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Cloud in 2011: A bright new dawn...

...or a shadow hanging over IT pros?

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An awful lot has been written about cloud computing in recent months. Big vendors are climbing over each other to claim an understanding of cloud and 2011 is the year it is supposed to go mainstream.

Cloud computing will save us money, it will simplify our IT systems, it will transform the way we interact with government, it will lift Europe out of the shadows of recession. It has been described as the third industrial revolution. Perhaps it will even bring us breakfast in bed.

In a report commissioned by EMC, the CEBR (Centre for Economics and Business Research) estimates that cloud computing could be worth €763bn to the top five European economies over the next five years and will see the creation of 2.4 million jobs.

Can this possibly be true? David Bradshaw, a cloud computing specialist at the analyst firm IDC, thinks it can.

“This is a big shift in the way things are done in the IT domain. It might be slow at the start but in ten years’ time, we’ll look back and see that it has transformed everything. It is at least as big a shift as the switch to client/server computing,” he says.

Counting the pennies

Cloud shifts companies from capital expenditure to spending revenue. Only buying what you need when you need it, rather than spending huge sums on systems that might be out of date by the time they are up and running, will make a massive difference, Bradshaw says.

Oliver Hogan, managing economist at the CEBR, agrees that the numbers look good but urges caution in heralding the dawn of a new era.

“IT spend is usually no more than five per cent of a firm’s turnover. [Cloud] is important, but it is not quite another industrial revolution,” he says.

When businesses talk about saving money they all too often mean reducing headcount, and shifting IT offsite will certainly reduce the need for internal support.

Reg reader “Tezfair" sums up concerns of many IT pros:

“I see the cloud as the start of the end for IT professionals. Once businesses start putting their systems onto the cloud there's going to be next to no support needed. It will all be done at the host… I can see a lot of people out of a job within ten years once this becomes mainstream. And no, I’m not going to spend thousands of pounds on a certificate that will ultimately make me redundant.”

Should he be so pessimistic? In a companion piece to this one, Reg columnist Trevor Pott explores the opportunities for in-house IT pros in a cloud-driven world.

He is upbeat about future prospects, as is Hogan, who says the implicit assumption in the CEBR analysis is that staff would be redeployed in other IT departments or elsewhere in the economy.

“It is not an unrealistic assumption for this kind of highly skilled labour,” he argues.

“Like any other sector, IT service providers will benefit from the cost savings, business development and business creation benefits of cloud adoption, which will result in new job creation.”

Conor Callanan, managing director of Core, a Microsoft Sharepoint reseler, notes that financial directors and chief executives are much quicker to sign up to doing projects in the cloud than their IT colleagues. The usual IT objections are about security issues, rather than the likely impact on staff.

New firms can be more competitive right away

Hogan believes the business benefits will be significant. There will be big savings on infrastructure, and businesses will be able to scale up or down quickly to meet demand and get new products to market faster.

“The reduction in fixed costs also means a lower barrier to market entry,” he adds. “New firms can be more competitive right away.”

Coalition of the billing

Billing and customer relationship management systems are natural candidates for the cloud model, so it is no surprise that customer-heavy sectors – financial services, utilities, governments, leisure and retail – are expected to buy into the concept fastest.

In five years, between 60 and 80 per cent of all financial and business services firms are expected to be running their IT in the cloud, in part driven by moves towards joint accountability for Europe’s financial stability and cross-border data sharing.

The CEBR’s research concludes that the UK will receive a smaller share of those benefits relative to GDP than Italy, France, Germany or Spain.

“In general, small firms in the UK are smaller than those in France and Germany, and therefore less efficient and less able to make economies of scale work for them,” says Hogan.

Why do that if you don’t have to?

“But the firms adopting cloud technology will probably have a better chance of catching up with their European counterparts.”

Bradshaw too thinks cloud will have an immediate impact in the UK. “It is anecdotally accepted that for most enterprises, capital expenditure on IT is higher than that on core business," he notes. "Why do that if you don’t have to?”

He says current adoption splits three ways: companies seriously using cloud technologies in one area, companies using some cloud and companies not using any cloud at all. But more and more companies are finding themselves in one of the first two categories.

And for once the UK is ahead of the curve, largely because people are comfortable with the concept and familiar with many of the applications.

“You will be hard pressed to find many organisations not using the cloud,” Bradshaw observes. “You might not think so, but if you use Gmail, or spam filtering from Message Labs, or email from Postini, then you are using the cloud. Why have malware on your server if you can do it in the cloud?”

He reckons five years from now most European organisations will have signed up.

“When it comes to software renewal, it will be standard to say ‘Can we do this in the cloud?'” he says. ®

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