Just over a year ago, Tohru Futami, CIO and managing director at AIG Edison Life Insurance Co. in Japan, knew that his company needed to upgrade its core applications -- the systems were seven years old and often didn't let the back office and the sales staff share information in a timely manner. Furthermore, some of the company's processes were still paper-based.
Futami said the company's main options were to rewrite all of the applications or to move to the cloud and run hosted software. Spreadsheet calculations convinced the firm to try the latter option.
The calculations estimated that an in-house rewriting of the AIG Edison's applications would take about 30 months, while the company could move to Salesforce.com Inc.'s cloud platform in just 10 months. The research also indicated that the cost of the cloud technology would be only about one-third of the cost of any other option .
Futami said the key consideration for AIG Edison officials from the start was to complete the project as quickly as possible. "To improve customer services, a system improvement was a must," he said.
The decision of whether to move to the cloud via Salesforce.com's hosted CRM offering was complicated early on because the hosted software resides in a data center on the West Coast of the United States, 5,000 miles from AIG Edison's Tokyo headquarters. The distance raised concerns about network latency, and officials also wondered about the legal and regulatory issues involved in such a setup.
Nevertheless, AIG Edison did decide to turn to the cloud, and work on running the company's new core applications on Salesforce.com computers in San Francisco began last January. Today, the system is available for use by several million AIG Edison customers, millions of prospects, some 3,000 employees and 15,000 insurance brokers and resellers. The hosted applications handle complex tasks such as generating insurance quotes and running simulations to assess coverage needs.
Futami said that early on in the process, a key concern was whether a cloud-based system could provide the same level of performance as AIG Edison's conventional system.
The company undertook the project with the help of Appirio Inc., a San Francisco-based firm that helps businesses set up cloud platforms. Appirio helped architect and tune the system to provide "almost the same level of response time" as the conventional system, said Futami.
Network latency, particularly for complex services delivered around the world, can be an issue if users feel response times are too slow. The laws of physics will always prevail, but latency concerns don't appear to be curtailing adoption of software-as-a-service (SaaS) offerings.
For instance, FleetMatics, a private Dublin-based company that provides hosted GPS tracking services, has been able to provide service to a rapidly growing U.S. customer base even though its system was hosted exclusively in a data center in Ireland until December. The company recently raised $68 million in funding.
FleetMatics customers can watch vehicles move around on large flat screens as GPS data is continuously updated. FleetMatics CTO Peter Mitchell said customers hadn't said that they perceived the response time from Ireland as a negative. Nonetheless, when the company opened a data center in Denver in December, immediately "there was a perception that the system was now lightning fast," he added.
Mitchell said he believes SaaS providers in Europe have no problem providing services to customers in the U.S. FleetMatics opened its Denver data center as part of an effort to develop a global disaster recovery model, as well expand services. The company has begun testing latency times to India from Dublin and the U.S., he added.
Last fall, Salesforce.com announced plans to open a data center in Japan in the second half of this year. Japan is Salesforce's fastest growing market outside of the U.S., according to company spokesman Joseph Schmidt, who said that when the Japan data center opens, "our customers will benefit from the speed and peace of mind that come with having their data close to home."
AIG Edison has found that latency from the U.S.-Japan link varies according to connection speed and amount of data. On average, it takes 132 milliseconds to send and receive 32KB, according to Appirio. In contrast, it takes about 52 milliseconds for a similar amount of information to travel via a Japan-based host site.
AIG Edison's entire client environment, which includes virtual desktops for all of its salespeople, experiences a maximum lag of 300 to 400 milliseconds, or about one-third of a second, according to Appirio.
That latency rate comes after optimization and tuning. Among the things AIG Edison did was transmit batch loads of data into the Salesforce data center, where the majority of data was located. Also, instead of doing four sequential queries, the system was optimized to do four queries at the same time.
"If the application is written in such a way that it is minimizing the number of round trips to the database," latency "can become a minor issue," said Andy Poulter, CTO at Runaware Inc., which provides a number of SaaS- and cloud-based offerings, including online software testing. It has data centers in Sweden and Miami, and it serves a worldwide customer base.
Some AIG Edison data, along with customer history checks, still has to be pulled off a mainframe in Japan.
For AIG Edison, the decision to work with a cloud provider in another country raised security concerns that also had to be addressed.
"Just having the data residing outside of Japan was hard for some people to get over," said Jason Park, general manager of Appirio's Japan operations.
But executives' concerns were mitigated by explanations of the physical and logical security Salesforce had in place. They found that Salesforce "was probably better both from a reliability and uptime perspective and provided more robust security as well," Park said.
AIG Edison was acquired last month by Prudential Financial Inc., and Futami decided to leave his position. But decisions like the one he made to move to the cloud are becoming increasingly common : U.S. revenue from public cloud computing is expected to increase 24 per cent this year alone to $17.6 billion, according to IDC.
Phil Garland, a partner in the PricewaterhouseCoopers advisory practice, said that whether latency is an problem or not depends on the user's expectations, level of tolerance, and what works for the business.
"It really depends about what performance levels are acceptable to you, said Garland. "There is no question that the farther one is away from a data center, there will be an impact on performance," he said.
"But there are ways that many providers work around that by balancing between actual performance and perceived performance," said Garland. "A clever client design can alleviate many of those issues that are presented by high-latency environments -- at least up to a point."
Garland said there's no rule of thumb on user acceptance of latency. It depends on the function of the data and how critical it is. But the topic has grown in importance as companies move toward data center consolidation at the same time as global customer bases are expanding. "It's a very common discussion point right now," he said.
Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov , or subscribe to Patrick's RSS feed . His e-mail address is firstname.lastname@example.org .
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