New Zealand – The Land of the Long White Cloud?

Following the Unsustainable Path

CIOs and Executives alike, agree that today's business operations are heavily dependant on technology. Supposedly "simple" business requests such as up-scaling IT production to support spike's in business activity, changes in business processes to meet customer demands or to achieve productivity gains, and the integration of new/existing services, often reach the boundaries of organisations' IT abilities. These constraints are a direct result of IT environments and facilities that were never designed and architected to support the requirements of today's dynamic business environments.

Key Insights:

Business executives increasingly identify IT as a source of competitive advantage, demanding newer, better and faster services from their IT departments. Unfortunately, many New Zealand organisations are on an unsustainable path to scale and grow their 'on-premise' IT, without any alignment with their business requirements. Cloud computing has emerged as a compelling and valid alternative to the traditional 'on premises' model. A recent IDC cloud computing study confirmed strong interest from Asia Pacific organisations, leading to the expectation that Cloud is on the verge of reaching mainstream markets. Nonetheless, instead of a full displacement of the traditional model, we can expect a slow but ongoing convergence in a complimentary and coexisting framework.

The Catch 22 Dilemma

IDC's ANZ Continuum Survey 2008 revealed that companies allocate 77% of their annual IT budgets to support and maintaining their existing systems, leaving only 23% available for new investments that provide new and innovative services to the business. IDC also expects that this situation is likely to worsen as research indicates that organisations spend $8 on support and maintenance for every $1 spent in additional hardware. As a result IT has often outgrown organisations' management, support and budgetary capabilities. To make things worse, approximately 20% of participants in a recent IDC Economic Impact Poll, conducted across Asia Pacific, indicated that IT budgets will be cut in 2009.

However, business growth plans are not put on hold and neither are growth plans for IT. Therefore, cloud computing becomes a compelling option for companies looking to reduce their expenditures on excess, under-utilised server capacity and the associated management, power and cooling cost. IDC estimates that for every dollar spent on hardware, an additional 50c is spent on power and cooling. Hence, moving to a pay-per-use model will provide an attractive ROI, and a sound business case for many organisations faced with volatile business activity.

The Allure of Cloud Computing

Cloud computing is fast becoming an attractive business proposition, for two reasons; driving down cost and driving up innovation. Cloud computing is often described as the computing model of the future. In simple business terms, cloud services are consumer and business products, services and solutions, delivered and consumed in real-time over the internet, while managed and supported in a centralised data centre. Despite the fact that cloud services are amongst the 'New kids on the Block', adoption is on track. This statement is supported by the results of IDC's Asia Pacific End-User Cloud Computing Survey from January 2009, which indicated that 52% of businesses in the region already use or are planning to engage in cloud computing services (shown in Figure 1).

The Castle in the Clouds

IDC believes that cloud computing will make further market inroads. IDC's research indicates that we are currently in the 'Early Adopter' stage (11% across Asia Pacific) as shown in figure 2. Considering that 41% of companies are currently evaluating cloud services, we can expect that 'cloud' will reach the 'Mainstream Market' within the very foreseeable future. As G.K Chesterton once said "There are no rules of architecture for a castle in the clouds."

The Evolution of the Cloud Ecosystem

Adoption has mainly been driven by the need to respond to IT budget constraints, whilst providing business growth and an improvement path. The current economic environment forces companies to review their cost structure. Cloud addresses this issue by moving 'capex' into 'opex' expenditure, with 'pay-as-you-use' functionality to improve cost predictability and risk mitigation. At the same time, organisations continue to strive for growth in a contracting market. Faster deployment and shorter time to value, provide a compelling business case for the Cloud.

Nevertheless, alongside the 'pros" come a few 'cons'. Security, performance and availability were top of mind concerns of the surveyed participants. Interestingly enough, these are exactly the same concerns and challenges that are at top of mind as far as their internal IT environments are concerned. More relevant concerns derive from the challenge to integrate the cloud services with internal legacy systems.

Furthermore, organisations are concerned about the dependency on third party providers and ISP's, and the cost involved to move services back 'on-premises' once they have been shifted to the cloud. IDC believes that as cloud computing matures and its ecosystem expands, either of the latter concerns will be addressed.

IDC Conclusion

In an attempt to scale IT to support the growing business demands we have created complex and expensive 'mash-ups' of servers, devices and applications that are difficult to manage and change.

These constraints have created the notion that IT is not closely enough aligned to the business, which in turn coined the phrase of the 'Adaptive Business' enabled through 'Dynamic IT'. However, business executives increasingly identify IT as a source of competitive advantage, demanding newer, better and faster services from their IT departments. This has led to a great interest and demand for the likes of cloud computing that can strategically cut costs and drive innovation.

Nonetheless, IDC is not expecting cloud services to take over and replace traditional 'on-premises' deployments. Most companies have made significant investments in their existing IT and have developed roadmaps for the short and long-term future. It is highly unlikely that these investments and plans get written off in favour of the cloud model. A scenario with a greater likelihood is that companies will evaluate cloud on a case by case basis when upgrades, refreshes or new deployments are on the agenda. In this scenario cloud is expected to establish itself as a compelling alternative to the 'on-premise' model in a complementing and coexisting framework.