COOPERATIVE COMMUNITY CLOUDS FOR SMALL AND

MEDIUM ENTERPRISES

Facilitating Cloud Computing for Small and Medium Enterprises with the

Cooperative Paradigm

Till Haselmann, Gottfried Vossen

European Research Center for Information Systems (ERCIS), University of M

unster

Leonardo-Campus 3, 48149 M

unster, Germany

Stefanie Lipsky, Theresia Theurl

Institute for Cooperative Research (IfG), University of M

unster, Am Stadtgraben 9, 48143 M

unster, Germany

Keywords:

Cloud computing, Cloud services, Cooperative, Community cloud, Small and medium enterprises.

Abstract:

Cloud computing, or more generally cloud services, ought to be particularly attractive for small and medium

enterprises (SMEs). According to expert opinion, these enterprises should be able to beneﬁt overproportionally

from outsourced IT services due to a variety of reasons. As of today, however, many SMEs still refrain from

adopting cloud services because they do not trust the cloud service provider sufﬁciently and they cannot assess

the legal implications of using cloud services. In this paper, we present an argument in favor of a cooperative

community cloud that applies the paradigm of a cooperative to cloud operations. We sketch our vision of a

“trustworthy” cloud, argue for its viability, and identify areas for future research.

1 INTRODUCTION

Many small and medium enterprises still refrain from

adopting cloud services because of a lack of trust in

both the cloud service provider and the legal situation.

In this paper, we present an argument in favor of a co-

operative community cloud that applies the paradigm

of a cooperative to cloud operations.

Cloud computing is a new variety of IT outsourc-

ing that has been gaining much attention over the

last few years. In this paradigm, a cloud service

provider (CSP) offers very standardized IT services

which are accessed over a network, usually the In-

ternet. These services comprise products on differ-

ent levels of abstraction, ranging from software us-

able by the end user (Software-as-a-Service, SaaS)

over platforms that allow storing varying degrees of

custom logic (Platform-as-a-Service, PaaS) to virtual-

ized IT hardware (Infrastructure-as-a-Service, IaaS).

The CSP provides a seemingly unlimited supply of

resources and allows the user to quickly make use of

more or less resources depending on the current de-

mand—a concept commonly referred to as elasticity.

Users pay only for the resources that are actually uti-

lized (pay-per-use), sometimes plus a small periodic

fee (Armbrust et al., 2010; Mather et al., 2009; Mell

and Grance, 2009).

Organizational

Governance

Legal

Governance

Technical

Governance

Cost-efficiency Trust

Cooperative

Community Cloud

Cooperative Legal CertaintyMonitoring

Figure 1: Schematic overview of the suggested approach.

One important trait of cloud computing is the pro-

vided abstraction that masks all the internals of the

cloud to the end user. On the one hand, this is very

beneﬁcial because it allows the CSP to provide the

cloud services in the most cost-efﬁcient way possi-

104

Haselmann T., Vossen G., Lipsky S. and Theresia T..

COOPERATIVE COMMUNITY CLOUDS FOR SMALL AND MEDIUM ENTERPRISES - Facilitating Cloud Computing for Small and Medium Enterprises

with the Cooperative Paradigm.

DOI: 10.5220/0003443001040109

In Proceedings of the 1st International Conference on Cloud Computing and Services Science (CLOSER-2011), pages 104-109

ISBN: 978-989-8425-52-2

 2011 SCITEPRESS (Science and Technology Publications, Lda.)

ble. In addition, the CSP can perform maintainance

and restructuring operations in the cloud data centers

without impacting the end user’s experience. On the

other hand, however, this abstraction also means that

the end user gives up control over most aspects of data

processing and IT operations, a fact that proves to be

a signiﬁcant obstacle for many companies, especially

smaller ones.

In consequence, cloud computing is still “terra

incognita” for most small and medium enterprises

(SMEs). According to a study by the University

of M

unster, the majority of SMEs are not yet using

cloud services and have no plans of changing this in

the foreseeable future (Haselmann and Vossen, 2011).

Major reasons for the reluctant adoption are:

• lack of trust in the security of the cloud services

and the CSPs,

• lack of control over processes in the cloud, e. g.,

with regard to billing, but also with regard to data

protection, as well as

• lack of certainty about the legal compliance of the

CSP and the cloud services with respect to con-

tract design, accountability, and warranty.

In this paper, we argue that purely technical ap-

proaches cannot sufﬁciently address and, in particu-

lar, cannot eliminate these barriers to adoption. In

fact, we outline why this it is at least as much an or-

ganizational problem. Thus, we suggest to employ

a three-faceted approach that tackles the problem not

only from the technical point of view but also from

organizational and legal standpoints. We argue that

SMEs are able to pursue cloud computing more eas-

ily by applying the paradigm of a cooperative to the

cloud data center operation. This is ﬂanked by a com-

prehensive monitoring approach on the technical level

and speciﬁc recommendations on the legal level. In

essence, SMEs can thus build trust into “their own

cloud” and still beneﬁt from the cost-efﬁciency of

the cloud computing paradigm. Fig. 1 shows the ap-

proach in a schematic overview.

2 BACKGROUND & RELATED

WORK

2.1 The Cooperative Paradigm

A cooperative is a business organization owned and

operated by a group of individuals (or companies)

with a common goal and for their mutual bene-

ﬁt (MacPherson, 1995). Traditionally, cooperatives

are found in economic sectors such as agriculture,

ﬁnance, and the real estate industry. In the past

years, however, many newly founded cooperatives

can be ascribed to expanding, future-oriented in-

dustries, such as IT service providers (Theurl and

Schweinsberg, 2004).

Generally speaking, the cooperative paradigm al-

lows for a more ﬂexible and more diverse align-

ment of the supplied products with the customers’

demands. It implies a common administration as

well as sharing of relevant resources. Thus, it of-

ten leads to lower costs per unit. In addition, decen-

tralized knowledge from the various companies can

be combined without them losing their independence

(Theurl, 2005b).

SMEs forming a cooperative typically want to re-

alize synergies from a joint organization of elements

on their value chains. This leads to economies of

scale, scope and skills (Williamson, 2005). By con-

centrating their market power, the SMEs can also

compensate competitive disadvantages towards large

companies (Theurl and Meyer, 2005).

Cooperatives are characterized by a high degree of

institutionalization and a standardized scope for ac-

tion. The applicable “rules of the game” are deﬁned

in legislature and in the statutory regulations of the

cooperative (Theurl, 2005b). The clear rules facil-

itate handling uncertainty and can thus foster cred-

ibility and trust among the members. The strategic

orientation of the cooperative is built on the notion

of creating value only for the members, which are

simultaneously the owners of the cooperative. This

way, anonymous vested interests are excluded from

all strategic decisions. The values of the cooperative

are grounded in the MemberValue, i. e., a special type

of shareholder value (Theurl, 2005a; Theurl, 2009).

The MemberValue can be interpreted as the overall

business value of the cooperative.

Applied to the cloud services domain, the coop-

erative paradigm attempts to alleviate deﬁciencies in

the individual IT infrastructures and to build collec-

tive competence with regard to cloud services. A

working example of this is the German DATEV eG,

a cooperative that manages the IT infrastructure and

IT services for tax consultants in Germany. Founded

around 40 years ago, DATEV has been providing data

center services, some of which may nowadays be sub-

sumed as cloud computing, mainly SaaS and IaaS

in a private cloud model. The cooperative paradigm

provided the foundation for continuous and sustain-

able improvement of both service quality and product

portfolio for the currently more than 39,000 members

(Gulden, 2010). Of course, DATEV was not created

with a particular focus on cloud computing, but rather

to satisfy the various IT demands of its members. The

COOPERATIVE COMMUNITY CLOUDS FOR SMALL AND MEDIUM ENTERPRISES - Facilitating Cloud

Computing for Small and Medium Enterprises with the Cooperative Paradigm

105

application of the cooperative paradigm speciﬁcally

to cloud operations has not yet been researched.

2.2 Cloud Monitoring

By virtue of its special governance, the coopera-

tive is a suitable form for the organization of cloud

operations that addresses current deﬁciencies of the

cloud. However, a purely organizational approach

is not comprehensive enough to establish sufﬁcient

trust with all potential cloud users among the SMEs.

Therefore, the technical governance must be consid-

ered as well. Two of the most important aspects in

this respect are

1. allowing the user to fully specify the permitted

(and illicit) use of his or her data, and

2. elucidating the internals of the cloud in order to

provide the user with a means of monitoring what

processing is actually performed on that data.

An important beneﬁt of the cloud paradigm is

the abstraction from the physical resources involved,

e. g., the actual computing or storage devices. Ab-

stract interfaces mask the underlying systems from

the user (Armbrust et al., 2010; Vaquero et al., 2009).

However beneﬁcial this abstraction may be in many

ways, it is also the reason why many users tend not

to trust cloud services. With all internal processing

steps hidden from the users, it is impossible to trace

the actual data ﬂows; users can only hope that the

CSPs keep their promises. In essence, they feel as

though their data were “vanishing in a black hole”.

Using the cloud, therefore, requires a large amount of

trust in the provider, an amount that most SMEs are

not willing to invest (Haselmann and Vossen, 2011).

The typical approach for getting an overview of

the internals of complex IT systems is the use of mon-

itoring software, but existing approaches in the cloud-

monitoring domain cannot provide a solution. The

systems available, such as Hyperic CloudStatus, Nim-

soft Cloud Monitoring or Rackspace’s CloudKick,

provide monitoring functionality on a different level:

they provide the user with an overview of the used ab-

stract cloud resources, analyzing and logging mone-

tary costs. Some systems also analyze or predict us-

age patterns and can react to changing demands or

resource shortage. Nevertheless, due to their nature,

these monitoring tools do not allow any insight into

the operation of the physical cloud systems.

The internals of a cloud must not be described in

too much detail because that would deprive the CSPs

of their freedom to organize the physical systems as

they see ﬁt. One possibility that we would like to

explore is the concept of spheres of control (SOCs)

(Davies, Jr., 1973; Davies, Jr., 1978). Stemming orig-

inally from a database systems background, SOCs

have been used mainly in the context of workﬂow ex-

ecution in the past. They allow grouping of operations

and activities or parts of processes into semantic units

that contain both transactional and non-transactional

parts. These groups are nestable and can be rolled

back when compensating actions are speciﬁed. In the

context of cloud computing, the SOCs could be ref-

erencing parts of one or more clouds. If founded on

a suitable level of abstraction, we expect to see new

possibilities for the cloud monitoring.

A second promising approach is a modeling based

on so-called private enclaves or virtual private clouds

(VPCs) (Wood et al., 2009). In this approach, parts of

the cloud are logically separated and treated as au-

tonomous “mini-clouds in the cloud”. Currently, the

cloud users specify which systems should be part of

a VPC. However, this concept could also be used the

other way around, having the CSP identify parts of

the cloud that are similar by certain characteristics.

For example, the CSP could indicate systems with a

very high level of security or services that are partially

provided by unreliable third-party providers.

2.3 Legal Issues of Cloud Computing

The legal situation of cloud computing in the Euro-

pean Union (EU) is dominated by data protection and

sons for not using the cloud are based on concerns

about data protection and security. In Germany—as

an example of a country with very strict data protec-

tion laws—, current legislature states various require-

ments to the cloud user that render the use of cloud

services under a strict interpretation of the legal code

effectively illegal. Some classic examples clarify this

point:

• The cloud user is required to provide entry and

access controls for the cloud data centers and the

IT systems therein (Schuster and Reichl, 2010).

• The cloud user has to know the full nature and

extend of the data processing steps undertaken by

the CSP.

• The cloud user is responsible for ensuring that

personally identifying data (PII) is not transferred

to a country with an insufﬁcient data protection

legislature (Weichert, 2010).

It is obvious that the strict interpretation of these re-

quirements is incompatible with fundamental traits of

cloud services. Most SMEs therefore refrain from us-

ing cloud services because legal consequences are not

assessable.

CLOSER 2011 - International Conference on Cloud Computing and Services Science

106

The in-depth discussion of legal issues, however

important it may be in practical terms, is beyond the

scope of this paper. Instead, we focus on the organi-

zational and technical aspects of our approach.

3 COOPERATIVE COMMUNITY

CLOUDS

3.1 Organizational Considerations

A cooperative community cloud focuses on the co-

operation of SMEs from a variety of industries. The

enterprises organize parts of their IT systems and pro-

cesses jointly in order to become more ﬂexible and

cost-efﬁcient. The service portfolio of the cooperative

can be ﬁne-tuned to suit the needs of both the SMEs

and their customers. This reduces information asym-

metries, creates transparency and reduces the poten-

tial of exploitation. It can also lead to more competi-

tion in oligopolistic markets (Harris et al., 1996). For

the moment, there is a size mismatch between few

large CSPs and the comparably tiny SMEs. The coop-

erative community cloud can create a counterbalance

on the market, enabling the SMEs to negotiate with

the CSPs.

Cooperatives are distinguished by their gover-

nance elements, i. e., structures for incentives, deci-

sions, control and coordination. These elements pro-

vide stability and lead to mutual trust, as all coopera-

tives are designed to be long-term undertakings. This

is particularly important in light of current problems

of adoption of cloud services in SMEs. There are four

elements of cooperative governance that are particu-

larly important for the cloud computing domain:

• the notion of the MemberValue,

• the concept of consistent incentives,

• the systemic trust of a cooperative, and

• its size and locality.

These elements are described in detail in the follow-

ing subsections.

3.1.1 Strategic Orientation: The MemberValue

The MemberValue describes the economic value of

the cooperative for its members. As detailed in Sec-

tion 2.1, only members can purchase the services of

the cooperative. This aspect, the immediate Member-

Value, is the primary motive for joining the coopera-

tive, supported by aspects of sustainable investments

and (usually a very small amount of) dividends. Since

the access to the services is the primary motive, all

cooperatives are not traded on ﬁnancial markets and

are statutorily protected from anonymous capital in-

vestors. Thus, negative market inﬂuences, such as

overreactions, biased valuation, and short-term rev-

enue orientation, are ruled out. Instead, the strategic

orientation of a cooperative community cloud is based

on sustainable IT operations to the beneﬁt of its mem-

bers.

3.1.2 Consistent Incentives and Mutual Control

Although the members are in charge of the fundamen-

tal strategy of the cooperative, they appoint a profes-

sional management that takes care of the operative

business. Incentives of both management and mem-

bers are kept in alignment by a set of mutual controls

inherent in the cooperative rules and because of the

multitude of roles assumed by each participant in the

cooperative (e. g., the members are owners, investors

and customers at the same time). The incentives of all

parties are thus kept consistent, which automatically

leads to more trust between them because property

rights are well-deﬁned and, thus, secure (Chaddad

and Cook, 2001). With regard to a cooperative cloud,

this involves, e. g., revealing inter-organizational in-

terfaces and sensitive information about the company

IT. This poses a risk for the SMEs that would usually

require mitigation by elaborate legal frameworks. In

case of a cooperative, the nature and extend of the co-

operation is already agreed upon and regulated by the

statutes.

An important particularity of a cooperative cloud

is that each member has exactly one vote (one-man-

one-vote-principle). This favors smaller enterprises

which are usually not in a position to negotiate with a

CSP due to the size mismatch (Harris et al., 1996).

3.1.3 Systemic Trust

It is not necessary to use artiﬁcial mechanisms to

build trust into a cooperative. Instead, a function-

ing, economically successful cooperative will bring

this about by itself due to the aforementioned incen-

tives, the statutory regulations and the mutual con-

trols. These mechanisms can be complemented by

instruments that provide additional information. In

the case of a cooperative cloud, this could be a dash-

board showing the exact whereabouts of the users’

data. Given this situation, it is obvious that a cooper-

ative cloud can realize a level of trust that would oth-

erwise require comprehensive contracts and service

level agreements (SLAs), thus reducing both com-

plexity and transaction cost between CSP and mem-

bers.

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107

3.1.4 Size and Locality

Being a member of a cooperative cloud is of high im-

portance particularly to smaller SMEs. The combina-

tion of a variety of smaller units results in a virtual

size that puts SMEs into a much more advantageous

position for negotiations with other CSPs. It also

allows for economies of scale with respect to bun-

dled individual needs of the members. For example,

SMEs often need to buy expensive specialized soft-

ware for some tasks even though the software is used

only rarely over the year. A cooperative cloud may

provide a suitable means of sharing such software li-

censes to the beneﬁt of all members. The realization

of economies of scale, scope and skills notwithstand-

ing, the customer-orientation can still be provided as

before due to each member’s local anchoring.

3.2 Technical Considerations

As stated above, the abstraction from the physical

implementation of a service is one important advan-

tage of the cloud paradigm. However, in certain

cases—particularly in order to verify what processing

and transmission steps are actually taking place—it is

necessary to have an “unclouded” view on things. We

argue that it is necessary to strike a balance between

abstraction when it’s beneﬁcial and insight when it’s

required.

In order to provide such insight, it is necessary to

label one’s data in some manner in order to be able to

identify and track it. The solution to this problem is

divided in two parts:

1. The design of a means of labeling, identifying and

tracking data, along with a system that allows the

user to see where the data resides, in what state it

is (e. g., encrypted), and what processing is being

performed on it.

2. The design of a means of specifying what process-

ing steps are allowed and disallowed for certain

subsets of the data, along with a system run by the

CSP that ensures these speciﬁcations are followed

while the data resides in the cloud.

3.2.1 Identifying and Tracking Data

The ﬁrst step is to identify the correct level of abstrac-

tion that allows both the customer to gain meaningful

insights into the cloud internals and the provider to

keep the infrastructure ﬂexible. At ﬁrst glance, this

seems to be contradictory to the basic notion of cloud

services. This is true most of the time. However, we

argue that in certain “exceptional” situations, the user

will want to dig into the details, in which case the

provider may be able to generate the required visual-

ization for the speciﬁc situation despite the abstrac-

tion usually enforced.

For a meaningful investigation, the cooperative

cloud needs to provide a means of visualizing the rel-

evant information in an aggregated way, e. g., a dash-

board. The whereabouts of one’s data are shown on a

“data map” which offers the ability to drill-down into

a more detailed view of the information. The data

map also manifests additional meta-data that the CSP

generated, such as billing information, usage statis-

tics, or indexes. Of course, these meta-data must be

treated with the same care (and under similar policies)

as the original data because they, too, can contain very

sensitive information (e. g., information giving clues

about the current business situation of the cloud user).

Even more problems arise when data is forwarded to

third-party providers outside of the scope of the coop-

erative cloud.

When designing the approach, the overall security

concept must already be taken into consideration. As

the data and meta-data that are handled and visualized

in the cloud dashboard and data map may be highly

sensitive, there must be a ﬁne-grained access control

mechanism to protect them.

3.2.2 Data Processing Policies

In order to have a viable solution for data process-

ing policies, the CSP needs to be able to describe the

physical systems in a way that allows varying levels

of abstraction while still retaining freedom over the

design of the IT landscape. One approach might be

designed based the spheres of control (SOCs) as out-

lined in Section 2.2. The CSP could then provide a

somewhat abstract description of the cloud systems.

The cloud user, in turn, speciﬁes processing policies

based on this description. Combined with the afore-

mentioned data tracking, the CSP can design the co-

operative cloud such that it automatically complies

with the policies.

4 CONCLUSIONS & OUTLOOK

One major show-stopper for many SMEs that con-

sider using cloud services is the lack of trust. On the

one hand, this concerns data protection and data se-

curity issues. On the other hand, this also concerns

doubts about the legal situation surrounding cloud

computing. The lack of trust is at least as much a

social and organizational problem as it is a technical

one. Therefore, we suggest to tackle this approach on

all three facets: organizational, technical, and legal. A

CLOSER 2011 - International Conference on Cloud Computing and Services Science

108

cooperative community cloud seems to be a promis-

ing approach to establish some of the required trust on

an organizational level, also contributing a good deal

of the legal certainty.

The general notion of a cooperative has been

around for many years and is well understood. How-

ever, the speciﬁc application of the concept to the do-

main of cloud computing has not yet been researched.

First, organizing a community cloud as a cooperative

requires the careful design of the “basics”, e. g., suit-

able statutes, optimal management structures, and a

viable set of checks and balances. More importantly,

however, the processes within the cooperative and

among the participating SMEs need to be designed

and optimized. In this regard, there is much to be re-

searched, such as possible synergies stemming from

shared use of resources (e. g., software) and common

processes (e. g., joint IT procurement).

From a technical point of view, the question is how

to provide sufﬁcient means of control to the cloud

users. While some trust in the CSP certainly stems

from the fact that each SME is also owner of the co-

operative, technical measures are still required to pro-

vide a more comprehensive overview of the cloud in-

ternals. A cloud dashboard with a data map seems to

be an appealing solution. This, however, would re-

quire an approach of tracking one’s data in the cloud,

particularly also with respect to associated meta-data.

Such an approach is not yet available and it is not ob-

vious how one might tackle this problem.

Nevertheless, we are convinced that a cooperative

community cloud is an appropriate way to organize

the IT for SMEs. As it does not set any focus on a par-

ticular business area nor does it require a certain com-

pany size, SMEs from a variety of industries and of

diverse sizes can cooperate to form such a cloud. The

cooperative approach fosters trust among the mem-

bers and allows them to realize the cost-beneﬁts of

cloud services that are so far not available to them.

We are currently working on a prototypical develop-

ment of a community cloud in order to be able to sub-

stantiate our claims even further.

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