Cloud computing has been one of the hottest-growing segments of the computer industry. Storing data in the cloud or transitioning entire operations to cloud service providers has allowed many high-tech companies to grow fast without the capital and personnel needed to run their own data centers.
It’s unlikely that Pinterest, Snapchat or Facebook’s (FB) Instagram would be anywhere near as popular as they are today without Amazon (AMZN) Web Services or Google’s (GOOG) Cloud Platform. Besides providing a low cost, scalable point of entry for new services, cloud computing was hailed as a major money saver for companies looking to trim their IT costs during the recession.
However, the shuttering of Nirvanix shows once again that cloud risk is something that shouldn’t be ignored. In October, the established cloud firm served as a reminder about potential downsides of the cloud when it announced it was shutting down operations, giving customers just two weeks in which to migrate their data elsewhere.
Nirvanix had been in business since 2007, raised more than $70 million in venture capital, provided the infrastructure that powered IBM’s (IBM) own SmartCloud storage service and counted high-profile organizations like NASA (which used its cloud storage capacity to store thousands of high resolution digital photos from the Lunar Reconnaissance Orbiter) among its clients.
In short, so far as cloud storage is concerned, Nirvanix appeared to be about as safe as it gets. When it declared Chapter 11 and left customers scrambling for alternate storage options, it not only left partner IBM with egg on its face, it provided a very real reminder that even the most established cloud computing companies come with risks.
While two weeks is a very tight timeframe in which to transition data (especially large quantities of data), at least Nirvanix customers received some notice. When Megaupload was abruptly shut down in 2012 amid accusations of illegal file sharing, 150 million customers immediately lost access to their data. Yes, much of the data was infringing on copyright, but subsequent analysis determined that an estimated 10 million legal files were also affected.
Megaupload and Nirvanix illustrate the risk involved in cloud storage. On the operational side, Amazon Web Services has repeatedly illustrated the problems with using cloud services to power your business instead of running things from your own data center. AWS outages have been common in recent years, resulting in periodic downtime for high profile clients including Netflix (NFLX), Twitter’s (TWTR) Vine and Facebook’s Instagram. The outages haven’t been extensive, but the resolution has been largely out of the affected customers’s hands — when you rely on cloud services, that means giving up the control of having your own IT staff to get you back online.
Besides suddenly shutting down altogether (like Nirvanix), or suffering periodic outages (like AWS), cloud computing’s other leading risk is security.
Having multiple websites and services hosted in a single data center (and often sharing space on the same server) makes for a target that’s much bigger and potentially much more lucrative than hitting a single website.
Cloud vendors know that, and take extreme security precautions, but they still have a big target on their backs. An attack on one client can potentially affect all clients housed in that same data center, resulting in anything from downtime to a data security breach. PCWorld recently highlighted a 451 Research survey in which, 69% of IT professionals who took part said they were “highly concerned” about cloud security.
Despite the recognized risks, the lure of cloud computing remains tough to resist for enterprise CIOs — who are still fighting to find savings in their IT budgets — and cash-strapped start ups. A recent report pegs enterprise cloud computing to continue growing at 36% annually through 2016.
Nirvanix is also a caution flag for investors betting on cloud services. Despite some highly publicized service outages and the bad PR created when IBM had to rush to the aid of customers who were in danger of losing their data, we haven’t yet seen an event that results in major fallout. If and when that happens, though, CIOs will be rethinking their cloud strategies very carefully.
A major event is likely to have a significant cooling effect on cloud computing. That’s going to impact the bottom line of companies like Rackspace (RAX) that rely on cloud business, as well as tech companies like Amazon, Microsoft (MSFT), Google and IBM that have been investing in expanding their own cloud services.
Gartner has begun advocating the importance for companies to have a cloud exit strategy in place. It’s not a bad idea for investors to have one, too.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.