In the field of ICT sourcing cloud computing is currently one of the biggest topics. Cloud computing is a delivery model that allows users to rent ICT services and performance on an on-demand or project basis through networks (e.g. the Internet or an intranet) instead of purchasing them. These services can be software (SaaS – Software as a Service), platforms for the development and operation of applications (PaaS – Platform as a Service) or basic infrastructure, e.g. storage space (IaaS – Infrastructure as a Service). So far, there is no single, universally accepted definition of cloud computing in the ICT sector, but the following points serve to define the approach:9,10
- Contracts with a short term: cloud computing can cover periods ranging from a few hours, days, or weeks; in contrast, conventional outsourcing contracts usually have terms of several months or years.
- On-demand availability: ICT infrastructure and software can (practically) be scaled in real-time.
- No advance investment necessary: capital expenditure and installation costs are included in the rental fees.
- Charged according to utilization.
The key players on the cloud computing market include providers of Software-as-a-Service, outsourcing and hosting providers, but also network and ICT infrastructure providers.
Cloud computing is a solution that enables users to utilize services on-demand and pay for them on the basis on their actual utilization of these services. Cloud computing transforms long-term fixed investments into variable costs because only the actual utilization is billed. For ICT executives cloud computing is a way of cutting costs and adapting ICT resources flexibly to current business processes and conditions. Positive effects can include the improvement of cost structures (by making ICT costs variable and avoiding capital expenditure), the exploitation of productivity potential, and swifter, more flexible access to new technologies. ICT departments and executives also have more freedom to focus fully on their core responsibilities and strategic tasks.
Cloud computing marks the start of a sea-change in information technology says the industry federation BITKOM. “Cloud computing will completely and lastingly transform the information industry, its technologies and business models,” says BITKOM President, Professor August-Wilhelm Scheer. In less than ten years many companies will no longer have their own internal IT and computing centers, says Scheer. By then, most companies will be using cloud computing – at least as a supplement to their existing infrastructure.11 Cheaper connection charges and increased high-speed bandwidth will help to establish cloud computing.
The experts at the think tank also believe that cloud computing will become increasingly important and that it is set to achieve a very high penetration rate. “There is a quite clear trend towards the increased use of the external cloud,” said Professor Arnold Picot at the workshop.
“In future, many applications will be accessed from the external cloud, just like we get electricity from a socket today.”
Professor Arnold Picot, Ludwig-Maximilian University, Munich
But how do the executives and users in the enterprises rate cloud computing? In the survey for the LIFE 2 Study, ICT executives, ICT users and consumers were asked about their opinion on cloud computing.
Cloud computing has a high significance
The survey showed that cloud computing is a highly relevant topic in the day-to-day operations of many enterprises. Almost 17 percent of the ICT executives surveyed are convinced that cloud computing is already a key issue for many companies. In the United States this opinion was held by 27 percent of the ICT executives. Just under half of the ICT executives (46%) believe that cloud computing will firmly establish itself on the market within the next two to five years. A further 18 percent expect the breakthrough to occur in over five years. Only four percent of ICT executives in the enterprises believe that cloud computing is a hyped issue which will not gain widespread acceptance.
In total, around 81 percent of ICT executives believe that cloud computing will establish itself on the market. Half of those surveyed (51%) expect cloud computing to become the dominant sourcing variant for ICT. A further ten percent believe that it is conceivable that many companies will do completely without their own ICT, instead shifting their ICT needs entirely to cloud computing. 39 percent can envisage cloud computing and conventional ICT sourcing coexisting side-by-side. (see Figure 4-3).
The advantages and risks of cloud computing
The biggest advantage of cloud computing, say the ICT executives, lies in the cost savings that can be achieved through paying purely for on-demand services (60%). In the United States 70 percent state that cost savings are an important or very important reason to use cloud computing. This goes hand in hand with the fact that seven of ten ICT executives (71%) believe that companies will in future try to keep fixed IT costs as low as possible.
“Cloud computing can play a key role in helping to cut costs.”
Matthias Roggendorf, Associate Partner, McKinsey
Another very important reason to use cloud computing is the rapid access it provides to new technologies: 59 percent of the ICT executives see this as an important or very important factor. For German ICT executives this aspect is the greatest advantage of cloud computing: Faster access to new technologies was even more important for them than the potential cost savings that could be achieved with cloud computing.
Just over half of those surveyed also believe that an important or very important advantage of cloud computing is the better risk protection and the flexible adaptation of capacities to actual requirements (both in the top 2 boxes with 55%), in higher energy efficiency and low capital expenditure (both 53%). Equally important for the ICT executives was the fact that the use of cloud computing frees up HR capacities and gives internal IT experts more time to focus on strategic topics.
Despite all of these perceived advantages, the ICT executives also see certain risks in cloud computing. These are primarily the issue of security in all its various facets: Many CIOs fear that cloud computing could have critical security vulnerabilities. One in two ICT executives mentions security issues as one of the three most important risks of cloud computing (52%). Other potentially negative aspects are data and system loss (44%) and data protection issues (38%). The latter specifically refers to the geographic location of servers in cases where sensitive data is not allowed to leave the country due to legal regulations. In cloud computing it is not always clear exactly where – i.e. in which computing center – the data are stored and whether third parties could be permitted to access these corporate data on the basis of specific laws in the country of storage. Speaking about security, Professor Claudia Loebbecke from the University of Cologne points out: “In many cases, the providers of external cloud services offer higher security standards than the ICT enterprises themselves.”
Less problematic is the relationship between standardized services and individual needs: Only one in five of the ICT executives surveyed (21%) sees this as presenting a potential risk. The experts at the think tank also believe that a certain amount of standardization in ICT is not a problem. Christophe Châlons, Chief Analyst of the PAC Group: “Only 20 percent of the enterprises positively differentiate themselves through their ICT. For the remaining 80 percent of enterprises ICT outsourcing is highly attractive.” Professor Arnold Picot adds: “The application modules of an external cloud can be combined to suit all individual needs.”
Present and future significance
Cloud computing is an area that is characterized by exceptionally high growth potential. On one hand, only 28 percent of the surveyed ICT executives state that their enterprise already uses cloud computing. At the same time, 58 percent of the executives believe that cloud computing will play a (very) important role in their company in the future. For Germany, this means that in the next five years more than 550 enterprises with over 1,000 employees could start using cloud computing. In Germany, the United Kingdom, France, Spain and the United States, there is a total potential of more than 5,100 additional enterprises with more than 1,000 employees who intend to use cloud computing in the future.12
The considerable future potential of cloud computing is also emphasized by the results of the cluster analysis of the ICT executives: Cloud computing is used by all the Pioneers. The Open-minded users – by far the largest segment at around 43 percent – have not yet really started using the cloud. 12 percent of the Open-minded segment state that cloud computing has a low significance for their enterprise at present, 88 percent rate it as fairly low. At the same time nearly two-thirds of the Open-minded segment (65%) are convinced that cloud computing will be (very) important for their company in the next five years. This result indicates that it is the segment of Open-minded users and executives that will play an important role in increasing the use of cloud computing.
Cloud computing has a very great significance for the companies where cloud computing applications are already used: Three-quarters (75%) of all ICT executives whose companies already use cloud computing state that this technology is (very) important for their enterprise. 77 percent believe that the investment in cloud computing this year will be “significantly” or “slightly” higher than in the previous year. 22 percent expect investment in cloud computing to remain on a par with the previous year, and only one percent of those surveyed believe that investment in cloud computing will be lower than in the previous year.
The executives see the greatest potential for cloudbased implementation within their company in the area of computing capacity and storage solutions (44% and 48% respectively). Roughly one in three sees potential for the cloud-based implementation of email solutions (36%), management information systems (34%) and standard office applications (33%). One in five (20%) sees great potential in the field of development platforms; in Spain and France one on four can imagine using cloud-based development platforms (26% and 24% respectively).
In terms of the implementation of cloud computing, the private cloud – the shared use of IT resources within the enterprise – is the variant favored by ICT executives (the different cloud variants are explained in the glossary). 59 percent consider this closed form of cloud computing very interesting or interesting. It is closely followed in second place by the virtual private cloud: around 57 percent of the executives surveyed state that this is an interesting or very interesting option. In third place of the variants favored by the ICT executives is the open variant, the public cloud (53%), where a standardized IT service is accessed through the Internet and billed according to utilization. For the German ICT executives this is the most favored version of cloud computing (54% in the top 2 boxes), ahead of the private cloud variant. Just under half find hybrid cloud models interesting (49%).
When it comes to the choice of a provider for cloud computing services, the enterprises want data and systems security, for instance through certification, firewalls etc. 70 percent of the ICT executives surveyed say that this aspect is “decisive” or “very important” when selecting a service provider. The cost aspect comes in second place (68%), followed by physical security of the computing centers (e.g. through twin-core strategies) to ensure safety and data protection in the event of accidents or natural catastrophes (62%).
Cloud utilization by consumers
From webmail to social networks and video clips streamed from the Internet: Cloud computing already plays an important part in our private lives.13 Private users are very open to the idea of cloud computing, even more open than enterprises. The LIFE 2 Study shows that the majority of the 1,336 consumers surveyed already use on-demand applications through the Internet. Particularly popular are email functions (66%) and entertainment software (e.g. games, 44%). Three in ten consumers (31%) use cloud-based office software (e.g. word processing or spreadsheet programs), and just as many state that they use specialized web-based software, such as image processing programs. 36 percent of consumers archive their photos or music on the Internet, and 29 percent also store their private documents, address books and backups online.
Many of the consumers who do not already use these cloud services can imagine using them in the future. A particularly interesting aspect for consumers is the use of specialized software and office software. 47 percent and 46 percent respectively can envisage using these cloud-based services in the future. 41 percent of consumers are open to the idea of archiving private documents on the Internet (see Figure 4-4).
9 Craig-Wood, Kate (2009)
10 Roehrig, Paul (2009)
11 BITKOM (2010)
12 Own projection on the basis of the study results.
13 Eriksdotter, Holger (2008)