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 Cloud: An opportunity in its infancy, but even conservatively, poised to drive big marginal growth

The recent economic downturn has amplified cloud services adoption globally due to the cost-cutting mantra of most organisations. Recent IDC research shows worldwide IT spending on cloud services will grow almost three-fold, reaching $44.2 billion by 2013, as the cloud computing model offers a lower cost way for businesses to acquire and utilise IT.

One reason IT suppliers are sharpening their focus on the 'cloud' model is its growth trajectory, which is over five times the growth rate of the traditional, on-premise IT delivery/consumption model. Business applications are expected to dominate cloud services spending, accounting for 49% of total spending in 2008, to 38% of total spending in 2012.


Source: IDC 2010

IDC sees cloud computing as a welcome respite from the complicated IT environment many companies wrestle with every day. Cloud computing could dramatically simplify the administration and management of many companies' data centres and enable IT to be a service organisation for the rest of the company.

Cloud challenges and developments

An increasing number of vendors have been jumping on the cloud train, and some of the fundamental concerns afflicting the industry and preventing broader adoption are slowly being addressed by the vendor community. For instance, organisations have always cited security, performance, and availability as the top three concerns, as the value of certain information may be worth more than the risk it poses to migrate these into the cloud.

In response, IBM has made security intrinsic to its cloud strategy messaging throughout the year. The Cisco, EMC, and VMware initiative to help organisations build private clouds is a natural stepping stone for those who would like to experience the 'touch and feel' of a private cloud first before moving into the public cloud. Mission-critical applications are unlikely to move to the cloud overnight or outside the company's own firewalls, but organisations would definitely consider the cloud option for less critical applications.

Looking ahead

While many of the concerns and challenges around cloud computing will continue to prevail in 2010 and beyond, this technology is here to stay. There will definitely be a significant shift in IT spending patterns over the next couple of years, with money going towards the building of 'cloud' data centres.

Cloud services and infrastructure will put a lid on overall IT infrastructure and services spending in the years ahead, as they are designed to be capital expenditure minimalist. By moving expenses from capex to opex, IT expenditures are greatly simplified, becoming a utility similar to 'pay-as-you-go', dynamically expanding and contracting as the business demands.

For example, retail businesses have IT workloads peaking around New Year's, but are much lower the rest of the year. With dynamic cloud utilisation on-demand, resources are only paid for when used, and new hardware and software deployment are the host's responsibility. This is all very attractive, especially to small and medium-sized firms, where keeping on specialised IT staff is very expensive relative to the smaller amount of work they have to do.

Therefore service providers, system integrators, and infrastructure vendors will be increasingly more careful and strategic in positioning themselves in this industry to grow their wallet share among clients.

In some ways, the cloud represents a maturing of different business models - maturing in the sense of opening up new opportunities for consumption models for users of all types.

As a result of such economic conditions, prices will find their equilibrium. A "commodity is sold precisely for what it is worth" is how Adam Smith summarised it in the 'Wealth of Nations', to describe the evolutionary determination of a reasonable price for a reasonable service based on its intrinsic value.