E-conomics

Digital economy and structural change

Cloud computing
March 1, 2012
Authors Stefan Heng +49 69 910-31774 stefan.heng@db.com Stefan Neitzel (techconsult) +49 561 8109-128 stefen.neitzel@techconsult.de Editor Antje Stobbe Deutsche Bank AG DB Research Frankfurt am Main Germany E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 www.dbresearch.com Managing Director Thomas Mayer

Clear skies ahead

Cloud computing is designed to enable users to concentrate on their core competences. Cloud service providers advertise with their ability to deliver memory capacity and software over the Web whatever the users location and device, claiming they can rapidly adapt this to requirements. That way, users can farm out peripheral business activities to specialised service providers. An ambiguous empirical picture is typical of a new market. Cloud computing is currently advancing more slowly than widely hoped. Resistance and structural impediments exist among both users and providers of cloud computing. Expectations often still not met. Following the launch of cloud computing, more than half of Germanys Mittelstand (SME) businesses are not yet fully convinced by the immediate results. Aside from the disillusionment typically associated with overblown expectations, the current reluctance to engage with cloud computing is motivated mainly by security concerns as well as by uncertainty over which technical version will ultimately gain the upper hand. 16% cloud usage rate at Mittelstand firms. At the beginning of 2011 cloud solutions were used by only a minority of SME businesses. But for 2012 a quarter of companies have already drawn up specific plans for its use. Moreover, the ratio is likely to increase in the course of this year. Engagement with cloud rose appreciably in the course of 2011. Even though the majority of small and medium-sized businesses had still only addressed the possibilities of cloud computing perfunctorily or not at all by the end of 2011, over the year they did begin to devote appreciably more attention to the subject. Companies are introduced to the topic through various channels. IT service providers play an important part here, and will do so increasingly in future. Good medium-term market outlook. Within the space of five years the market is expected to grow to EUR 9 bn in Germany and EUR 71 bn worldwide. It is quite possible that, following the hype typical of a new business sector and subsequent disillusionment, in a few years time the term cloud computing will have faded away again entirely. Yet the fundamental idea behind the buzzword focusing on core business does stand a good chance in the medium-term of being implemented more broadly in a world of globally organised value chains regardless of the label that is then put on the product.

Cloud Computing: Clear skies ahead

Founded in 1992, techconsult GmbH are among the foremost market analysts in Central Europe. Their strategic consultancy focuses on the information and communications technology (ICT) sector. On the basis of regular user and channel surveys representative of their respective segments, it is possible to depict the quality and quantity of the ICT market. Experienced statisticians guarantee the structure and evaluation of the surveys, while acknowledged industry experts vouch for the interpretation and practical application of the results.

HP creates new avenues for the meaningful use of technology by private individuals, businesses, public authorities and communities. As the worlds biggest technology company, HP offers a comprehensive portfolio to help clients achieve their objectives including solutions in the segments printing, personal computing, software, services and IT infrastructure. You will find more information on HP (NYSE: HPQ) at http://www.hp.com. Press information and photographic material is arranged chronologically and thematically at www.hp.com/hpinfo/newsroom/.

Deutsche Bank Research is responsible for the Deutsche Bank Groups economic analysis and advises the bank, its customers and stakeholders. DB Research tracks the trends of relevance to Deutsche Bank on the financial markets, in business and society, also examining the opportunities and risks they entail. For more than ten years DB Research has investigated the impact of technological progress and innovation on business and society. You will find further information at www.dbresearch.com/technology/

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E-conomics

Cloud Computing: Clear skies ahead

BITKOM definition of cloud computing

Germanys Federal Association for Information Technology, Telecommunications and New Media, BITKOM, gives the following definition of cloud computing in its cloud computing manual Leitfaden Cloud Computing: Was Entscheider wissen mssen (Berlin 2010): Cloud computing is a way of delivering shared, flexible and scalable IT services through nonfirmly allocated IT resources over a network. Typical characteristics are real-time, metered delivery as a self-service on the basis of internet technologies charged according to use. Cloud computing thus enables users to reallocate investment expenditure to operating expenses. The IT services can cover applications, application development and operating platforms and basic infrastructure.

Cloud computing is a very broad term which, despite various attempts at precise 1 definition (see box 1), often remains nebulous , floating somewhere in the wide expanse between the flexible delivery of IT software and capacities through to internet applications, collaboration software, video conferencing and 2 SETI@home . This hazy interpretation gives rise to often-overblown business expectations of cloud computing. Companies are told, for example, that cloud computing can save them nearly 80% of their IT energy costs. With all these positive expectations, however, the actual concept behind the buzzword often gets lost. Basically, cloud computing takes the idea of IT outsourcing a stage further. The intention is to enable users to concentrate on their core competences and farm out peripheral parts of their operations to specialised service providers. Cloud vendors advertise with the argument that they can make memory capacity and software available, for a charge, via the Web whatever the users location and equipment and that they can rapidly adapt their services to requirements. They like to subsume these offers under the heading Internet of services. Cloud users are motivated chiefly by considerations of reducing their IT capacities, which are designed for the few moments of peak demand, and of converting some of this fixed expenditure into variable costs. This study analyses the economic potential of cloud computing. The first part examines the theory forming the basis of cloud technologies. Besides explaining the most important terms and concepts, it identifies the main drivers and obstacles. The second section goes on to present empirical insights into cloud computing at Germanys SME Mittelstand businesses. For an empirically underpinned investigation, techconsult und HP Deutschland have designed a Cloud Index Mittelstand, whose periodic waves of data collection also make it possible to deliver an analysis over time. The concluding section of the study evaluates the analytical and empirical findings and discusses the prospects for further development of the cloud computing market.

More than just a cloud formation

Depending on their deployment model, cloud computing services are divided as follows into the two pure forms Public Cloud and Private Cloud and a composite 3 form, the Hybrid Cloud (see chart 2): In the case of a public cloud IT resources or software are provided by an external supplier via the Web. Users data and applications are all located on the same physical infrastructure but with separate individual allocation. In this instance several users therefore share the cloud infrastructure. With a private cloud IT resources or software are customised to the requirements of a single user and provided exclusively to that user by an external provider or even from within the user company. In this case one single user therefore has exclusive use of the special cloud infrastructure. The distinction between this and traditional hosting is somewhat blurred.

See Heng, Stefan and Florian Schler (2011). Cloud Computing: The term will disappear, but the idea will continue to catch on. Deutsche Bank Research. Talking Point. Frankfurt am Main. One of the cloud computing projects to have captured considerable public interest is SETI@home. This is an internet-based public volunteer computing project with the aim of identifying signs of extraterrestrial intelligence from the overwhelming volume of data received from space. See National Institute of Standards and Technology (2011). The NIST Definition of Cloud Computing. Draft. And: Berlecon (2010). Das wirtschaftliche Potenzial des Internets der Dienste. Berlin. E-conomics

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Cloud Computing: Clear skies ahead

Between the two pure-play public and private cloud forms there exists a wide variety of different mixed cloud computing types known as hybrid cloud. The various hybrid cloud services aim to combine the advantages of public and private cloud for their respective intended environments.
Many different varieties of cloud computing

Source: DB Research, 2012

Wide variation in service models

Many different varieties of cloud computing
Schematic representation of cloud computing by deployment models

As well as by deployment models, cloud computing provisioning is categorised as follows according to the service models used to provide capability to the outsourcing user (see chart 3 and remarks in the empirical section of this 4 study): With infrastructure as a service (IaaS) the cloud provisions such basic IT infrastructure as storage, network and computing capacity. With platform as a service (PaaS) the cloud provisions higher infrastructurelevel services for the consumer. In both a runtime environment (RTE) and an integrated development environment (IDE) the cloud enables users to configure differentiated applications for their own individual needs. With software as a service (SaaS) software is provided as an integrated service network based on the cloud infrastructure. Consequently users save the costs of hardware and software licences and maintenance of the IT 5 infrastructure.

Myriad ways of cutting costs

Source: According to Gottfried Vossen, 2011

Businesses customary aim with cloud computing is to cut costs. Experts rate 6 the potential for this highly. Federico Etro from the think tank Intertic, for example, says in what is undoubtedly an optimistic assessment that companies in the EU can reduce their total fixed expenditure by up to 5% with cloud

See Bitkom (2010). Cloud Computing Was Entscheider wissen mssen. Leitfaden. Berlin; and Berlecon (2010). Das wirtschaftliche Potenzial des Internets der Dienste. Berlin. A special type of SaaS is security as a service (SecS). This provisions applications of relevance to IT security through the cloud infrastructure. See Etro, Federico (2009). The Economic Impact of Cloud Computing on Business Creation, Employment and Output in Europe. Review of Business and Economics, 2009/2. Leuven. pp. 179 209. E-conomics

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Cloud Computing: Clear skies ahead

Great expectations of energy savings
Estimated cost cutting potential through introduction of cloud computing, in % 80 70 60 50 40 30 20 10 Capital Private
Source: Cebr, 2010

computing. The potential economies in IT are confined chiefly to the following cost categories (see also remarks in the empirical second section of this study): Capital and labour costs: Businesses that outsource IT capabilities reduce 8 their capital formation and the need for internal IT specialists. In principle, cloud computing leads to more economical use of the resources available and also makes it possible to convert fixed expenditure on capital and labour into variable costs, with capital costs usually proving quicker to convert into variable costs than labour costs. Energy costs: By cutting back on its IT hardware the outsourcing company can lower its energy costs for operation and cooling. Whilst many companies pay scant regard to this expenditure item, it nevertheless often assumes 9 a significant dimension not only at IT-intensive businesses (see chart 4). Ultimately, however, businesses will often find it very difficult to make an author-itative assessment of the overall cost effect (including costs of training, imple-mentation and cloud services). This is mainly because even today quite a num-ber of corporate users in particular SME businesses are still only able to give very rough estimates of their actual IT expenditure (and hence the original pres-sure to act on cost-cutting and the overall impact of potential IT restructuring). Before deciding on IT restructuring moreover, companies should consider that external provisioning can only make economic sense in the first place if the cloud provider really does deliver the service cost-effectively to the requisite quality standard and if the intensity of competition is such that the provider passes on the efficiency gain obtained through specialisation and scale effects to the cloud customer.

Staff Hybrid

Energy Public

Cloud computing is more than simply a cost-cutter

Cloud has a lot going for it
Reasons for using cloud computing in the future, in %*

In addition to the cost gains, cloud providers also promise considerable benefits in terms of flexibility, access, data security and time to market (see chart 5): Greater flexibility: With cloud computing companies can cushion seasonal or cyclical special effects and fluctuations in IT demand at particular times of the day with scalable resources. Especially for small businesses whose in-house IT resources are run on a very tight budget, cloud computing can thus improve competitiveness in their core business. Wider access: Cloud computing is designed to give consumers access to data and applications from any device wherever they may be. Such independence of platforms and end devices forms the basis for modern cooperative, nomadic forms of work. It may be very convenient for businesses with an extensive field service network, for example. High level of data protection and data security: The public at large and decisionmakers still inexperienced in this respect at user companies take a rather 10 ambivalent view of the issue of outsourcing data. Yet cloud vendors advertise with the argument that their specialisation and experience with data protection (i.e. the individuals right to determine the disclosure and use of personal information as protection against the wrongful use of sensitive data) and data security (i.e. securing the confidentiality, availability and integrity of the
7

Cost savings Low equipment costs Wider access Pay-per-use Speeding up innovation Concentration on core competences Cushioning peak loads 40 50 60 70 80 90

* N=310 (SMEs in Germany that do not use cloud computing) Source: PwC, 2011

10

The potential savings range between 3% und 21% in the sectors examined, depending on their IT intensity. But there can be no question of all IT staff being laid off if only because businesses require inhouse IT specialists for service level agreements and their monitoring. See Heng, Stefan, Bernd Klusmann and Florian Knig (2010). Green IT: More than a passing fad! Deutsche Bank Research. E-conomics 81. Frankfurt am Main. In the following chapters we will address the challenges with regard to data protection, data security and data concentration that stand against the opportunities described. E-conomics

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Cloud Computing: Clear skies ahead

information) enable them to offer a far higher level of service than an SME from another sector would normally achieve. So cloud vendors undertake to adapt software and hardware regularly and just-in-time to current security requirements. Short time to market for innovation: Cloud computing can reduce times to market for innovations at outsourcing companies. For business start-ups launching without an IT infrastructure of their own, cloud computing offers a very convenient way of focusing on their core business.
Multi-layered challenges confronting cloud computing

Source: According to Gottfried Vossen, 2011

Technical, economic, organisational and legal challenges

For all the benefits that cloud computing promises, it also poses a number of challenges for providers and consumers, chiefly of a technical, legal, economic and organisational nature (see chart 6). The main hurdles to be negotiated lie in sufficient utilisation of the IT capacities, contractual complexities, regulations on data access, the concentration of data and the fact that the user is tied to one cloud provider. Aiming for optimum capacity utilisation by diversifying the customer base Cloud providers must find an economically efficient way of coping with daytime, seasonal and cyclical fluctuations in capacity demand. To achieve optimum utilisation of their IT infrastructure, they therefore usually try to acquire an ideally complementary customer portfolio of users diversified across individual sectors and time zones. In most cases, however, cloud vendors have great difficulty in attracting the ideal mix of users. Contract terms often opaque The contractual relationship between cloud computing vendors and users is often not set out in full, particularly since the contracting parties frequently fail to negotiate a sufficiently comprehensive agreement. In many instances users have absolutely no idea who is actually delivering the service at the end of a long value chain of sub-contractors. In such cases a legally enforceable contractual relationship can normally be deemed to exist only indirectly. A further challenge is posed by the fact that issues pertaining to liability, responsibility and contractual obligations can often only be examined legally on a case by case basis. Such examination must, for example, take into account that cloud users are, in turn, liable to their customers in the event of the cloud vendors failure to provide the proper service insofar as the cloud provider is acting as a vicarious agent of the cloud user in the legal sense. In long value chains with companies cooperating across national borders, attempts to clarify

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E-conomics

Cloud Computing: Clear skies ahead

cloud computing liability issues definitively ex ante are fraught with considerable complexity. If users are to be capable of assessing their risk, they must closely scrutinise a whole host of requirements and have insight into the processes involved. One issue that needs to be clarified is how security management processes have been implemented. Certification such as ISO 27001/2, SAS70 and PCI DSS 11 may act as a good benchmark for this assessment. A harmonised legal framework for data protection and data security such as the EU is presently targeting in the amendment to its Data Protection Directive and a universally 12 recognised international seal of approval could give users a sense of greater confidence in the service packages offered. Agreement on the service quality required
8 25

One quarter does not explicitly mention availability

"What service availability do you guarantee contractually to your clients?", in %*

14 29 24

>99,9% <99% No details

* 51 cloud providers in Germany Source: PwC, 2011

> 99%, <99,9% No Commitment

In a sustainable partnership the parties involved should agree on the minimum level of service quality (with regard to system availability and speed) that is to be observed. In practice, however, the issue of quality is frequently left open in the service level agreement. Even where this essential service level aspect is addressed, the infringement of contractual obligations seldom triggers clear sanctions. But without a service level agreement it is often impossible to enforce a contractual obligation swiftly in all its ramifications. 24% of German companies interviewed by management consultants PwC explicitly stated that their agreements did not set out conditions governing service availability (see chart 7). Data protection and data security are pivotal challenges

US authorities want access to data

In comparison to the United States, the European Union attaches far greater significance in its regulatory framework to data protection and data security. The US Patriot Act, for example, requires that US authorities be given access to all data stored or processed by a company domiciled in the US, regardless of where this data is physically located. For European companies in particular the requirements of the Patriot Act therefore undermine the agreements initially reached in the Safe Harbor Treaty at the beginning of this millennium on the treatment of corporate data.

In addition to the quality of service, the varied aspects of data protection and data security are also extremely important for the cloud consumer when drawing up a full and complete agreement. One angle that needs to be examined is whether exporting personal data to locations outside the EU already constitutes a fundamental infringement of the legal requirements applying to the company. Checking this is absolutely essential if there is a possibility that the cloud providers IT capacities or as is common with complex value chains those of its sub-contractors are located in other jurisdictions, particularly since other jurisdictions stipulate completely different regulations concerning data protection, data security and government access to data (see box 8). Above and beyond some sector-specific legal features, all companies in Germany must observe in particular Sections 3, 11 and 28 of the German Federal Data Protection Act (BDSG). With reference to cloud computing, the Act stipulates special responsibility on the part of the sub-commissioning company 14 with regard to the integrity of the data that is to be outsourced. Obvious risks of data concentration The fact that applications can be used flexibly makes cloud computing attractive to users, for whom cloud vendors able to provide a comprehensive range of
11

13

12

13

14

See Eckhardt, Jens, et al (2010). EuroCloud Leitfaden: Recht, Datenschutz und Compliance. Cologne. In their joint study Survival of the Fittest Wie Europa in der Cloud eine fhrende Rolle bernehmen kann, Munich, 2011, SAP and Roland Berger propose a European Cloud Gold Standard. For example, particularly stringent data protection and data security standards apply to banks. The Federal Financial Supervisory Authority (BaFin) has formulated key regulations here in the Minimum Requirements for Risk Management (MaRisk). Section 11 of the BDSG states: Where other bodies are commissioned to process or use personal data, responsibility for compliance with the provisions of this Act and with other data protection provisions shall rest with the principal. ()The agent shall be carefully selected, with particular regard for the suitability of the technical and organizational measures taken by him. E-conomics

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Cloud Computing: Clear skies ahead

services are therefore especially relevant. The supply-side cloud computing market consequently inclines towards concentration with just a few providers. As a result, as more and more data is farmed out by cloud users there will be a growing concentration of data at cloud providers. This data concentration with the attendant potential prospect of very few data centres remaining in the longer run lays providers wide open to hacker attacks, for example. Even more serious than the theft of data, however, would be the complete outage of one of these computer centres, resulting in the destruction of information with palpable macroeconomic repercussions.
9

What happens to data when the contract ends is often unclear

"Do arrangements exist on when and how data is returned when the contract ends?", in %*

Highly averse to being highly dependent The prospect of being tied closely to a single cloud provider for a very long time (vendor lock-in) may act as a deterrent to outsourcing companies. Many customers are particularly concerned that even in the event of a marked deterioration in price and service levels they would have great difficulty switching their cloud provider. One of the main reasons for this is that there are not yet any universally valid technical standards in place. Faced with vendor lock-in, users should scrutinise offers very carefully and also examine what possibilities they have to terminate the contract (e.g. in case of dismissal or business closure). In practice, what would happen to corporate data in such a case is all too often vague. 18% of the German cloud providers surveyed told management consultants PwC that their contracts did not fully cover data migration (see chart 9).

No details 23 Yes 59

No 18

* 51 Cloud providers in Germany Source: PwC, 2011

Affinity and satisfaction hinge on three aspects

Given the technical, legal, economic and organisational challenges previously discussed, many potential users are noticeably uncertain about the uses to which cloud computing can be put. In practice, however, the length of time a company has been in business, its degree of specialisation and sector-specific security needs have emerged as the key determinants of affinity and satisfaction with cloud computing in general and private cloud or public cloud in particular (see also the comments in the empirical second section of this study): Duration of the company: The younger the company and the less IT infrastructure it already has in place, the greater the likelihood that it will use cloud. Specialisation: The more specialised the companys IT requirements, the more difficult it is to outsource strategic corporate processes and businesscritical processes to a public cloud. Security requirements: Data protection and data monitoring needs differ from one sector to the next. Companies in the IT sector are culturally more receptive to innovation, whereas the public sector and the financial services industry are obliged to tread far more cautiously in this respect and consequently make very little use at present of cloud solutions in general and public cloud in particular.

Private could rated highly

Planned use of services for the next 3 months, % of Cloud users*

10

Public cloud

Private cloud

Hybrid cloud 0 10 20 30 40 50

Fewer reservations towards private clouds

Oct. 2011 Jan. 2012

June 2011

*SMEs polled in Germany that plan to introduce or continue with Cloud computing in the next three months Source: techconsult, 2012

Cloud consumers tend to favour tailor-made private cloud service packages over standardised public cloud products. At this early stage of market development quite a lot of users are therefore evidently prepared to accept the higher service charges and lower returns to scale of smaller private clouds in comparison to large public clouds in order to enjoy the benefits of offers customised to their special requirements.

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E-conomics

Cloud Computing: Clear skies ahead

This calculated consumer strategy is reflected in surveys. Almost one-fifth of 15 respondents in the latest poll of SME companies by techconsult said they planned to roll out or continue with cloud computing in the coming three months. Nearly half of these companies spoke of plans for a private cloud. A quarter was looking at a hybrid cloud and not quite a third at a public cloud (see chart 10 and comments in the empirical second section of this study). These companies see the merits of a private cloud in that it satisfies their personal need for security and monitoring of data outsourcing. The German businesses interviewed by IDC expressed themselves in a very similar vein. Just over one third of companies cited reduced possibilities for intervention (i.e. governance) as an argument against public clouds, with one quarter each mentioning the need for compliance and doubts about the service level actually guaranteed (service 16 quality and availability).

Not up to expectations
"Were the objectives associated with cloud comp. achieved, % of the companies surveyed, DE

11

Cost cutting Flexilility Avoidance of major investment Independence from IT department Swift distribution Expanded functionality Others 0 5 10 15 20 25 30 35 Achieved

Consumers expectations often not entirely satisfied

In practice many of the hopes placed in cloud computing have so far been disappointed. Uncertainty is rife in this new area of application implying that businesses still have a lot to learn. More than half the German companies surveyed by management consultants Deloitte said they had not fully achieved 17 the objectives associated with the introduction of cloud computing. Their dissatisfaction is most apparent with regard to the flexibility and cost savings they had hoped to achieve (see chart 11). Management consultants Hurwitz & 18 19 Associates and IDC, for example, speak optimistically of potential savings of 20 21 as much as 55% of the total IT spend. Aberdeen Research and McKinsey argue far more cautiously that the overall cost savings for companies from cloud computing are in fact negligible. In a worst-case scenario they even identify a danger of cost increases running into double digit figures. Given that companies which opt for cloud computing initially incur substantial investment (e.g. in consulting, hardware and training), it will not be possible to deliver an empirically validated assessment of the overall impact on costs for some years to come.

Targeted
Source: Deloitte, 2011

Market development still in its infancy

The market still has to develop The cloud computing market still has most of its development ahead of it. In line with this, surveys on the use of cloud computing arrive at very different results. The consultancy IDC, for instance, paints a positive picture with 70% of SME firms in Germany working on a cloud strategy. techconsult, on the other hand, points out that at present a scant 16% of the German SMEs polled are actually employing the technology at all even selectively. Indeed, 25% of SMEs see only specific positive aspects of cloud computing for their own business. This currently ambiguous picture is typical of a new market like the one for cloud computing. Cloud technology is making slower progress than widely hoped for. Resistance and structural obstacles exist among both users and providers of cloud computing. The following four aspects are the most pronounced: Resistance from IT vendors: The potential of cloud computing obliges IT vendors to rethink the traditional business model. In many areas demand15

16 17 18

19

20 21

See techconsult (2011). Noch geringer Cloud-Einsatz im deutschen Mittelstand. Press release. Kassel. See IDC (2011). Cloud Computing in Deutschland 2011. Frankfurt am Main. See Deloitte (2011). Cloud Computing in Deutschland. Berlin. See Dufft et al. (2010). Das wirtschaftliche Potenzial des Internet der Dienste, Bundesministerium fr Wirtschaft und Technologie. Berlin. See IDC (2009). Cloud Platform Drives Huge Time to Market and Cost Savings. Frankfurt am Main. See Aberdeen Group (2009). Business adoption of cloud computing. Boston. See McKinsey (2009). Clearing the Air on Cloud Computing. Berlin. E-conomics

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Cloud Computing: Clear skies ahead

side pressure will result in new cloud computing offers ousting the hitherto customary on-site provision of extensive IT hardware and software. These new offers will trigger significant changes in distribution channels, value chains and hence margins. This is likely to encounter resistance from within organisations at least in the initial stages of reorientation. Resistance from the outsourcing companies IT departments: Before their upcoming reorganisation, outsourcing companies will certainly have some convincing to do within their own organisation if they are to keep their inhouse IT department on board. Re-educating staff is important in order to head off the potential upsurge of a greater or lesser groundswell of apprehension particularly during roll-out which would block the introduction of a technology that makes sense for the company as a whole. The concerns are likely to be wide-ranging from fears of job losses for IT workers to the prospect of less operational influence for IT management. Dealing with such issues frankly and openly will presumably pose not 22 insignificant challenges for management. Interoperable use is the ideal Lack of generally accepted standards: A generally accepted technical standard could significantly facilitate the interoperable use of cloud computing services across different architectures and take market penetration as a whole further forward, all the more so since quite a few potential users are currently still holding back for this reason. There is widespread fear of choosing a solution that may not ultimately make the grade. However, agreement within the industry on generally accepted standards may prove difficult to reach. Indeed, some vendors may deliberately rely on proprietary services, a business strategy driven by the hope that restricting interoperability will make it much more difficult for customers to change providers. Network availability and speed: Communications networks have to cope with ever higher data volumes and quality requirements. Inefficient communications networks (particularly with regard to system availability and speed) cause interruptions in cloud users operations, often also resulting in substantial downtime costs. The prospects of success for the new cloud services therefore depend directly on the distribution and efficiency of the communications network. Development of the communications network the pivotal economic issue is therefore also an issue affecting the 23 business fundamentals for cloud computing (see box 14).
Excursus: High-powered communications networks in demand

Limit to growth unforeseeable

Monthly IP data volumes, DE, exabytes (10^18 bytes) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010
Source: Cisco, 2011

12

Average growth p.a.: +35%

2011

2012

2013

2014

Broadband expansion: A major project

Estimated investment required for broadband expansion, EUR bn AT ES IT GB FR DE Total EU 0
Source: EIB, 2011

13

14

Far from being a distant figment of the imagination, capacity constraints in the data network are thus a foreseeable reality amid the steady increase in IP traffic (see chart 12). All the same, network utilisation varies considerably depending on the time of day, weekday and user groups. Deutsche Telekom states that 65% of its data traffic is generated by just 10% of its subscribers. In addition, peak loads normally occur between 6pm and 10pm, although this can be heavily influenced by unscheduled day-to-day occurrences. Mindful of the social and economic importance of adequate broadband supply, the European Commission has set ambitious objectives for expansion. By 2020 every EU citizen should be able to go online at a minimum internet access speed of 30 Mbit/s; furthermore, at least 50% are to have access with a minimum speed of 100 Mbit/s. Germany is even raising the bar somewhat higher, targeting an internet access speed of 50 Mbit/s by 2015 for 75% of Germanys 40 million households and by 2018 for every single household.

221 10 20 30 40 50

These ambitious bandwidth targets entail huge infrastructure investments (see chart 13). In what are relatively conservative estimates for the EU as a whole the European Investment Bank (EIB) projects that these costs will exceed EUR 220 bn.

22 23

See comments in the second, empirical part of this study. See Heng, Stefan (2011). Net neutrality: Innovation and differentiation are not polar opposites. Deutsche Bank Research, E-conomics 86. Frankfurt am Main. E-conomics

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Cloud Computing: Clear skies ahead Good openings on a market in flux

Steep growth in cloud
Cloud computing market volume, DE, EUR bn 9 8 7 6 5 4 3 2 1 0 Average growth: +36% p.a.

15

Development of the market for cloud computing has been hamstrung so far by the challenges involved, notably insufficient supply-side growth, the high price level in which this results, and reservations on the part of users. Even so, cloud computing can look forward to favourable market opportunities on the demand side as users become more aware of the service, and on the supply side with a more broadly differentiated product range increasing deployment pressure on users. That said, the time horizon will be longer than many providers had initially 24 hoped. techconsult, for example, is working on the assumption of 40% growth in usage for the next six months (see remarks in the empirical second section of this study) admittedly from a low base level. And the industry association Bitkom speaks of cloud computing at least generating 10% of the total IT spend in Germany by 2016. By this reckoning, we estimate that within five years market volume in Germany will climb from EUR 2 bn at present to EUR 9 bn, corresponding to average growth of 36% p.a. Globally, market volume over the same period is likely to increase from EUR 21 bn today to EUR 71 bn, representing average growth of 28% p.a. (see charts 15 and 16). Management consultants Roland Berger calculate that up to 70,000 jobs per annum gross could be created in the 25 European cloud computing segment as a result. As already discussed, however, at least some of these positions could then be lost in other IT subsegments and regions. On balance therefore, cloud computing will not foreseeably boost the total of somewhat more than 15 million IT jobs on a massive scale, although it will help stabilise the labour market through productivity gains. This momentum will transform supply-side structures. Quite a number of internet service providers, infrastructure providers, IT consultants and cloud vendors intend to expand their range far beyond the limits of their respective core businesses while at the same time significantly increasing their degree of vertical integration (see remarks in the empirical second section of this study). This trend is likely to ratchet up the competitive pressure, which in turn should place the larger, successfully established providers at an advantage. Stefan Heng (DB Research, +49 69 910 31774, stefan.heng@db.com)

2011
Source: DB Research, 2012

2016

Bright outlook worldwide

Cloud computing market volume, global, EUR bn 80 70 60 50 40 30 20 10 0 2011
Source: DB Research, 2012

16

Average growth: +28% p.a.

2016

24

25

See. Lamberti, Hermann-Josef (2012). Frankfurt Cloud strkt Innovationskraft des Finanzplatzes. Brsenzeitung, Sonderbeilage 60 Jahre Brsenzeitung. See Roland Berger (2011). Survival of the Fittest: Wie Europa in der Cloud eine fhrende Rolle bernehmen kann. Munich. E-conomics

11 | March 1, 2012

Cloud Computing: Clear skies ahead Empirical analysis: The Cloud Index Mittelstand
To examine the role played by cloud computing, at the beginning of 2011 techconsult and HP Deutschland set up the Cloud Index Mittelstand. In contrast to the large number of recent studies, research and surveys, the Cloud Index takes a long-range view, offering analysis over time by means of periodic surveys. Study design and content The Cloud Index aims to provide users and suppliers with an overview of the diffusion, development and establishment of the cloud computing trend. Its findings enable IT professionals and business decision-makers to follow the development of the cloud market practically in real time and to benchmark their own strategic focus against their competitors. In the process, the SME sectors needs are picked up and communicated to the IT market professionals. Secondly, the importance of cloud computing in the German SME sector is made transparent. The Cloud Index is designed to create visibility for business decision-makers and to raise their awareness of this cutting edge technology. The study concept is based on an expanded definition of Germanys Mittelstand (the SME sector) determined by the number of employees (full-time equivalent), so that the research covers companies with a headcount of 20 to 1,999. The surveys are conducted quarterly at techconsults own call centre, drawing the random sample for the interviews from techconsults Mittelstand database. This is governed solely by considerations of representative distribution by sector and size class. Unlike purely online surveys, the poll guarantees an undistorted representation of the Mittelstand sector. In online surveys it is hardly if at all possible to monitor the quality of the responses. Additionally, the method chosen generally results in a greater willingness to take part by people who have an affinity with the subject matter. Content dimension of the index Fitness rating as a measure of potential cloud usage The HP Cloud Index Mittelstand captures and illuminates the subject of cloud computing at German SME businesses from various angles. Besides companies usage and their plans to implement cloud solutions, the hoped-for benefits and anticipated disadvantages of using cloud are quantified and reasons given for these assessments. Companies cloud fitness the term refers to their level of preparedness to implement cloud technology is also investigated. The fitness rating surveyed here produces a measure of the potential for the use of cloud at short-term. Emphasis is placed on the following aspects: Cloud usage by the German Mittelstand: Cloud usage in the past three months and projected cloud usage, including differentiation by cloud solution levels (SaaS, IaaS, PaaS) and service models (private, public, hybrid). Engagement with cloud computing: Depth in which the company treats the subject of cloud computing and department-specific rating of intensity. Assessment of cloud benefits: Assessment of the benefit to the company from the implementation of cloud computing together with the reasons for a positive or negative assessment of the benefits based on a set list. Cloud fitness rating: Assessment of how well the company is prepared to roll out and use cloud solutions together with the reasons for a positive or negative fitness rating based on a set list.

12 | March 1, 2012

E-conomics

Cloud Computing: Clear skies ahead Cloud usage by Germanys Mittelstand has increased
Rapid growth in 2011
Percentage of SMEs surveyed that use cloud, Germany 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 SaaS
n=200 companies per quarter Source: techconsult, 2011

17

There was a significant increase in the use of cloud computing during 2011. Some 10% of SME firms were implementing cloud solutions for their businesses at the turn of the year 2010/2011, a number that has since risen to around 16% of the companies interviewed. The strongest growth was registered in the fourth quarter, driven chiefly by the software-as-a-service and infrastructure-as-aservice models. Although the rate of expansion slowed in the first quarter of 2012, in the medium term roughly one quarter of companies plan to use cloud computing. Whilst the number of companies entering the cloud computing world rose steadily, adaption and diffusion of the cloud model within corporate cloud users various IT segments failed to keep pace. Often the companies interviewed make only selective use of cloud solutions or their usage is confined to isolated or very few areas of application. So whereas SMEs perceive cloud computing as an additional option, it is not a substitute for traditional IT service models. As a result, the establishment and diffusion of cloud is tending to fall short of providers expectations. Farther down the line, however, respondents say they plan to make more use of cloud. As a rule, actual demand and planning for a specific project are decisive to the deployment of cloud technologies. At the same time, experience with concrete cloud projects opens a companys eyes to new ways in which cloud solutions can ideally support business processes (see charts 17 - 20 and remarks in the analytical first section of this study). Software as a service driving the use of cloud In 2011, software in particular was used in a cloud model, and in 2012 SaaS will similarly act as the driver and indicator of cloud computings establishment at German SMEs. SaaS is therefore presently cornering the lions share of current spending on software as a service. The deployment of software under a service model has already gained a firm place as an alternative supply strategy at the companies surveyed, where it is present on the strength of previous experience with application service providing (ASP) and similar models. With increasing supply density and more differentiated SaaS services, the use of software as a service is gaining in appeal to IT professionals. Among the most favoured applications are highly standardised versions for collaboration, security and financial accounting, for example. Customer relationship solutions are another front runner owing to the high demands on mobility. This solution segment in particular is quite rightly considered a pioneering field of SaaS. 2012 is expected to see very intensive use of office and email solutions. Dynamic use of infrastructure as a service SME businesses make more flexible use of IaaS than software services. Infrastructure services are extremely popular among IT officers as a means of responding flexibly to short-term demand and cushioning peak loads. IaaS usage in 2011 concentrated on the provision of servers and storage, with more archiving and backup solutions being used in the second half of the year. As expected, towards the end of the year IaaS services experienced aboveaverage overall growth in usage, with sectors that traditionally enjoy brisk years-end business playing an instrumental part, such as Christmas trade in the retail sector. The clear majority of businesses that employ IaaS say they intend to intensify and expand their usage of infrastructure as a service in the coming year. Here and there firms are also beginning to deploy services through the PaaS level, the aim being to offload more of their administration and resource management work. All told, almost one-fifth of the SMEs polled plan to use infrastructure services in 2012.

IaaS

PaaS

SaaS a well-known software deployment model

Percentage of SMEs surveyed that use SaaS, Germany 14% 12% 10% 8% 6% 4% 2% 0%

18

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012

n=200 companies per quarter Source: techconsult, 2011

Intensive IaaS use at year-end

Percentage of SMEs surveyed that use IaaS, Germany 12% 10% 8% 6% 4% 2% 0%

19

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012

n=200 companies per quarter Source: techconsult, 2011

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Cloud Computing: Clear skies ahead

Teething troubles for platform as a service
PaaS catching up
Percentage of SMEs surveyed that use PaaS, Germany 6% 5% 4% 3% 2% 1% 0% Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012
n=200 companies per quarter Source: techconsult, 2011

20

Although PaaS did start to make distinct inroads in the third quarter of 2011, for the year as a whole it lagged behind the other service models at a low level. Most of the respondents surveyed misperceive PaaS as a purely development environment. And it is with platform as a service that they have the greatest difficulty in characterising the model and rating its upsides and downsides. Going forward, PaaS will play a particularly important role in the integration of multiple cloud services such as their combination in mash-ups.

Preferred cloud deployment models: Private cloud as an entrylevel model

Most cloud services in 2011 were deployed and delivered under a private cloud model. Although a growing number of businesses did dip their toes in the water with the public cloud model in the second half of the year, private cloud still remains the entry-level cloud model of choice for the Mittelstand, with more than half of SMEs aiming for that option since it allays the concerns over security and loss of control frequently associated with outsourcing and is expected to facilitate integration into legacy systems. On the basis of the virtualisation technology already established, in a private cloud environment IT resources are made available to users dynamically, automatically and as a needs-based service. With migration to the service-oriented IT model, flexible infrastructures are designed to enable businesses to generate significant efficiency gains by replacing siloed solutions. The respondents see private cloud as the logical evolution of virtualisation through standardisation and automation of the infrastructure (see chart 21 and remarks in the analytical first section of this study). Hybrid cloud as a model for the future
0% Q2/2011 Q3/2011 20% Q4/2011 40% 60% Q1/2012F

Private cloud most commonly used

Percentage of the cloud service models in use, Germany

21

Private Cloud

Public Cloud

Hybrid Cloud

Basis: Companies that use cloud computing Source: techconsult, 2011

Many private cloud users wish to enhance and expand the targeted efficiency and flexibility gains with public cloud solutions. However, in the course of the year many participants in the study discovered to their cost that conversion to a hybrid cloud is a more challenging and complex task than envisaged. Yet in many cases there was not even any need for additional external services. Even if conversion to a hybrid model was not realised as forecast, the companies still stuck to their plans. Public cloud, on the other hand, is registering steady growth, with particular use being made of it in the software-as-a-service and platform-as-a-service segments. The study has revealed that large Mittelstand companies mainly initiate private cloud projects. These SMEs have often already consolidated their IT systems for the most part and see considerable cost and resource management benefits in the introduction of cloud computing, as well as greater flexibility. In contrast, IT infrastructures at small SMEs have generally evolved heterogeneously. In this case public cloud solutions offer an ideal way of supporting requirements such as increased mobile availability and the need to cushion peak loads.

Engagement with cloud computing (still) only superficial

Depth to which businesses engange with cloud, computing, in %, Germany Q4/2011

22

9%

32% 28% 32%

Increasing engagement with cloud

Whilst the majority of respondents are aware of the term cloud computing, most of the Mittelstand companies surveyed have not yet explored its possibilities in any depth. In the course of 2011, however, they did show signs of engaging more closely with the subject. Whereas in the first half of the year more than three-quarters of the companies polled had examined cloud computing-models only superficially or not at all, in the second six months a marked increase was

In great depth
n=200 companies Source: techconsult, 2011

In depth

A little

Not at all

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E-conomics

Cloud Computing: Clear skies ahead

Engagement with cloud increasing
Depth to which businesses engage with cloud computing, in %, Germany 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 46.0% 35.5% 2.0% Q2/2011 Don't know A little Very intensively
n=200 companies per quarter Source: techconsult, 2011

23

apparent in the level of involvement with cloud technologies (see charts 22 and 23). Striking is the reduction in the share of companies that have not yet addressed the subject of cloud computing at all. At the same time, slight fluctuations are evident in the proportion of businesses that have engaged very intensively with cloud computing. Prominent in this segment are firms that had considered venturing into hybrid models on the basis of their experiences with the use of private cloud models in recent months but then encountered a variety of interoperability and orchestration obstacles. Time and again, even private cloud consumers report the emergence of new kinds of problems that throw up obstacles in the course of further rollout. Perhaps the network infrastructures are not designed for the new paradigms and have to be adapted, or legacy infrastructure components can only rise to the clouds with considerable effort and/or expense. Both the media and SMEs own staff are increasingly introducing Mittelstand firms to the subject of cloud computing. At the same time direct contact with providers and recommendations from local, established partners are important points of contact for companies addressing cloud models. They exert a powerful influence on the level of involvement with this issue. Although a clear drive is apparent here towards resolving the lack of information that companies identify, firms that have addressed the issue of cloud computing in the recent past still point out that the information provided is inadequate. What they take most exception to, however, is the lack of transparency and comparability of cloud solutions (see the remarks in the analytical first section of this study. IT departments as cloud drivers It comes as no great surprise that the IT departments at the firms surveyed are the drivers behind their companies use of cloud technology. Cloud computing falls within the remit of IT departments, and as a rule their expertise is consulted for the evaluation of cloud solutions. This similarly applies to a companys fundamental engagement with innovative IT solutions. Often, however, the IT professionals sceptical attitude towards cloud already mentioned hinders areawide cloud usage. As a rule once the IT department has thrown the model out, the only impetus can come from an external partner.

9.0% 17.5%

7.0% 25.0%

9.0% 27.5%

25.5% 32.5% 31.5%

32.0%

Q3/2011

Q4/2011

Not at all Intensively

IT departments driving cloud

Depth of engagement by corporate sectors (1 = great depth, 4 = not at all), Germany 4 3 2 1 Management

24

It is often said that cloud is used by a companys management or controlling department as a means of lowering IT costs and making them more flexible. But in the light of the empirical findings, it would seem that management often still requires a considerable amount of persuasive education. In contrast to the increasing engagement with cloud by IT departments, management addresses innovative IT solutions only marginally, and cloud computing models even less frequently. At more than half of all cloud users the initiative comes from IT, followed by external service providers. IT units within the company, such as data processing centres, play a very important part here. Specialist departments are already devoting rather more attention to the issue of cloud, and indeed to innovative IT solutions in general, than their companys management, often in search of the best specific ways to support business processes with IT systems. Failure of a companys IT to offer satisfactory support in this respect may lead to the development of a shadow IT system. Public cloud makes an ideal outlet for this (see chart 24 and remarks in the analytical first section of this study).

Specialist departments

IT departments

Cloud computing Innovative IT solutions

n=200 companies Source: techconsult, 2011

Cloud benefit and cloud fitness ratings on the rise

At the 200 companies surveyed a marked increase was apparent in 2011 in their assessment of the benefits of deploying cloud computing. Although the
15 | March 1, 2012 E-conomics

Cloud Computing: Clear skies ahead

Cloud benefit overtakes cloud fitness

25

Average assessment of cloud benefit and cloud fitness, Germany 4=very big advantages/ 4.0 very well prepared 3.5 3.0 2.5 2.0 1.5 1.0 Q1/2011 Q3/2011 Fitness Benefit/advantages
n=200 companies per quarter Source: techconsult, 2011

majority of respondents still anticipate few or no advantages from the use of cloud computing, steady growth was registered during the year in the response categories useful and very useful. The question of whether or not to use cloud is determined for the respondents either through concrete evaluation of the use of technologies or based simply on their having considered the abstract model and the value it would hypothetically add for the company. Not even half the companies that rated the benefits of use highly have been able to gather experience yet with specific cloud projects. The survey results therefore need to be put into perspective. It is striking that the share of respondents that rate the benefits of use positively is growing far faster than the cloud usage rate. Companies that rate the benefits of using cloud computing positively are already aware of its merits and possibilities. As a rule firms with a low opinion of the benefits conferred will have been involved only superficially with cloud computing so far and often dismiss its use over-hastily. Companies that are implementing cloud solutions, or have done so in the past, but see very little or absolutely no benefits or advantages in using them constitute isolated cases in which the expectations of cloud were disappointed or unforeseen problems arose that led to a rather negative assessment in the subsequent evaluation. But the companies that perceive little or no benefit from the use of cloud computing also include a growing number of businesses which have evaluated the deployment of cloud but decided against it for various reasons (see charts 25 and 26 and the remarks in the analytical first section of this study). Low benefit ratings need often not recognised Throughout the year companies that awarded cloud computing low benefit ratings explained this mainly with the absence of a suitable occasion or need to deploy cloud services. More than 80% regularly state that their in-house IT, operating along traditional lines, covers and satisfies the needs and requirements of their day-to-day business. These respondents exclude even private cloud options from their considerations. What we are seeing here is that the picture many companies have built up of public cloud applications is masking their view for the possibilities of private cloud. But many respondents believe that developing a private cloud would overtax the companys capabilities and resources and that the cost-benefit ratio would not compare favourably with the operational model used so far. IT security remains a crucial issue

1=no advantages/ inadequately prepared

Positive benefit ratings by cloud users

Cloud deployment benefit rating Q4/2011 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8.5% 25.5% 32.0% 7.0% 21.0%

26

28.5% 54.0% 33.0% 4.5% Total 11.0% 3.0% Use of cloud computing Not useful Useful

33.0%

34.0% 5.0% No use of cloud computing

Don't know Not particularly useful Very useful

n=200 companies Source: techconsult

Data protection, data security and compliance hot topics

Among the respondents who see little benefit in cloud computing, concerns surrounding data protection, data security and compliance are a hot topic. This is also reflected in the fundamental strategic statement frequently encountered from Mittelstand companies that they are not prepared to let their data leave the premises under any circumstances. Some respondents consider data security a stumbling block even with a private cloud, saying that the added level of abstraction increases complexity and complicates backup and recovery processes. In this context many companies have already had and are still having problems adapting their strategies to virtualisation technology and believe that rolling out a private cloud would necessitate yet further adjustments and alterations to practised procedures. Individual solutions sought At the same time many companies possess highly individualised IT systems that have been minutely and elaborately attuned to their business processes. These respondents maintain that highly standardised systems, such as SaaS solutions

16 | March 1, 2012

E-conomics

Cloud Computing: Clear skies ahead

in a public cloud model, do not fully satisfy SMEs requirements. It is particularly striking that as the year progressed this lack of individualisability was increasingly cited as an obstacle to the introduction of cloud computing. And in this respect users and vendors opinions certainly are diametrically opposed. As a rule, providers take the line that small and medium-sized businesses stand to gain enormously from standardising their IT systems, whereas users perceive an important advantage precisely with individualised systems. Only limited cost savings achieved Respondents assigning low marks to cloud benefits have reservations about the cost savings frequently targeted, insisting that the economies promised will not be achieved. The most common argument is that rolling out private cloud solutions would, for one, initially require investment in their infrastructure and that using public cloud models would make hardly any difference to their current cost structures. At the same time they believe that deploying external solutions would mean increased expenditure on integrating these services into the systems operated in-house. Many reasons given for high cloud benefits Users expect high benefits The overwhelming majority of companies that currently apply cloud computingsolutions or specifically plan to do so expect the services to confer considerable benefits. Companies with actual experience see reduced pressure on their IT resources and increased flexibility as the main reasons for their positive benefit ratings. The more closely a company has addressed the issue of cloud computing without yet deploying any solutions, the more varied are the reasons given for the rating. Companies interested in public cloud models focus their expectations on cost cutting. Either their licensing agreements are expiring or specific investments in their IT infrastructure are forthcoming. Companies eying SaaS services hope chiefly to economise by eliminating their IT support expenditure. A minority in this category, which consists mainly of companies from the enterprise size segment with more than 1,000 employees, additionally explain their high cloud benefit ratings with the promotion of standardisation. These companies expect the roll-out of a SaaS solution in a public cloud to achieve cost-efficient software distribution, relieve them of administration and maintenance work and, to a lesser extent, to give them mobile access. The potentially better IT security measures that can be adopted at a service providers data processing centre are of less importance, although it should be borne in mind that with private clouds operated in-house this aspect is not relevant to the decision-making process (see chart 27 and remarks in the analytical first section of this study). Degree of engagement instrumental in cloud fitness In a mean value analysis the benefit rating overtook the fitness rating for the first time to gain a clear lead (see chart 25). At the same time the level of preparedness for the use of cloud computing is rising steadily. A key factor in evaluation of cloud fitness is the growing degree of engagement with cloud services. The majority of companies see insufficient knowledge about cloud computing interfaces and technologies as a key factor in low cloud fitness levels. This is noteworthy inasmuch as the assessment applies to all cloud service models. Essentially, businesses with highly standardised IT systems consider themselves ready for cloud since this standardisation means they are already well positioned to deploy private cloud models. This suggests that at SME companies the IT departments are the drivers of cloud acceptance. Often, however, the IT staff is still not familiar enough with the new services. Increasing involvement with cloud technologies is thus vital to better cloud fitness ratings.

Hopes of greater flexibility and less pressure on IT resources

Reasons for high cloud benefit ratings

27

Reduced pressure on IT resources

Increased flexibility

Cost savings

Encourages standardisation of IT

Greater mobile availability Higher availability guarantees (than with internal provisioning) Heightened security at service provider's data centre No long-term commitment to provider necessary 0% Q2 2011 25% 50% 75% 100% Q3 2011 Q4 2011

Basis: companies that use cloud computing Source: techconsult, 2011

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E-conomics

Cloud Computing: Clear skies ahead

New role for IT service providers Role definition in the cloud paradigm Roughly one-third of companies with a positive fitness rating also state that they would prefer to approach cloud computing in collaboration with their IT partners and systems houses. This is striking in that many IT service providers are only now embarking on the integration of cloud computing into their own service portfolios: So as well as altering the use of IT resources at the user companies, cloud also requires their service partners to adjust. If they are to be in a position to accommodate user companies mounting interest, the partners must first address the model themselves and determine their own future role in the cloud paradigm. Systems houses and IT service providers are already gearing up perceptibly, although some of their thinking is still longer-range and focused on a mediumterm time frame. Whilst cloud pioneers have already succeeded in carving out a competitive edge, many companies continue to place their faith in the previous tactic of taking their lead from fundamental industry developments. Understandably, the definition of their own role and their integration into the cloud world is an evolutionary process for service partners. Meanwhile, users themselves are setting out in search of information and solutions. At this point systems houses find themselves no longer competing with local rivals alone; instead they must also square up to large cloud vendors and supraregional IT service providers. Ultimately this is a welcome situation for users, notwithstanding survey respondents insistence that they intend to maintain their previous local partnerships. Full-blown reorganisation unlikely As a rule, there is unlikely to be any fundamental reorganisation of previous activity. IT service providers role profiles are very varied, allowing companies sufficient scope for new developments. For example, software producers may develop new markets in cooperation with established cloud providers or host the software in an environment of their own. It is precisely collaboration with technology and infrastructure providers, who make special technology available to partners for refinement or as a technological basis for cloud services or who are themselves acting as hosting partners in a cloud solution, that forms the basis for the integration of cloud computing into the service portfolio. But in most cases systems houses will presumably act as cloud architects, building up clouds at the user companies on the strength of their previous activity and brisk demand for private cloud services. This activity is closest to the position they have occupied so far, comprising such areas as desktop, server and storage virtualisation, network servicing and application networking. In addition, cloud resellers will retain their position as distributors of externally provided IaaS/PaaS or SaaS solutions, while cloud consultants offer services relating to the entry into cloud environments and the integration of individual cloud services. Cloud aggregators are a special form of provider. As cloud services managers they bundle different services to create new offerings from heterogeneous infrastructure and application solutions. As well as orchestration of the various solutions, this frequently also comprises application development and testing. It is, however, likely that the previous business models operating largely in isolation from one another will increasingly merge into cloud computing (see chart 28 and remarks in the analytical first section of this study). Stefan Neitzel (techconsult, +49 561 8109 128, stefan.neitzel@techconsult.de)

Increasing merger of stand-alone business models

18 | March 1, 2012

E-conomics

Cloud Computing: Clear skies ahead

Many different interfaces between cloud partnering roles

28

Source. techconsult, 2011

Conclusion: Clear skies ahead for cloud

Basic idea very appealing In conclusion, it is important to note that at the moment cloud computing is certainly labouring under often inflated expectations the result of marketing tactics and the wide-embracing nature of the term. After the hype typical of such new fields of activity and subsequent disillusionment it is therefore quite possible that in a few years time cloud computing will have faded entirely from the scene again as a catchphrase. Even so, in a world with globally organised value chains the basic idea behind the buzzword specialisation and concentration on core business does stand a good chance of implementation at companies, regardless of the term then used to describe it. Whereas large corporations often seek to roll out the model company-wide from a strategic aspect, looking to achieve cost savings and make their IT resources more flexible by introducing cloud at their own data processing centres, at German Mittelstand and small businesses this is still the exception rather than the rule, a major breakthrough not yet having been achieved there with a bigbang approach. Instead, cloud is usually considered for specific investment projects. But as cloud awareness increases within the SME sector, in the medium and long term the evaluation of cloud solutions will become a permanent institution; and going forward, cloud fitness and user-friendly integration into cloud environments will serve as an important criterion as companies seek to safeguard their investment. It remains to be seen whether public cloud services will play a more prominent part in future. Looking forward, survey respondents repeatedly insist that they wish to benefit from the advantages of a hybrid cloud world; but at present hybrid clouds are implemented by only a minority. As a rule companies continue to focus on successfully entering the cloud world by building up a private cloud. This clearly reflects expectations of bringing to completion their virtualisation, automation and standardisation drives so far whilst aiming to carry on using the infrastructure already in place and thus extending its useful life. Underlying all this is the determination to retain control over data and IT systems in-house too great is the fear of surrendering control and forfeiting data integrity. At SMEs the user companies IT departments have the most say on implementation of cloud systems. By adopting a defensive attitude the IT professionals there can delay or indeed prevent a rollout because

Hybrid cloud as model for the future

19 | March 1, 2012

E-conomics

Cloud Computing: Clear skies ahead

management and specialist departments rely on their technical expertise in any evaluation. The 2011 survey results clearly show IT departments playing an ambivalent role here. On the one hand, at most of the companies that implement cloud computing the initiative came from the IT units, but on the other these often still dismiss the model entirely. The information deficit evident up to the end of 2011 is a key factor here. However, a marked trend was revealed in the course of the year to increased awareness of and involvement with cloud computing. The closer the engagement, the sooner the full benefits will be recognised On this basis we can empirically identify a logical chain of different factors: where engagement with cloud computing deepens, survey respondents recognise greater benefits from the model. Both ultimately make companies more inclined to implement cloud computing or draw up concrete plans to do so. In 2012 providers of IT services to SME businesses will have a very important part to play in the introduction of cloud computing. There usually exists a close, historically evolved relationship of mutual trust between the user companies and the IT partners that service them. Indeed, not infrequently access to the user is possible only through a systems house with exclusive rights. Some IT service providers last year made huge efforts to integrate cloud solutions into their portfolios and business models. These are significant not only for the impetus they provide to the future development of cloud in the Mittelstand sector but also in terms of further resolving the information deficit and building up knowledge at the user companies. If this is achieved, the adoption of cloud computing at Mittelstand businesses and large corporations alike should persist in 2012. The outlook for the cloud computing market therefore looks rosy. And it will be all the more positive if factors currently having a curbing effect, particularly security concerns and, very importantly, uncertainty over which technical version will ultimately assert itself, can be successfully addressed. Above and beyond the existing certification standards, a harmonised legal framework and a universally recognised international quality label should give users added confidence in the services offered. What is more, increased public sector involvement at the various administrative levels, especially in universities, could lend added momentum to development of the market. The fundamental cloud computing concept behind the buzzword thus stands a good chance in the medium-term of being implemented more broadly in a world of globally organised value chains. We therefore expect market volume in Germany to climb within the space of five years from EUR 2 bn at present to EUR 9 bn, staging annual growth of 36% p.a. Globally, market volume over the same period is likely to increase from EUR 21 bn to EUR 71 bn, representing average growth of 28% p.a. Stefan Heng (DB Research, +49 69 910 31774, stefan.heng@db.com)26 Stefan Neitzel (techconsult, +49 561 8109 128, stefan.neitzel@techconsult.de)
___________________________
26

Harmonisation and certification helpful

Bright outlook for the basic idea behind the buzzword

My thanks to Florian Schler for his valuable input.

Copyright 2011. Deutsche Bank AG, DB Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite Deutsche Bank Research. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt fr Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Printed by: HST Offsetdruck Schadt & Tetzlaff GbR, Dieburg

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