Tech companies are on cloud nine

This year, Netflix made what looked like a peculiar choice: the DVD-by-mail company decided that over the next two years, it would move most of its Web technology — customer movie queues, search tools and the like — over to the computer servers of one of its chief rivals, Amazon.com.

Amazon, like Netflix, wants to deliver movies to people’s homes over the Internet. But the online retailer, based in Seattle, has lately gained traction with a considerably more ambitious effort: the business of renting other companies the remote use of its technology infrastructure so they can run their computer operations. In the parlance of technophiles, they would operate “in the cloud.”

Cloud services

Ah, the cloud — these days, Silicon Valley can’t seem to get its head out of it. The idea, though typically expressed in ways larded with jargon, is actually rather simple.

Cloud providers, large ones like Amazon, Microsoft, Google and AT&T, and smaller ones like Rackspace and Terremark, aim to convince other companies to give up building and managing their own data centers and to use their computer capacity instead.

The concept of renting computing power goes back decades, to the days when companies would share space on a single mainframe with big spinning tape drives. The technology industry has matured to the point where there is now an emerging mass market for this rental model.

Led by Amazon, most cloud services have largely been aimed at start-ups, like the legion of Facebook and iPhone applications developers who found they could rent a first-class computing infrastructure on the fly.

Now cloud providers are trying to bring these types of flexible services to the more conservative and lucrative world of large corporations. Although most large companies have taken their first cautious steps into the cloud, many are anxious about data failures and slow delivery of data over a network. They also fear that their confidential information could be vulnerable on another company’s systems, out of their control.

To alleviate those concerns, Google held a daylong conference last week called Atmosphere at its Mountain View, Calif., headquarters, selling its cloud computing services, like e-mail and business software, to executives of large corporations.

Employees of the Amazon Web Services subsidiary are currently on a multicity tour to convince even those companies that might compete with Amazon, like Netflix, to stop building their own data centers and move their data onto Amazon’s servers instead.

Kevin McEntee, Netflix’s vice president of engineering, said Netflix switched in order to “focus our innovation around finding movies, rather than building larger and larger data centers.”

As for tethering Netflix’s future to a rival, McEntee said, “It’s in their interest to make us successful in the cloud. That’s why we felt comfortable.”

In Amazon’s model, businesses pay only for the computing cycles they use. Customers eliminate the upfront cost of computer hardware and can then buy more time on Amazon’s data center as needed.

Companies have also used Amazon as a backup system, either to handle sudden spikes in computing demand or to keep information in a secondary spot in case of a disaster.

In another cloud model, advocated by companies like VMware and I B M, tech companies help large businesses develop “private clouds” in their own data centers, so that various departments and employees can rent computing capacity as they need it without making big budget commitments.

Though Amazon characteristically releases few statistics about its Web Services effort, Citibank estimates that it will generate between $500 million and $700 million this year. That’s less than 3 percent of Amazon’s annual revenue.

Still, Jeffrey P Bezos, Amazon’s chief executive, has predicted that its cloud computing division will one day generate as much revenue as its retail business does now. For that to happen, Amazon and other cloud providers will have to convince big business.

Thinking deep

Almost every big company is cautiously testing the waters these days. 3M, the St. Paul, Minn., conglomerate, is using Microsoft’s new Azure cloud service to allow advertisers and marketers to tap into a service that mathematically analyzes promotional images and evaluates how visually effective they are likely to be. “It took a lot of the risk out of whether to commercialize it or not,” said Jim Graham, a technical manager at 3M.

But most big organizations say they are wary of placing more critical software and business operations on another company’s computers. “We are no different than anybody else. We are concerned about privacy and security and compliance,” said Dave Powers, a senior systems engineer at Eli Lilly, the pharmaceutical giant based in Indianapolis, which uses Amazon’s cloud services for some research and development efforts. “We are very careful about what we are putting out there today.”

Government agencies are looking at it too. NASA’s Jet Propulsion Lab currently runs various experiments on the computers of Amazon, Microsoft and Google — to avoid committing to a single company, said Tomas Soderstrom, the IT chief technology officer there. Among other experiments, the agency is using Amazon’s servers to process vast amounts of telemetry data coming from the rovers on Mars.

“There was a lot of bending on both sides,” said Soderstrom, adding that NASA settled the matter by using a new Amazon Web service called Virtual Private Cloud, which allows a customer to cordon off a collection of servers and use them exclusively as if they were its own hardware.

When given a clean slate, many new companies have chosen a full embrace of the cloud model, figuring the technology industry has matured to the point were these types of services make basic business sense.

For example, Arista Networks, a five-year-old company that makes networking equipment, runs its sales software with a cloud software company called NetSuite, its corporate e-mail on Google Apps, and other Web infrastructure with Amazon.com.

“It’s so much easier,” said Andreas von Bechtolsheim, the co-founder Arista and Sun Microsystems and one of earliest investors in Google and VMware. “For a new company like us, you would just never build a traditional data center anymore.”