy that introduces the idea of having all government departments move some aspects of their business to the cloud.
Kundra saw more than costs savings, he saw an opportunity for greater flexibility, something that government agencies are not well known for today. Agencies could adjust the scope of a project without having it affect the infrastructure already in place, making it easier to make adjustments along the way. “Cloud First” encourages government departments to incorporate the cloud as a part of new projects and requires each department to move at least three already existing projects to the cloud by the summer of 2012.
As to be expected, some of these departments, especially ones like the Pentagon, are concerned with security aspects of this new policy. But for departments that have less confidential material, such as the Department of Agriculture, they see it as a positive that will speed along technology projects. This department has already moved 46,000 employee accounts to the cloud and is expecting to move an additional 120,000.
The State Department has chosen some of the more low-risk projects such as the website for the Office of the Historian to implement their cloud technology. Concerns about disruption, security and the recent hacking of the Pentagon by what is perceived to be foreign government intelligence operations continues to slow the move.
Teri Takai, the Chief Information Officer for the Defense Department concedes that the global reach of hundreds of thousands of users spread across the globe could make the cloud a useful tool for them. The ability to use the cloud anytime and anywhere has led to the concept of a “Mission–Oriented Resilient Clouds” approach for military applications. “When done with the proper considerations and planning, cloud computing will be a very effective and efficient tool,” Ms. Takai said.
Another department that has moved swiftly to embrace the “Cloud First” policy is the General Services Administration. This department works with other departments to help them with transportation, office space and communications issues, and put the entire department’s e-mail services onto a Google Cloud Service last December.
With overall spending on cloud infrastructure growing at five times the rate of traditional corporate technology, up until now the corporate sector has been the driving force for growth. That may change with this new direction from the current U.S. administration. As part of the search for cutting waste in government spending, there has been a call for each department to re-examine its use of technology and for agencies to define new ways to share resources and cut costs. The cloud does seem like a natural fit for this new direction.
Our newsletters and blogs are written to provide you with tools and information to meet your IT and cloud solution needs. We invite you to engage in our online community by following us on Twitter @GMOCloud and ‘Liking’ us on Facebook.
09.20.2011
At a recent cloud conference, Joe Weinman gave a talk about the business, financial and user experience benefits of the cloud. He presented some complex simulation tools to show how these counter-intuitive characterizations challenge many of today’s fundamental assumptions about business and the cloud, including those regarding on-demand, pay-per-use and other business aspects. Although not radical in concept, like many of Weinman’s talks, they do challenge conventional thinking and are well worth taking a second look at.
Counter Point: Although the technology may feel new to many, and the business model a radical departure from conventional technology strategies, in fact the business model and attributes behind the technology have been used for years by such industries as car rental services, hotels and many more.
Counter Point: As important as the Web/IP/Browser is to the technology, the cloud is in reality a general architectural model and although the web plays a big part it is far from being the whole story. To unlock the true value of the Cloud other types of networking technologies such as Optical Transport MPLS and VPLS need to be leveraged. Other uses such as audio conferences, webinars and M2M are services in the cloud that are used today without the benefit of browsers.
Counter Point: Because large cloud providers today are using the same architecture that is available to any enterprise this is not completely true these days. This same availability means that no major benefit is derived from their scale when we are looking at it in terms of economy. There are some other benefits that do come from size, the most notable being such characteristics as statistic of scale, scalability and geographic dispersion.
Counter Point: One of the major differences between electricity and IT is that electricity has the benefits of scale that IT does not have, from an economic perspective. Any decision on how much of IT to keep in the enterprise versus running that function in the cloud is going to be governed by a large number of factors including the nature of each particular application, its cost and the amount of flexibility needed overall from IT. Whenever some type of decisions about IT are made, they are by their very nature quite complex, as opposed to how decisions about electricity are generally made, which are purely economic in nature.
Counter Point: While this may be true for many businesses, it is not so for all of them. Whether it is important to replace OPEX with CAPEX depends fully on the financial decisions that each individual company makes in regards to its financial and funding activities. For some it will be an advantage based on their business structure, while for others the gains may not be significant.
Counter Point: Actually, it has been proposed that any technological process that increases efficiency for a resource will increase that resources rate of consumption as a result of the increase in efficiency. This has been called the Jevons Paradox Effect and is already being seen to some degree in the evolution of the cloud today.
For a closer look at Weinman’s work theories on cloud and its impact on business, read his latest work on the economic rationale for the hybrid in The Mathematical Proof of the Inevitability of Cloud Computing at his website cloudonomics.
Our newsletters and blogs are written to provide you with tools and information to meet your IT and cloud solution needs. We invite you to engage in our online community by following us on Twitter @GMOCloud and ‘Liking’ us on Facebook.
09.19.2011
Whenever you hear anyone talk about cloud computing, one of the biggest reasons most people bring up for moving to the cloud is that it is so much more efficient. Generally when people say this, they are thinking in terms of it costing less for staff and hardware to run a program in the cloud instead of at your own mainframe. But what about energy efficiencies?
There was an analysis done recently by WSP Environment & Energy that took a look at just this question for in-house data centers. Jonathan Koomey at GigaOm discussed this recently on his blog, and the findings should be of interest to more than just WSP’s client Salesforce.com. Looking at the per-transactions cost, they found on average a 95% reduction in transmissions. That is a huge amount of savings, so let’s take a look at where those savings originated.
One of the biggest impacts was the economy of scale, not that surprising when you truly consider it. Just as you can spread the work over a larger server base, so too can you spread the cost. When it comes to fixed costs such as equipment inventory, the improvement of the centers airflow and other costs associated with assessing Power Usage Effectiveness, spreading this cost across a wider customer base and larger number of transactions allows for a greater efficiency. You also get the advantage in size by being able to hire specialists in energy conservation who will know all the latest technology and how to implement it.
Whenever flexibility comes up as a cost saver for moving to the cloud, generally the speaker is referring to the ability to use such techniques as virtualization to separate software from the structure of physical servers. This capability may indeed cut software costs, but it also cuts energy costs due to its ability to allow you to drop features that are not energy efficient or even route the software around dead servers, eliminating the need for multiple power supplies in these circumstances. You are delivering IT services, and so the death of one server does not have to impact your reliability or the energy needed to perform.
Another area of impact is the fact that your users are spread around the globe, giving a larger operation the ability to diversify its load at any given time or day. With users who have peak needs at various days and times the end result is that those facilities are running at a much higher capacity. If you were to run efficiency tests in a typical data center you would find that most servers run at between 5 and 15% capacity making them highly underutilized. When looking at the vast majority of major players in the cloud, you will see a server utilization range of 30 to 40%.
One of the biggest discussions within many enterprises is the tug of war between IT and facilities over the cost of energy. For an IT department, the question is always how they can expand the number of servers in order to assist in more and more complex operations. Facilities departments tend to see the skyrocketing cost of electricity as a threat to their budgets. Somewhere along the line, Operations gets caught in the middle, looking for a solution to a need. In the end what happens is that they find it easier to take out the corporate credit card and simply go to the cloud to get what they need, bypassing both departments. Since IT and Facilities are under the same budget in a cloud scenario, the economy of scale once again plays into a savings of energy as it allows operations to get what it needs in a timely manner and within their budget. Problem solved, without the inter-department headaches.
As time goes on these savings in energy, when placed alongside the cost efficiencies of staffing down and the reduction in hardware needs and software upgrades will make it hard to ignore the cloud. When the capital cost of a standard in-house facility, which is now standing at $25,000 per kilowatt, becomes unthinkable the move to the cloud will be inevitable for all but the largest or most security-sensitive enterprises, such as the financial market.
There are still a few kinks in the system, one being the question of liability for cloud outages and the other being the development of truly secure public clouds. For some that solution will be an expansion into a members only private cloud structure. But even with these, there will be energy cost savings worth making the pursuit worth the time and effort. The movement to the clouds with its cost efficiencies and energy savings is just starting to really take off. Where it will eventually lead us in the next few years will be an interesting journey.
Our newsletters and blogs are written to provide you with tools and information to meet your IT and cloud solution needs. We invite you to engage in our online community by following us on Twitter @GMOCloud and ‘Liking’ us on Facebook.