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Cloud Computing Issues and Impacts Global Technology Industry Discussion Series Cloud computing issues and impacts VIEW NOW Overview Drill-downs Outlook Glossary of terms Source notes Contacts Contents Contents 4 Overview: clouds are inevitable 50 Outlook All signs point to the rapid adoption of Higher-level business processes as cloud computing as a fundamental shift a service will evolve rapidly atop in the delivery model of information cloud-based IT services, leading to technology (IT) — but abundant the increasing rise of incredibly agile challenges will make it a difficult virtual organizations. adoption curve. 52 Glossary of terms 11 Drill-down discussions A list of new words and phrases that Nine detailed reports explore the cloud-based IT models have placed into specific benefits, risks, accelerants the business vernacular — including a and inhibitors associated with the widely adopted definition of cloud following critical aspects of cloud computing and its characteristics, computing adoption: service and deployment models. • Pricing and business models . 12 • Vendor management and 54 Source notes strategic sourcing . 18 •Availability and interoperability . 22 • Security and privacy. 26 • Standards and risk management. 30 • Government . 34 • Accounting...................38 • Cross-border taxation of CSP arrangements. 42 • Regulatory compliance . 46 Cloud computing issues and impacts Overview Drill-downs Outlook Glossary of terms Source notes Contacts Contents “By concentrating technology in the cloud, making it available as a service and freeing organizations to focus on business strategies — that’s how the IT industry will once again not only transform business, but business models.” Pat Hyek Global Technology Industry Leader Cloud computing issues and impacts Estimates of 2010 worldwide revenue from cloud computing services range from a low of about $12 billion to a high of slightly more than $68 billion — reflecting different views and means of evaluating this fast-growing technology phenomenon.1,2 Where the market researchers all agree, however, is that cloud computing is no fad. Cloud computing is a fundamental shift in IT that will alter the technology industry power structure, improve business agility for all industries and increase everyone’s access to computing, storage and communications power. As one prominent research house put it in the title of a report containing cloud predictions for 2011: “Welcome to the New Mainstream.” 3 Despite the certainty expressed in these IT approach. Finally, both technology and predictions, the transition to cloud computing other businesses need to understand how from in-house IT infrastructure and traditional cloud computing is changing consumers’ outsourcing is really just beginning. By the habits and expectations. end of 2011, public and private cloud services will generate 15% of worldwide IT spending.4 Cloud computing issues and impacts There is a long, hard road of difficult combines the insights of Ernst & Young’s transitions and adoption decisions still ahead. own leading thinkers with analysis of secondary market research and other sources Right now, however, is when cloud service to synthesize our view of the current state providers (CSPs) need to position themselves, of cloud computing, where it is going in the their offerings and their future development foreseeable future and the holistic way you strategies for the rapid changes to come. should think about it. Through this series of Likewise, business users of cloud services topical drill-down discussions, we offer our require immediate insight into the benefits insight and hope to stimulate productive and risks of cloud computing — along with dialogue within and across your organizations how to exploit the former, while avoiding the about how to make the most of the latter — as they adopt this “new mainstream” transformative force of the cloud. Note: unless otherwise indicated, all quotations are from practitioners at member firms of the global Ernst & Young organization. Global technology industry discussion series 3 Overview Drill-downs Outlook Glossary of terms Source notes Contacts Contents Overview: clouds are inevitable “Clouds can free companies Current situation from the drudgery of The IT services now known as cloud computing have been around for building and maintaining IT decades, but they never grew beyond a small fraction of total industry infrastructure so that they revenue. Now, however, their time has come: over the past few years, a can focus on value-creating dizzying array of hardware and software available as services over the internet has emerged. Consumers and businesses have embraced a differentiation to ride atop multitude of cloud services, from mature sales force management that infrastructure.” services to email and photo editing to the latest smartphone Kevin Price applications and the entire social networking phenomenon. Further, Global Technology Industry researchers project an imminent inflection point in the adoption of Advisory Services Leader cloud services by organizations both large and small. In fact, research firm International Data Technology advances, business agility Corporation (IDC) calls cloud computing drive cloud adoption readiness the foundation for the technology industry’s Cloud services are finally taking off next 20 years of growth, saying, “it is because technology advances, particularly nothing less than the complete transformation ubiquitous high-speed internet connectivity of the industry’s core offering and business and the ever-decreasing cost of storage, models.”1 According to IDC, public clouds have finally enabled service providers to (delivered to multiple customers via the meet buyers’ needs for simplicity, cost and internet) and private clouds (built by or flexibility. For consumers, the recent delivered to a single organization via proliferation of smart mobile devices that private network) will account for 15% of IT are actually handheld wireless computers spending in 2011 and grow at a compound has accelerated the development of annual rate of about 26% for the next cloud services that provide application four years. This is roughly five times the functionality to those devices. This is an growth rate of the technology industry as a example of why consumers have been whole. In addition, 80% of all new software such rapid adopters of the cloud: cloud offerings in 2011 will be available as computing has the potential to instantly cloud services (regardless of whether deliver simple, easy-to-use, sophisticated they are also available via traditional and high-powered computer applications on-premise business models). and information that consumers could not otherwise access. 4 Cloud computing issues and impacts Overview Drill-downs Outlook Glossary of terms Source notes Contacts Contents CSP considerations “European companies and CSPs are in the enviable position of being early movers in a movement that governments view cloud is rapidly becoming mainstream. Yet computing as a way to the challenges they face are unenviable, starting with the difficulty of translating stimulate business activity theoretically advantageous business models and create opportunities into concrete services and pricing programs in a young, still-developing market. for future growth.” Setting prices, for example, may seem Rebecca Norris simple but becomes complex fast because Europe, Middle East, India and Africa (EMEIA) Technology Industry Leader cloud monthly service fees may be compared with the amortized total cost of ownership (for their entire useful life) of those elements of a customer’s IT infrastructure that don’t enhance competitive differentiation. Yet the complete economic picture does not reside in cost alone. Variables such as For business organizations, the core These factors combine to lower IT barriers rapid access to new technology and the elements of CSP business models have (and risk) to business change, including ability of cloud customers to focus their always been attractive: pay-as-you-use barriers to entry for start-up businesses, internal resources on what differentiates instead of install-and-own, and inherently whether entrepreneurial or inside an them should also be factored into the greater flexibility in IT. Cloud computing established organization. The same factors economic equation. services generally shift major up-front also enable small- and medium-sized capital expense from the buyer of IT to the businesses (SMBs) to take advantage of Standards, particularly for interoperability provider of IT services — a strong incentive sophisticated applications and a breadth among clouds and between clouds and in- in a world that continues to struggle of functionality that previously could be house infrastructure, are another area of with economic uncertainty and more afforded primarily to large enterprises only, uncertainty. Real standards leadership — restricted access to capital. Of note, this and can do so at much lower cost. As a not just empty promises — might be a shift enables organizations to further result of these factors, SMBs appear to be winning strategy for CSPs, but it is a manage their investment risk by rapidly migrating to the cloud more rapidly than difficult choice given the trade-off with implementing and trialing new solutions larger companies, and start-ups are virtually vendor lock-in. before making long-term commitments. all cloud users. An example already in progress is the mobile applications market: CSPs also need to decide whether to Even more alluring
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