Analysis

Cloud impact can be as big as the advent of computing itself: EIU report

Archana Venkatraman

Cloud is not just a replacement for older computing platforms, but a revolution that could change business practices as much as the advent of computing itself, according to leading lights from management, academia and the technology industry.

The experts shared their views and warnings about the impact of cloud in a report curated by the Economist Intelligence Unit. According to the EIU, cloud has already made huge waves in IT, with consumer cloud services, such as Google Drive and Dropbox, changing how people use digital content and with enterprise cloud becoming mainstream.

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“This is barely the beginning,” said the EIU in its report The Impact of Cloud. The growing use of cloud will continue to “disrupt markets, spawn new business models and revolutionise information-sharing and business management for years to come”, it said.

The experts included analyst Paul Miller; Professor Ian Bitterlin of the Green Grid Association; Dr Jonathan Liebenau, reader in technology management at the London School of Economics; Mark Ridley, technology director at reed.co.uk; Dr James Mitchell, chief executive of cloud broker Strategic Blue; and Dr Tua Huomo of the European Institute of Innovation and Technology. They explained the impact of cloud, from enterprise IT to the economy and the environment.

How cloud affects customer delivery and enterprise IT

Cloud will change how businesses deliver value to their customers, said Huomo. This is because cloud has created a more global market for IT services, where users have access to a wider range of services. “These business users are able to buy cloud services with less involvement from their IT departments,” she said. “That, in turn, means companies must take the user experience more seriously.”

“Going to the cloud is the starting point in fundamentally changing your business from operational processes to organisational structures, from business models to partner networks,” said Huomo.

The European Institute of Innovation and Technology recently changed the name of its cloud action line from Cloud Computing to Future Cloud, said Huomo. “That is because switching to the cloud is not just about the technology – it’s about seeing the bigger picture: new products and services, new processes, new business models and new potential,” she added. “This is not about business growth, but business transformation.”

Ridley of recruitment firm Reed explained how cloud is changing enterprise IT. “The cloud is rendering the division between IT and business obsolete,” he said.

This is not about business growth, but business transformation

Dr Tua Huomo, European Institute of Innovation and Technology

Today’s IT departments rule out single specialisms or careers for life, he said. “Change is at the very core of what IT has become. The IT department no longer has a monopoly on technology.” 

Ridley said the “IT expert” and “IT user” are merging. “In light of the simplicity and accessibility of cloud computing, the status of the IT department as 'the people who deal with technology' is no longer fit for purpose,” he observed.

He advised enterprises to reorganise their business as a network, rather than a hierarchy. Bringing together cross-disciplinary teams can help firms become more agile and adapt to challenges. Last month, experts at Datacentres Europe said enterprises cannot leverage on cloud without taking advantage of DevOps.

DevOps is an IT practice of merging the tasks performed by a company's application development team and those performed by the systems operations team and tearing down the silos between them.

Cloud is challenging the roles of not just CIOs and CTOs, but also of CMOs and CEOs, said Ridley.

How cloud’s pricing is affecting its uptake

While there is no doubt that cloud services are beneficial to users and providers, current cloud pricing strategies and the lack of interoperability are hindering its progress, said Strategic Blue's Mitchell.

One of the hallmarks of cloud computing is its ability to turn IT resources into tradeable commodities, benefiting both users and providers. But for cloud to truly become a commodity, the services must be interchangeable.

“Anyone who has tried migrating from one cloud service to another will know they are not fungible,” said Mitchell. “In fact, making the switch requires careful comparison of capabilities, performance, pricing and the accompanying legal documents.”

Experts have always argued that the lack of established cloud standards and interoperability has made it difficult to move workloads between private and public clouds and that these problems hinder cloud adoption.

Without any industry-wide cloud standards, suppliers have built proprietary cloud services on software stacks that are not compatible with the stacks used in public clouds, making interoperability difficult.

Cloud pricing is broken, at least from the customer’s perspective

Dr James Mitchell, Strategic Blue

Interoperability and application migration among clouds would enable enterprise IT to select the best cloud technologies and avoid supplier lock-in.

Another major barrier to the commoditisation of cloud computing that has yet to be addressed is the pricing model, said Mitchell in the EIU report. “Cloud pricing is broken, at least from the customer’s perspective, because cloud providers design their pricing to suit themselves, not the customer,” he said.

Take Google’s cloud billing, for instance. Currently, it is still based on the use of virtual machines, rather than on the actual use of resources. If a customer provisions an 8GB server, it will be billed for 8GB even if the server is idle, according to cloud provider ElasticHosts.

But things are starting to change, with public cloud providers introducing new pricing structures based on reserved instances principles, where users can buy cloud services in advance at really low prices to use them in the future, said Mitchell.

But cloud computing is not just changing the enterprise IT landscape and the business environment. It is also reducing IT’s carbon footprint and creating new jobs and economic opportunities.

How cloud improves IT resources’ energy use

Cloud uptake results in the consolidation of datacentres which, in turn, increases IT’s energy efficiency, said Green Grid’s Bitterlin. Cloud provision calls for its suppliers to upgrade or replace the hardware more frequently. This shorter refresh cycle – of about two years – results in energy-efficiency gains because the newer equipment is far more energy-efficient, he said. 

But that’s not all. In a cloud datacentre, server load is also optimised, resulting in less idle IT estate that continues to consume electricity.

When individual enterprises build small-scale in-house datacentres, they rely heavily on fossil fuels such as coal for electricity. This makes IT less environmentally friendly. But the mass-scale operation of cloud services means datacentre facilities are built near renewable energy resources, reducing IT’s carbon footprint.

Big datacentre and cloud operators such as Apple, Google, eBay and Facebook have made progress towards improving energy efficiency in their IT operations, according to a report from Greenpeace.

Cloud computing has the potential to be economically transformative

Dr Jonathan Liebenau, London School of Economics

Google, Facebook and Apple use wind, solar and hydroelectric power facilities to reinforce their commitment to sustainable energy sources. Apple’s environmental report showed that only 2% of its carbon footprint was directly related to IT facilities.

“Cloud computing has the potential to be economically transformative,” said the LSE’s Liebenau. Cloud’s low-cost entry and cheaper capital expenses have democratised IT, giving even SMEs an opportunity to compete with the big players, he added.

Enhance new business development

The LSE’s study showed the microeconomic characteristics of cloud have the potential to improve productivity and enhance new business development.

“And employment outcomes are likely to be positive, creating more jobs than are destroyed and accelerating the creation of new businesses,” said Liebenau. But cloud will affect different sectors differently, he added. For instance, the IT sector will see the most immediate economic benefit of the cloud – more datacentre construction jobs and hardware investment.

But the economic impact of cloud computing in Europe will depend on how services providers, governments and users adapt, said Liebenau. “European cloud services providers need to offer competitive prices and guarantee safe and reliable technology,” he said.

“Governments need to ensure an appropriate legal environment, procurement practices and energy prices. It will also depend on the willingness of managers to adopt the new practices necessary to exploit the technical and economic advantages of cloud computing.”

The EIU report concluded: “To assess cloud’s real significance for their organisation, executives should also pay close attention to how it enables new business models, transforms business processes, and creates new markets.”


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