CRISIL Young Thought Leader 2014 CLOUD COMPUTING. MALADI SRINIVAS PAVAN 2 nd year student of PGDM INDIAN INSTITUTE OF MANAGEMENT CALCUTTA

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1 CRISIL Young Thought Leader 2014 CLOUD COMPUTING How will cloud computing transfo rm technology? Wha t is the futu re outlo ok for cloud computing? Submitted by MALADI SRINIVAS PAVAN 2 nd year student of PGDM INDIAN INSTITUTE OF MANAGEMENT CALCUTTA 0

2 Table of Contents Executive Summary... 2 Introduction... 3 Cloud Service Models... 3 Cloud Deployment Models... 3 Drivers for Cloud Adoption... 4 Hurdles for Cloud Adoption... 5 Sector-wise Scope For Cloud Adoption... 6 Other Trends Driving Further Cloud Adoption... 9 Growth Estimates... 9 Conclusion References

3 Executive Summary We are in the Internet era currently witnessing an explosion of mobility and computing solutions. Each development has its own set of advantages for all the stakeholders involved. Among such new trends, Cloud Computing is one of the most discussed and widely adopted technology. The main idea of Cloud Computing is the ability to access data anytime and from anywhere in the world without worrying about the infrastructure, platform requirements. The phenomenon of Cloud Computing is as relevant to individual users as it is to big corporates or small & medium businesses. In the case of businesses or enterprises, IT infrastructure has been previously considered a supporting function for the business. Procurement of hardware, installation of software, negotiations with IT systems suppliers etc., used to take long durations before the actual deployment of IT application takes place. Cloud Computing solutions have eliminated the hassle of all this. This is helpful especially at a time when IT is evolving as one of the primary enablers of business in helping to serve the customers better and bringing in the flexibility to business services provided. Cloud computing has helped businesses by providing cost-efficiencies, lowering the time to market and providing always available, on-demand applications and platforms. Cloud is primarily considered a technology enabling flexible IT solutions. However, it is also expected to be an enabler for interaction with other core verticals of any business. Such developments are possible through evolution of inter-operable, compatible solutions across all functions. However, there are several hurdles and challenges in the way of cloud adoption which range from data security / privacy to legal / regulatory issues combined with other misconceptions on the usage of Cloud based solutions. This report explains the theme in the following parts: Perspective building on Cloud computing sector, various models of delivery Drivers for Cloud Adoption and Challenges on the way to increased Cloud migration Analysis of the need for Cloud adoption from various perspectives such as sector-wise adoption potential, major trends which can lead to increased Cloud usage The paper finally concludes that Cloud Computing adoption is a growing phenomenon and that it continues to be in the growth phase at least for the next few years before attaining maturity phase by the end of the decade. 2

4 Introduction Cloud computing, also called cloud simply, is the process of delivering internet based services (ranging from applications to infrastructure) on a pay-for-use basis. Main characteristics of Cloud computing include the elasticity of resources (scaling up or down the usage depending on the requirements) and option to pay only for what is used. Cloud computing (referred just as Cloud from here on) can be provided in 3 service models and 3 ways of deployment. Understanding these nuances helps appreciate the potential of cloud better. Cloud Service Models Model Software as a Service (SaaS) Platform as a Service (PaaS) Infrastructure as a Service (IaaS) Description Provision of software applications for usage over the internet Customers need not worry about maintenance, upgrades, hardware requirements for running the software etc. E.g.: Gmail, Facebook, Salesforce.com etc. Provision of capability to the customers for developing and hosting applications Customers need not worry about underlying hardware, operating systems etc., needed for the development E.g.: Windows Azure, Force.com etc. Provision of computing resources like hardware, networks, storage, backup etc. Customers are free to deploy their own operating systems, software, development platforms etc., on top of this hardware E.g.: Amazon Elastic Cloud Cloud Deployment Models Model Private Cloud Public Cloud Description Owned and used by a single organization. Deployed in the organization itself. Provides advantages of cloud computing combined with increased control over deployment such as better control of the data center Owned by a company which intends to sell its cloud services and used by a large of users / customer organizations Location of data centers depends on the service provider s decision 3

5 Hybrid Cloud Customers need not have to buy hardware, software needed to run the cloud system A mixture of both private and public cloud services where the private cloud services are for use within the premises of the organization while public cloud is for external use It gives firms an option to restrict sensitive data to private cloud while make use of the advantages of public cloud for specific services Drivers for Cloud Adoption Today, companies with investments in IT infrastructure are considering cloud as a serious alternative to on-premise solutions. This has been an outcome of various macro-level factors and the inherent advantages offered by cloud solutions. In order to understand the reason for popularity of cloud, the drivers for cloud adoption need to be looked at. Given below, are some of the drivers for cloud adoption: Capex-vs-Opex considerations Setting up an IT facility to support the information needs of an organization involves huge capital expenditures (capex) for buying hardware and software in addition to operational costs of maintenance needed for managing these installations. Cloud service subscriptions are generally priced depending on the usage estimates which help convert the capital expenditures to operational expenditures. Agility & Scalability Organizations are wary against implementing solutions based on complex platforms, platforms which are expensive to expand, platforms which limit the growth. In case of companies which expect huge growth over the years a legacy application might result in limitations inhibiting the growth, uptime etc. All these reasons also make the cloud an attractive option. Need for Disaster protection There are sectors where business continuity is a critical success factor. IT applications need to be running anytime and every time to ensure smooth functioning even if the access to a data center or IT resources is lost. Hosting solutions on the cloud helps overcome this risk. Multi-Tenancy Cloud solutions enable multiple tenants to use the same set of resources which are dynamically allocated. This makes offering cloud solutions an attractive option for the 4

6 service providers too as it gives scope for improved profit margins and this cost advantage is passed on to end customers eventually. According to Frost & Sullivan survey on drivers for cloud computing (2012), the top reasons for cloud adoption are: 1. Managing growth of current data centers 2. Disaster recovery 3. Need to capitalize on growth prospects 4. Increased storage requirements (space and uptime) 5. Increasing costs 6. Need for flexible IT environment 7. Adapting to changing market conditions 8. Need to spend time on strategic work and not maintenance work Hurdles for Cloud Adoption In spite of the cloud having significant cost and scalability advantages, the adoption is being hindered due to various doubts about usage of cloud solutions. Some of the challenges in the cloud adoption are: Security / privacy concerns This is one of the consistent and top concerns for cloud adoption. Customers of cloud solutions are wary about the privacy of their data in the multi-tenancy environment. Any security breach or virus attacks can have a huge effect on multiple organizations and their data. Legal / regulatory issues Location of data centers, storage & transmission of sensitive information outside the geographical boundaries of a country happen to be part of cloud computing solutions. However, these can be prohibited by a country in which the cloud service customer organization resides. E.g.: PSUs or Banks in India have several restrictions with respect to storage of information, customer & electronic cards data. Similar data privacy laws exist in each country which might be applicable to the cloud service provider and the customer too. Reliability In spite of uptime guarantees by cloud service providers, there are still doubts about the reliability of the service because of the lack of control in case of an outage. Moreover, the functionality is not just dependent on the cloud service provider but also dependent on the reliability of the Internet connectivity in between. 5

7 Migration from legacy systems This is true especially for large organizations already with significant sunk costs in legacy IT platforms. Migration from such systems to the cloud can be tedious, lacking interoperability, involving huge costs, having compatibility issues. Thus the decision on migration to cloud is generally postponed due to these reasons. Interoperability As the number of systems and platforms interacting with each other keep increasing, interoperability among different platforms is a key concern. This interoperability is a big hurdle even for cloud adoption as the customer might not have complete control on deciding the interaction with external platforms or applications. The Future of Cloud Computing survey (2014) by North Bridge & Gigaom highlights most of the above mentioned hurdles in its report on cloud adoption. Some survey highlights are: Security is the biggest challenge for cloud adoption (49% of respondents are concerned about security issues with data on cloud) Privacy of the data stored on cloud has also appeared as an impediment with 31% of respondents mentioning it Vendor lock-in (29% respondents) and Interoperability concerns (17% respondents) did feature as the other significant challenges for increased cloud adoption Sector-wise Scope For Cloud Adoption Cloud adoption in the world is currently in between the Early Adoption stage and Growth stage, according to Frost & Sullivan s analysis on cloud computing, The maturity phase which follows the wide scale adoption is expected to set in by the end of this decade which depicts the potential for cloud adoption. However, this rate of cloud adoption trend and potential cannot be generalized for all the sectors. It varies depending on the industry / sector also. This section looks at the cloud adoption potential across a host of sectors which helps give an idea about the future trends. Sector Need for Cloud Adoption Example Information & Communication Technology Healthcare Adopt latest technologies to meet increasing demand Maintain Cost effective infrastructure Analyze huge patient data Travelocity, an online travel agency, has started using Oracle Cloud Services to streamline its customer centres thus reducing the operational costs IBM Cloud service is being used by ActiveHealth Management 6

8 Energy & Power Systems Aerospace & Defense Automotive Environmental Organizations Modernize legacy systems Improve clinical, business performance Efficient data management Better Production & Operations Tracking, solving maintenance issues Simplify procurement & supply chain Cost control for input parts Reduce operational costs Efficiently manage global supply chain & distribution network Availability of Global weather information anytime, any where Real-time data analytics enabling physicians to access patients' medical history thus improving accuracy of diagnosis. Tata Power Trading Company (TPTC) improved its resource utilization by using Salesforce.com CRM solution Boeing upgraded its legacy software (Twister data framework) to enable cloud capabilities. It helped customers to analyze data from anywhere Toyota, USA, has started using Microsoft Cloud services to improve employee interaction and enable information sharing The Weather Channel has used Amazon's Elastic Compute Cloud to manage high traffic during hurricane Sandy and enabled information availability to users during crisis. Let us look at some industries / sectors in detail in the following section. Business & Enterprise Businesses & enterprises are expected to be having huge impact from cloud adoption Cost & efficiency: Cloud solutions are being increasingly seen as a key ingredient in helping businesses achieve cost-competitiveness and operational efficiency. Customer Satisfaction: Every business today is adopting the policy of customer centricity in all its services. Cloud services can help in this direction by improving the availability, quality and flexibility of the services offered. It also helps in shift of focus from IT maintenance to business oriented tasks. Small & Medium Enterprises derive significant cost advantage with cloud services adoption as it helps in reduction of time to market for their services without huge fixed costs. 7

9 Example: UK s Royal Mail Group has migrated from its legacy systems to cloud services offered by Microsoft back in 2012 and is expecting cost savings to the tune of 1.8 million. Higher Education Technology has been a major contributor towards increasing the reach of education by giving rise to new teaching methodologies. Increasing cost of education and reducing support from governments has been a deterrent in rising education levels. Cloud can help by making education cheaper as it does not need huge investments in hardware, software & their maintenance. Teaching Facilities: Cloud services adoption helps enhance the research activities and teaching methodologies without any geographical boundary limitations. In spite of these advantages, the education sector has been slow in adopting the cloud services. Of late, the growth of cloud adoption in this sector has picked up. Example: Massive Open Online Course is an outcome of the cloud technology breakthrough which has helped develop a connected community of professors, students, teaching assistants. Healthcare Efficient services: Cloud solutions enable patient's data access anytime and anywhere which improve the effectiveness and efficiency of the services offered. Also, cloud technologies can help in enabling electronic databases of patients accessible across pharmacies, hospitals, insurance firms etc., which improves overall service levels. Service to rural areas: Healthcare services have been restricted mostly to urban areas so far. Adoption of cloud technology in the delivery of their services helps in providing quality healthcare services to rural areas. Cost-cutting initiatives in drug manufacturing, bio-tech and pharma industries have also been pushing firms towards adoption of cloud technologies due to the costeffectiveness. The adoption of cloud solutions in this sector has been moderate and this is one of the sectors where cloud solutions breakthrough is about to be seen in the near future. Government egovernance has been a rising trend across the globe. Countries such as USA and UK have defined Cloud in their IT strategy also showing the change in mindset of governments in developed countries. However, in countries like India, this is still not a reality. 8

10 Though the current adoption rate for government institutions is quite low, cloud solutions are believed to offer significant economical and operational advantages to governmental organizations which can help public institutions improve their performance. Adoption of cloud services helps reduce the Total Cost of Implementation of schemes thereby reducing the deficit pressures. However, security is a bigger concern than costs in case of government organizations. Private clouds in government owned premises can be a solution for this. Below is a summary of the potential advantages of Cloud adoption in some of the sectors: With so many pressing needs and inherent advantages across sectors (ranging from short term to long term advantages), there are ample reasons to say that cloud adoption is going to increase in the near future across industries. Other Trends Driving Further Cloud Adoption Cloud Computing & Software Defined Network (SDN): SDN (an enabler of IaaS) along with Cloud Services can help develop cost effective service offerings. SDN primarily helps in reducing networking costs. Big Data is another fledgling technology breakthrough used for analyzing large data volumes. Cloud based solutions for this can be effective as they can be rented and used depending on the need. Smartphone revolution can also be the next source of growing demand for cloud computing solutions as users demand availability of services anytime and anywhere. Cloud Analytics: Companies working in the field of analytics / Business Intelligence can find new insights leveraging the Cloud potential from meaningful data from data sources across the world. Growth Estimates By now, it is evident that the Cloud is here to stay for years to come and shall witness high growth rates due to its immense advantages and increasing need for adoption across sectors. 9

11 Cloud Computing market which was approximately $105 billion in size in 2012, is expected to reach $230 billion in 2018 and a total of around $240 billion by According to Gartner (2013), by 2016 most of the IT spending will be on cloud computing platforms with 50% of large enterprises having cloud solutions by McKinsey estimates that by 2025, the annual total economic impact that cloud technology can have could be $1.7 trillion to $6.2 trillion. IDC estimates that the cloud services market in the world shall grow at CAGR of 24.8% through According to Global Technology Outlook, by 2016 over 25% of all applications will be available on cloud. Businesses have been adopting hybrid clouds in order to counter balance the inherent doubts on cloud adoption. By 2017, 50% of enterprises will have hybrid clouds (Gartner). Above all, the downward price trend makes cloud computing more affordable for organizations. For instance, Amazon Web Services has seen over 30 price cuts since 2006 and the same trend is being followed by Microsoft Azure, Google, Rackspace etc. In terms of regional variations in the adoption, North America and parts of Europe are the leading early adopters for Cloud Solutions. The Cloud market is in the growing phase in developing regions like Asia, Middle East, and parts of South America. Conclusion The evolution of various technological developments leveraging on cloud computing technology, rapidly evolving needs of businesses and organizations across various sectors, increasing number of small & medium enterprises, rising need for being cost-competitive etc., have all been pressing for increased cloud adoption. However, there are still several concerns that organizations have about the migration to Cloud completely owing to privacy, security, flexibility, legal and regulatory issues. It should be just a matter of few years within which advanced Cloud computing solutions will be developed addressing these concerns thereby increasing the Cloud adoption rate across industries and across geographies. Captive data centers might not be things of the past, but cloud adoption is definitely not going to be tepid. 10

12 References North Bridge Venture Partners 4th Annual Future of Cloud Computing Survey for 2014 Cloud Computing: The new wave in business transformation, The Economic Times, August 2014 Advanced Analytical Techniques for Analysing Cloud Computing, Frost & Sullivan, June 2013 The Cloud : Changing the Business Ecosystem, KPMG, 2011 Global Enterprise Cloud Computing Market Survey, Frost & Sullivan, June 2013 The Stormy Pitfalls of Cloud Computing, Euromonitor, April 2013 Cloud Computing Will Become the Bulk of New IT Spend by 2016, Gartner, October 2013 Disruptive technologies: Advances that will transform life, business, and the global economy, McKinsey Insights, May

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