How Cloud Computing Can Cut Costs for Retailers

By  Bob Parker, group vice president, Industry Insights
At a recent IDC conference on cloud computing, we were surprised at how well the retail industry was represented among the attendees. These attendees told us that their motives were investigative - they were there to learn, not to start buying. They also told us that their interest was in "private clouds" - using the technologies behind utility computing and public cloud offerings to operate their own cloud for provisioning, running, and managing their corporate applications.

Taxonomies for cloud computing are proliferating (the most comprehensive ones being produced by IDC), but for the purposes of this discussion we will simplify and consider three types of clouds:

Walk up Clouds. These are applications that are available, usually for a nominal fee if not free, for mass use and are provisioned simply by the user visiting the Web site. The applications usually entail personal productivity products like word processing, spreadsheets, calendars, etc. Google Apps are a good example. As these applications gain sophistication in functionality, security, and interoperability, they can be viable alternatives for at least a subset of a retailer's user base.

Sign Up Clouds. These are applications that are offered on SaaS basis but require some contractual relationship to be consummated and involve some measure of implementation including user provisioning, process instantiation, and data migration. The most famous example is Salesforce.com, but GRI is seeing retail specific traction in merchandise planning (Predictix), supply chain collaboration (Generix) and associate training (Ignite). European retailers seem to be particularly open to consuming software in this way although it is hard to say if they are taking a broad cloud view of these offerings or just see them as individual pieces of the portfolio that just happen to be delivered in an on-demand model.

Sign In Clouds. This category is what the retailers at the conference were describing as a private cloud. Infrastructure that can quickly and easily provision users, applications, and resources to the entire breadth of locations supported by IT in retail. The premise goes well beyond just using the underpinning hardware and systems management - it would also allow the organization to connect to walk up and sign up clouds while maintaining oversight and control.

Looking at Cloud Benefits From Both Sides Now
Recent GRI research has looked at the business benefits of running POS systems from a centralized architecture. By taking servers and associated management challenges out of the stores, retailers can save significant costs in operation and maintenance. Extending this further by transitioning centralized POS delivery to the notion of a private cloud can magnify these savings even further.

However, benefits go beyond reductions in TCO. Imagine a store manager who, in the context of serving her specific demographic, is able to create a custom application set for workforce scheduling, signage, merchandising, sourcing, without disengaging from corporate systems and performance reporting. Or consider the ability to connect key suppliers to the private cloud where replenishment service levels and/or promotions can be defined, monitored, and evaluated in close coordination with regional and store management. How about custom regional offerings for valued customers that are enabled by connecting the private cloud to ecommerce platforms? The local control and flexibility of using a cloud approach can open up tremendous opportunity for improving store performance.

Essential Guidance
Cloud standards and vendor offerings remain fairly nascent and there may be some risk to moving to fast (anyone remember Linux base POS?). However, the self-funding, high function nature of this technology once mature dictates that retailers should have an internal position paper prepared that includes a vision of how the approach may be utilized for competitive advantage. Global Retail Insights also recommends incubating the technology by undertaking some proof-of-concept projects. As always, the GRI team is available to support your efforts with relevant research and advice.