Retail in the Clouds

"Cloud Computing" has to be today's most hyped technology. Using Google Trends, one can see that the first mention occurred around mid-2007 with peaks occurring around September 2008 and now (April 2009). I think the recent buzz eminates from several large technology firms getting into the business of clouds. This has led me to ponder how cloud computing might impact the retail industry.

McKinsey just released a study that I found interesting because it stuck to the numbers. Its starts by defining the term as:

Clouds are hardware-based services offering compute, network and storage capacity where (1) Hardware management is highly abstracted from the buyer; (2) Buyers incur infrastructure costs as variable OPEX; (3) Infrastructure capacity is highly elastic (up or down).

clouds.jpgUsing this as the foundation for calculating and comparing costs, the report states that cloud computing is less financially attractive to large businesses. This is consistent with what we see in the market: the primary customers are small and medium-sized businesses. Those that can afford the initial capital outlay can usually operate their servers more cheaply. However, clouds are still relatively new so I'm sure they will get cheaper over time.

The report goes on to say that clouds do not meet the 99.99% uptime service level agreements required by many CIOs. It also notes that a 99.99% SLA may be overkill in many of those cases. For retailers, some systems are certainly more critical than others.

McKinsey concluded that cloud computing was over-hyped and in danger of hitting the trough of dissillusionment, to put it in Gartner terms. While I agree the term is over-hyped, I'm not pro- or anti-cloud. I'm simply searching for the killer application of clouds for retail. The Association of Retail Technology Standards (ARTS) is collecting comments on cloud computing as they consider researching and assembling a white paper on the topic. I guess others are interested as well.

What do you think about cloud computing? Could it benefit the retail industry?

Update: Bob Parker expressed some interesting views in an article over at RIS News.


Large businesses will find little use for clouds on a regular basis, but they could be useful when there are sudden peaks in demand for utility computing such as data or image conversion.

In such situations the options right now are to buy the additional hardware or to use existing hardware capacity accept the delay. Clouds offer a third alternative that avoids both delay and Capex costs.

I believe there are instances of such requirements in the retail space but large businesses simply do not have the processes or the know-how to use clouds when such needs arise.


Posted by Amit Guha on April 29, 2009 at 01:06 AM PDT #

In a way we (MerchantOS my company) are bringing cloud computing to small retailers right now, by offering a web based pos system. I think as cloud computing becomes more mature as an industry, larger companies will start to trust it (right now most probably don't want to let much of their data outside their company firewall).
I think software as service (and by extension cloud computing) will allow small retailers to more easily pool their IT budgets together and purchase systems that they might not normally be able to afford without seriously straining their budgets.
By small retailers I mean 1-10 location operations (under $5 million a year in revenue).
I've been enjoying your blog for a few months, keep up the good work.

Posted by Justin on May 01, 2009 at 12:41 PM PDT #

Amit, I agree which is why retail might be right for clouds. They have lots of peaks and valleys.

Justin, your offering is seems more SaaS than cloud. Regardless, it looks interesting. Best of luck!

Thanks for the comments!

Posted by David on May 02, 2009 at 01:26 AM PDT #

This is a great article to start with. I was looking for trends in retail industry for cloud adaption. I have to accept the comments provided previously about the peak times. However, I believe, large corporations can be benefitted from private clouds. It is quite common that large retailers run multiple projects in parallel. And to support those projects, dedicated hardware / software's are sourced with high costs or loaned from their central IT store. However, the usage of these loaned or purchased resources are not utilized 100%. In these scenerios, I guess, a private cloud with all their resources will help optimize their utilization.

Posted by Vivek Doraswamy on October 13, 2009 at 03:57 AM PDT #

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