Cloud computing,” the hot new engine of the global IT industry, is revving up the Dallas technology community.

Market research firm Gartner anticipates that globally, cloud services will generate $148.7 billion in revenue by 2014, with U.S. companies grabbing a 50 percent share of that success. That’s more than double the $68.3 billion that’s projected for 2010. Enterprises hungry for flexible computing options and lower upfront information-technology costs are expected to flock to three growing (if arcanely named) areas: software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).

With its multitude of incarnations, cloud computing—named after the clouds drawn by software engineers in diagrams depicting the Internet—can be tricky for non-technical laypeople to understand. What exactly is it, and what does it mean for day-to-day operations and business opportunities in North Texas?

At its most basic, cloud computing enables individuals to interact on-screen with computer programs and data located elsewhere—in other words, in the “clouds.” These individuals might be executives working on laptops while waiting for a plane, or teenage gamers challenging out-of-state friends from a home desktop. But each is tapping into centralized, remote software and information.

For large corporations, the cloud could be a private, dedicated data center midway across the country accessible only to employees. For small businesses, the cloud may be a partial slice of an overseas network virtualized to function as a whole, seamlessly.

In North Texas, cloud computing is opening up a cross-section of opportunities. Businesses ranging from real estate developers who customize spaces for IT providers, to communications firms enabling remote Internet connections, to application developers who know their way around Web-based computing, are all getting in on the action.

“We are right at the inflection point when this is starting to scale out,” says Michael Capellas, president and CEO of Dallas-based VCE, the Virtual Computing Environment Co. (formerly ACADIA). A joint effort of Cisco, VMware, EMC, and Intel, VCE is helping deliver cloud computing through an infrastructure product called Vblock.

“We’re seeing a number of large financial institutions interested in mainframe migration,” says Capellas. “Customers are taking virtual desktop integration and porting large, tier-one applications like SAP and collaboration tools like [Microsoft] SharePoint.”

Capellas has ramped up the VCE Dallas office to a staff of 118 and is busy expanding the company’s reach overseas, with new solutions centers opening in Singapore, London, and Cork, Ireland. He sees Dallas as a choice location because of its IT and networking talent, access to universities, and convenient location for travel. “We know demand will continue to skyrocket,” says Capellas. “We’re in the hottest and most widely adopted technology of the moment.”

Microsoft, which has a district headquarters in Irving, has offered cloud-based services to consumers for more than a decade through products such as Windows Live, MSN, and xBox Live. Now the company is reaching out to enterprise customers with help from Windows Azure, its cloud platform. “We’ve seen phenomenal growth in the past five years, and this momentum is increasing exponentially,” says Raamel Mitchell, local government strategic engagement and partner manager at Microsoft.

“Our ‘partner ecosystem’ around cloud services indicates where this is going as an industry,” he says. “We have more than 7,000 partners at this point in terms of cloud applications and delivery. This number will only increase.” According to Mitchell, a substantial chunk of Microsoft’s $9.7 billion R&D budget—and about 70 percent of its developers—are dedicated toward cloud projects.

Mitchell’s team recently participated in a “TechQuest” with the Metroplex Technology Business Council in Richardson. Through a competitive process open to applicants all over the world, Microsoft sought partners who could provide innovative software applications for local governments built on Windows Azure.

A New Paradigm

Bill Sproull, president and CEO of the MTBC, says users like cloud computing because they don’t have to invest a huge amount of capital in servers and routers or constantly secure software licenses. “They can plug in on demand,” Sproull says. “In the old paradigm, you built your own big mainframes and servers, spent a lot of time keeping them up and had a huge staff to do it, and had to constantly negotiate licenses. It was a big expense. Cloud computing is scalable, so if I suddenly need a massive amount of computing power I can hook into the cloud and get it and, because it’s virtual, I can get it anywhere.”

Paul Peck, president and chief executive of Global Supply Chain Solutions LLC, a 23-person sourcing firm in Dallas that works with Texas Instruments and other manufacturers, is an outspoken fan of the cloud. “Even here, we use a cloud package for customer-relation management.  All of our information is on that and I honestly can’t tell you where those servers are and really don’t care,” says Peck. “I care that when I log into that site, I put in my e-mail and password and it takes me to information about our customers. I’m using the most popular package in the world, and we only have 15 seats [or log-ins]. A large company might have hundreds or thousands of seats.”

Along with the cloud’s flexibility, scalability, and virtualization come new questions.  MTBC hosts a series of Friday luncheon discussions to help the North Texas community stay on top of the issues. Ben Carr, who manages global IT security for Nokia, and Steve Stein, a partner at Thompson & Knight LLP, were among the speakers at a recent MTBC luncheon focused on cloud security.

“Efficiency, cost control, and scalability are very attractive and good reasons to move to a cloud environment, but you can’t sacrifice all the things we’re trying to do in IT security control because you hand that off to someone else,” says Carr. “You always own that risk.” He recommends protecting cloud data through security best practices, such as encryption and carefully controlled password access.

Stein discussed the legal issues that surface amid the apparent ease of cloud computing. Clicking an online agreement to access a service may seem convenient, but smart businesses still need to do due diligence about the data’s destination (is it going to a country where prevailing laws differ with U.S. expectations?), use of subcontractors (could the data be held hostage if the primary company doesn’t pay its bills?), disaster recovery plans, and other concerns. “Companies are in the process of looking at these issues very carefully,” Stein says.

Despite the challenges, MTBC’s Sproull is confident that cloud computing bodes well for Dallas-Fort Worth. “It is becoming one of the biggest trends in IT globally,” he says. “Given our history and skill set in computing, outsourcing, and communications, North Texas is well-positioned to capture more than its fair share of the cloud.”