Impact of Cloud Computing on E-Commerce Business Structure and Strategy Essay

Abstract

Recent surges in economic pressures have created the need for efficient, scalable and affordable information technology (IT) solutions for e-commerce and other applications. In the process of meeting this requirement, cloud computing has emerged as an efficient and cost-effective method of sourcing information and computational capacity with dynamic provisioning and on a pay-as-you-go model. The arrival of cloud computing has especially favored small businesses which could not afford to install elaborate IT infrastructures rivaling those of their more established counterparts. However, the new technology comes with a unique set of challenges, especially the increase in risks associated with privacy and safety of information. This research paper defines cloud computing in the context of e-commerce and analyzes its effect on e-commerce business structures and strategies. It also examines the risks associated with the new technology and the ways in which these risks can be minimized.

The Arrival of Cloud Computing & its Effect on e-Commerce Business Structure and Strategy

Introduction

            Cloud computing is a relatively new trend in internet-based computing whereby resources like software, storage and broadband are provided to a computer or other electronic devices on demand (Harting, 2009). The name “cloud computing” is derived from the context that a cloud image can be used to represent a network environment: cloud computing is a deviation from the traditional client-server networking architecture applied in computing by businesses and organizations since the advent of internet computing (Harting, 2009). Cloud computing is a form of distributed computing where applications are developed and run from multiple services and from multiple locations; a user requests access to data and computational power from the cloud, which is run by a provider and serves a host of subscribers (Armbrust, 2009). Cloud computing has presented new opportunities and challenges to e-commerce (Velte, Velte & Elsenpeter, 2009). In this research paper, I discuss the effect of the arrival of cloud computing on e-commerce business structure and strategy, analyzing the benefits the new technology offers and its associated challenges.

Cloud Computing and e-Commerce

            E-businesses are businesses which are run on the internet or at least utilize internet technologies to improve their productivity, efficiency and profitability. Before the advent of cloud computing, e-businesses had to lay down their own computing infrastructure: mainframes, servers and workstations; but cloud computing is based on e-businesses leasing this infrastructure from a remote provider (Velte, Velte & Elsenpeter, 2009). Payments to the third-party provider are only for the resources that a business uses; or they can be on a subscription basis. Cloud computing has therefore made it possible for many businesses to electronically automate their operations since initial investment required to set up IT infrastructure has been eliminated by this technology (IBM, 2009).

Benefits of Cloud Computing on e-Commerce

            Cloud computing has eliminated the cost associated with installation of IT infrastructure for businesses wanting to conduct their business on the internet. For firms that have an already established IT infrastructure, the new technology offers an opportunity of extending this infrastructure or replacing some of it so that IT can be more efficient, based on cloud computing since it offers new cost benefits (IBM, 2009). The only costs associated with cloud computing are consumption costs (Microsoft, 2009). Software, hardware and support infrastructure are all offered by the provider, computing power, disk storage and internet bandwidth are purchased depending on the demand; so the new technology offers an opportunity through which e-businesses can strategize and enhance their IT resources while minimizing costs for such.

            Cloud computing has offered an opportunity for enterprises to decouple their IT requirements and their installed infrastructure (Velte, Velte & Elsenpeter, 2009); in the process offering them long-term savings on IT. Cloud computing reduces infrastructure costs and offers pay-for-service models and this is the main reason why e-businesses are increasingly using on-demand models to source IT solutions that are flexible to their needs (Etro, 2009). According to expert predictions, around 90 percent of all e-commerce businesses will be using some form of cloud computing in their operations within the next five years (International Data Corporation, 2008).

Impact of Cloud Computing on e-Commerce Competition

            Installation of IT is an expensive affair for most small e-commerce businesses (Zittrain, 2007). On the contrary, bigger businesses have installed elaborate IT infrastructures based on the margin of their profits giving them a competitive edge over their smaller competitors (Rappa, 2004). Cloud computing has enabled smaller e-businesses gain access to flexible IT solutions without having to incur enormous costs (ISACA, 2009; IBM, 2009). They are therefore better positioned to compete with bigger businesses in terms of operational efficiency and the quality of services offered to their clients. Through cloud computing, new entrepreneurs have a new, cost-effective alternative to launching their businesses on the internet that could propel them into the big league than start-ups just a few years ago (Etro, 2009). More businesses are therefore increasingly conducting their business online, calling for them as well as their established competitors to result to innovative structures and strategies to counter the mounting competition in e-commerce (Ghironi & Melitz, 2005).

Risks of Cloud Computing in e-Commerce

            Just like any other emerging technology, cloud computing offers a set of unique challenges and potential risks. As an applied concept, it increases the level of abstraction between the physical infrastructure, the information being stored and processed and the actual owner of the information (e-business owners). Below, I discuss these risks:

·         Security and Privacy

Business information in a cloud is stored in a virtual environment which makes it more susceptible to security breaches, corporate espionage and theft (Heath, 2010). In addition, a third party (the cloud owner) owns the infrastructure in which computation and storage occurs, and may therefore be assumed to have full access to this information (Smith, 2009). Cloud computing service providers are primarily responsible for the security of client data, and e-businesses do not have sufficient control for installing effective and robust security controls to protect their information from unauthorized access. (ISACA, 2009) Such breaches may lead to loss of trade secrets and customer information if not properly addressed.

·         Legal and Compliance Issues

Business enterprises trading in cyberspace must comply with a number of regulations and standards. In cloud computing, there is uncertainty as to where information is exactly stored and how fast and efficiently it can be retrieved when demanded by regulating authorities (ISACA, 2009); and whether its retrieval will not compromise other information. Some cloud computing service providers even reserve the right to withhold information from regulatory authorities.

·         Lack of Sufficient Information Control

Cloud computing service providers usually take full responsibility in handling information, which is a critical element in business operations (Smith, 2009). If the service provider fails to deliver on agreed-upon quality of service, confidentiality and availability of business information may be compromised, severely affecting efficiency of business operations (ISACA, 2009). Cloud computing is also very dynamic, creating confusion on where business information is actually stored and delays upon requests for retrieval. In the event of a disaster, information may not be immediately located. Business owners do not have control in implementing data recovery measures in terms of backups and incident response measures (Ghironi & Melitz, 2005).

Mitigating Risks Associated with Cloud Computing in e-Commerce

            Cloud computing offers the above mentioned and other risks to businesses; and they must be identified and effectively managed (Smith, 2009). Businesses and cloud computing service providers must therefore come up with strategies to strengthen information security systems to assure customers that their information is safe from unauthorized access, alteration or destruction (ISACA, 2009). Formulation of standards and frameworks is necessary so that businesses can have assurance that their cloud computing service provider has put in place internal controls and security measures to safeguard the integrity of business information.

            Some regions, for example the European Union, have rules restricting the movement of certain types of information across borders.  Information stored in a cloud can be dynamically shifted from one area of storage to another, creating complications in the adherence of some of these regulations (Evans, 2008). Service providers will therefore need to put in place elaborate mechanisms to address these challenges. Cloud computing service providers and businesses also need to put in place performance measurement mechanisms to track and monitor implementation, resource utilization and to track the efficacy of risk management measures to avert problems arising from project overruns, failures, client dissatisfaction or even reduced business value (Etro, 2007). There needs to be a degree of business involvement so that companies can manage their IT functions and operate with some degree of certainty and reap the benefits associated with their investment in this new technology.

Conclusion

            Cloud computing is a new technology of distributed computing where businesses and other institutions access their data and computational applications from the internet instead of the traditional way of hosting them in their own infrastructure. It presents an opportunity for businesses and institutions to restructure their information systems in a way that increases operational efficiency while minimizing costs (IBM, 2009). The technology has favored smaller businesses who could not afford to put up their own IT infrastructure as they can now outsource storage and computing capacity from cloud computing service providers according to their dynamic or instantaneous requirements. Like many other technologies, cloud computing has its challenges; some of which include the risk in losing privacy and security of information, legal and compliance issues and a significant loss in the degree of how businesses maintain control and responsibility of their own and their clients’ information (Heath, 2010). However, if these challenges are sufficiently addressed, the technology has the potential of increasing levels of operational efficiencies for many businesses (IBM, 2009).

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