Cloud computing is the practice of moving computing resources off-site, to be hosted remotely, usually by a third-party company. This article examines the pros and cons of cloud computing from the perspective of small businesses (defined to be those businesses with 50 or fewer employees). The main finding is that cloud computing offers substantial advantages to small businesses in terms of cost savings and increased reliability of service, especially since it allows these businesses to leverage economies of scale that in the past have only been available to larger organizations.
Moving computing resources to the cloud is likely to realize cost savings for the majority of small businesses, and there are few existing barriers to implementation, with the exception of those businesses dealing with highly confidential data, where privacy concerns or indeed legal restrictions on the handling of data may prevent such a move.
For all businesses, but especially small businesses, the ability to react to change is critical. Demand fluctuates, suppliers come and go, and changes in government policy at all levels can strongly influence the business environment. Faced with these changes, organizations need to be able to change the way they do business reasonably quickly, or they risk becoming uncompetitive. Information technology and computing, unfortunately, can become barriers to change. Hardware and software can both represent substantial upfront and ongoing investments for small businesses, both in terms of purchase costs and also in the time and effort required to make these solutions part of the everyday work pattern. Furthermore, computing can represent a source of inefficiency for a small business if a certain level of technical expertise is required, since a small business may not have sufficient scale to fully utilize a properly qualified (and therefore expensive) member of staff dedicated to technical support.
Cloud computing is an attractive solution to these negative aspects of information technology, since it enables small businesses to outsource technical support and gain resource flexibility via fee-for-service models, or even via services provided for free and supported by advertising. In the analysis that follows, we will examine the benefits that cloud computing can bring, while also covering several potential barriers to implementation that should be borne in mind.
Traditionally, businesses have physically installed hardware, and locally maintained software, to satisfy their information technology requirements. McAfee (2011) describes the “cloud computing” alternative as follows:
“With cloud computing, in contrast, companies lease their digital assets, and their employees don’t know the location of the computers, data centers, applications, and databases that they’re using. These resources are just “in the cloud” somewhere.”
Small businesses have not typically differed from the traditional pattern of local hardware and software ownership. However, due to their size they will face different challenges to larger businesses when it comes to maximizing the benefits of information technology, as noted by Burgess (2002, p. 4). In fact, the uses of information technology by small businesses are different from those of larger organizations. Dixon, Thompson and McAllister (2002, p. 16) note that:
“Small firms use ICT more as tools to support specific organisational (sic) tasks such as administration and accounting, rely on standard, off-the-shelf solutions, and on external support.”
Small businesses, therefore, typically rely on off-the-shelf hardware and software, and often restrict the range of products in use to office productivity software running on commodity desktop hardware, supported by entry-level server hardware for file sharing. The remaining typical small business requirements are either specifically on-site by nature (e.g., printing) or already in the cloud (company blogs, third-party payment options etc.). Research by the Mississippi State University College of Business’s Office of Business Outreach (2008) indeed shows that small businesses are already on a path that sees an increasing share of their computing resources hosted remotely, leading to an eventual situation where only those services that are unavoidably on-site, as mentioned above, remain local. This research does indicate a reluctance among small businesses to move down this path, though:
“Unfortunately, many SMBs are slow to adopt Web 2.0 tools because they find the technology too confusing or expensive, or they don’t see its relevance yet.” (p. 12)
Still, the advantages of cloud computing to small businesses, both in cost and flexibility, are clear. In addition to cost savings due to the reduced hardware specifications needed to work on documents that are hosted in the cloud (since the remote server handles most of the computation load and the local machine simply displays output), Dimitrova (2011) identifies several additional benefits, including the automatic backup of data, remote availability of documents and ease of collaboration and data sharing, either between employees or with suppliers and clients.
This last point, though does highlight the key concern regarding cloud computing, namely the security of data that is stored remotely via a third party. Unfortunately, no system that allows remote access can ever be entirely secure, and examples of data breaches leading to the sharing of confidential data are all too easy to find (ClearCenter 2012). So for a business contemplating a move to the cloud, the key decision will be whether the risk of a data breach outweighs the obvious benefits of the move in terms of cost savings and flexibility. Some businesses are in fact legally prevented from utilizing remote data storage: for example, the Health Insurance Portability and Accountability Act in the USA excludes many remote data storage solutions for health records.
In making this decision, though, it should be remembered that a small business will in all likelihood not represent an obvious target for data theft, and that even in the case where such theft might be a possibility, it is not clear that data stored in the cloud is in fact less secure than locally-hosted data. In fact, cloud computing may well enhance data security. As Molnar and Schechter (2010) point out:
“Transitioning to a cloud-hosted infrastructure may also have security benefits; some security measures have high up-front costs, may become affordable when amortized at cloud scale, and impact threats common to both cloud- and self-hosted infrastructures.”
For example, data that is stored in the cloud need no longer be carried around on a USB stick that could be left behind or lost, and will also be backed up to a higher degree of reliability than a small business would typically manage via a local solution. It seems that only those businesses that are legally restricted in their choice of data hosting services need be restricted by security concerns, once the particular risks and mitigating practices of remote data storage are understood.
Cloud computing offers clear advantages to small businesses. Under a cloud computing model, upfront capital costs are reduced, flexibility to adapt to changing requirements is increased, and small businesses gain access to services and security practices that have in the past been prohibitively expensive to them due to their lack of economies of scale.
Moreover, security concerns regarding the possibility of a data breach should be considered in light of the fact that remote data storage can actually increase security, both by providing access to more reliable backup services and by reducing the need for unsafe practices such as data sharing via removable media.
Burgess, S., 2002. Information Technology in Small Business: Issues and Challenges. Idea Group Publishing: Hershey, PA.
ClearCenter, 2012. Twitter Breach Revives Security Issues With Cloud Computing [Available at: http://www.clearcenter.com/News-Articles/twitter-breach-revives-security-issues-with-cloud-computing.html].
Dimitrova, M., 2011. Save Your Business A Fortune With Cloud Computing [Available at: http://www.anotherway.org/2011/06/expand-your-business-horizons-with-cloud-computing/].
European Commission, 2003. Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, Official Journal of the European Union, L 124. European Union Publishing: Brussels.
McAfee, A., 2011. What Every CEO Needs to Know About The Cloud, Harvard Business Review, November 2011. Harvard Business Publishing: Boston, MA.
Molnar, D. and Schechter, S., 2010. Self Hosting vs. Cloud Hosting: Accounting for the security impact of hosting in the cloud, Proceedings of the Ninth Workshop on the Economics of Information Security (WEIS 2010), Microsoft Research, 8 June 2010.
Office of Business Outreach, 2008. Small Business in 2018: Information Technology Trends, White Paper #6 [Available at: http://business.msstate.edu/bizservices/pdf/SMBTechTrends.pdf].
 In this article I will be using the European Commission definition of a small business as one that has 50 or fewer employees, and turnover and balance sheet total of less than 10 million Euros (European Commission, 2003).