What is Cloud Computing?

Cloud computing refers to the online outsourcing of technology requirements. Cloud services fall into three broad categories: infrastructure, platforms and software, which are provided through the internet rather than being facilitated in-house. The internet is often represented in network diagrams by a cloud, hence the term "cloud computing".

While regular IT infrastructure can require significant investment in hardware, servers, bandwidth, power, data centres, office space and IT staff, cloud infrastructure eliminates this cost by using service providers' shared resources. Software applications can be used through online platforms, requiring no software downloads or installation by IT teams or users. Software vendors host applications on their servers and license these to customers for remote use on demand online. Updates and upgrades are frequently included in the service. Cloud services are typically billed based on usage, so cost is directly related to consumption.

Advantages

Clearly, cloud computing offers savings as it offers flexible utility-based pricing structures and can slash IT expenses. Computing capacity can be scaled up or down easily, so that overspending can be avoided where anticipated needs are not met by demand and where unforeseen demand arises, capacity can be easily increased. Some services may be provided on a monthly subscription basis so upfront commitments and lump sum payments for traditional long term agreements can be avoided.

Drawbacks

Concerns surrounding cloud computing include loss of control, service availability, security risks, data access, limited contractual remedies and service providers' unwillingness to negotiate. A selection of standard cloud computing service contracts reviewed by us tend to favour the service provider and offer customers little peace of mind, which is evident from these general findings:

• round-the-clock service levels are usually guaranteed apart from scheduled downtime, with refunds or credits issued if this is not honoured. However, such provisions are absent in some contracts, which even reserve a right to change, suspend or discontinue the service at any time;
  
• data security and data protection provisions are lacking in scope across the board, and were absent in many cases. Responsibility is often disclaimed for deletion or loss of data and the onus to back data up typically falls on the customer. EU law requires robust security measures to be in place to protect personal data, but this is not reflected in most contracts;
  
• most termination provisions are reasonable but some allow termination by the service provider for any reason or for no reason, sometimes on very short notice (e.g. 5 days, or in some cases, without notice) while providing for deletion of all data upon termination. More reasonable providers allow access to data for defined periods after termination; 
  
• most services are provided "as-is" and contracts exclude warranties and indemnities in favour of customers to the fullest extent possible. Liability of service providers for system failures is heavily limited.
  
• While bigger companies may attempt to negotiate customised contracts, where this fails, their best defence is to carry out rigorous due diligence, "kicking the tyres" in terms of data security, data retention and the return and transfer of data.

The recent loss of customer data suffered by T-Mobile users of the Sidekick smartphone device as a result of a server failure at Danger, a Microsoft subsidiary, demonstrates the risks that may arise in cloud computing.

Conclusion

While cloud computing offers customers cost savings and convenience, until bargaining power and risk become more balanced between suppliers and customers, businesses should carefully examine standard contracts before availing of cloud services and consider the risks associated with a departure from traditional IT systems.

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