In the mid-nineties, new directions in managerial accounting made cost center bookkeeping popular in large organizations. In this model, departments within an organization traded almost like a miniature economy, with some departments earning a net gain for the company and some departments delivering a net loss.

Cost and Profit Centers
The profit centers - as those who earned money are called - get to call the shots, because ultimately they pay for everything. Loss-generators - called cost centers - get to follow along. Information Technology departments become the poster child for the cost center ('cause those computers are expensive!) and IT managers sometimes became destructively frugal. Because bonuses are delivered based on keeping costs low, no expense is spared the razor.

In the early 2000s, Information Technology departments began to show that they were more than cost centers. With the popularity of the Internet, the website suddenly became a profit center, throwing the model all out of whack. A faintly golden age of IT departments reared its head, while IT managers effectively got anything they asked for.

We all know the story from then to now. The bubble burst (again). The IT departments are cost centers (again). The IT managers are forced to make tough decisions and do more with less (again). It's like the nineties all over again.

Virtualization puts a lot more tools in the IT manager's belt than before, that's for certain. Cloud Computing - a natural outgrowth of virtualization and internetworking - offers even more flexibility because of an interesting shift in which bucket the costs go.

Here, we will look at Cloud Computing, a little history, and implementations. We'll perform some economic and accounting analysis, and then see how an IT manager might implement cloud computing in his or her own environment.

Some Background on Cloud Computing
John McCarthy, the inventor of Lisp, mentioned in a talk at MIT that "computation may someday be organized as a public utility."[1] He wasn't talking about Internet access; mind you. That already is more or less a public utility. He was talking about computation itself - the virtual "crunching of numbers" that business computing is so good at.

Defining Cloud Computing
Cloud computing is when a company or organization connects many computers to distribute processing power.[2] As generally implemented, it is processing power virtualized and accessed over the Internet. The general idea is that of a user sitting at a terminal that uses hosted applications taking advantage of services, storage space and resources provided on another computer, through an Internet connection.[3]

This definition means a lot of things to a lot of people. The average user is no longer using Outlook Express or Thunderbird for his mail; he is using Gmail. The average office worker isn't saving her word documents on her C drive anymore; she is loading them on SharePoint or Documentum. The average gamer isn't even getting friends together at the house to have a LAN party anymore; he is playing Halo or World of Warcraft against virtual opponents in a virtual space.

All of these are computing in the cloud, but cloud computing as a technological concept is clarifying with age. The big players are marketing cloud computing as a:

1. Scalable application hosting space,
2. with specific offered services,
3. billed like a utility.

Let's Take Each of These for a Moment
Providing an application hosting space is nothing new. Since the advent of the World Wide Web in 1989 and its acceptance in 1995, organizations have been providing space to host websites and applications for anywhere from free to thousands of dollars per month. Providing a basic web server and usually a set of libraries for web development, these web hosting companies are a needed part of the overall Internet space. They provide large and small applications access points to the Internet from secure servers.