China s Pragmatic Path to Cloud Computing

Transcription

1 China s Pragmatic Path to Cloud Computing Allan E. Alter, Yali Peng, Lin Runhua and Jeanne G. Harris May 2010 Research Report

2 Cloud computing is coming to China. It may not be coming quite as fast as it is to other parts of the world, owing especially to China s cautious, pragmatic approach to this new technology. But the Chinese are likely to make up for any lag time quickly. This report reveals how Chinese executives are viewing cloud computing, and suggests how business decision makers, IT leaders and cloud service providers should move forward in China with this promising but largely untapped approach to computing. While the challenges and risks are real, cloud computing also has the potential not only to cut IT costs dramatically but even to transform how business is conducted. 2 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

3 Facilities that allow people to obtain computing capabilities from remote servers over the Internet the cloud are or will soon be open in Beijing, Guangdong, Hong Kong, Chengdu, Hangzhou and Wuxi. 1 China Mobile, Alibaba and Lenovo, along with major foreign companies like Microsoft and IBM, are offering consumer and business cloud services in China. 2 Chinese organizations are beginning to explore and experiment with cloud computing technology and cloud services. In our survey of senior IT executives, primarily at large Chinese businesses and government organizations, we have found that 43 percent are testing or using cloud computing in at least a limited way, and 88 percent will be in two years. (For a more complete definition of cloud computing, see What is cloud computing? ) In China as in other parts of the world, executives have mixed feelings of confusion and eagerness, hype and skepticism about the advent of cloud computing. While many are excited about the potential of this new technology, others are still trying to figure out what exactly cloud computing is, how to exploit the technology, and how much it really costs. (For a look at some of the possible benefits, see Cloud computing s potential. ) Given the unknowns and risks of this technology, caution is warranted. But Chinese IT executives are especially cautious so far: we found Chinese organizations are adopting cloud computing at a slower pace than organizations in other nations. China is certainly capable of quickly learning and adopting new technologies when conditions are right. China has become the world s largest user of the Internet (384 million people) and mobile phones (703 million). Eightyeight million Chinese shopped online in 2009, spending an estimated 250 billion RMB (US$ 37 billion). 3 But several unique aspects of China s situation are preventing interest in cloud computing from becoming action. In-depth knowledge of cloud computing remains relatively rare among Chinese executives compared to other nations in our survey. Chinese executives also show less interest so far in exploiting cloud computing s potential for innovation and process improvement than their counterparts in other nations. Chinese respondents look to their government to set the rules for cloud users and providers, especially pertaining to cloud security and reliability. Twothirds believe cloud computing has national security ramifications. As one respondent wrote, The safety of data is not guaranteed. Data related to the country s safety should be treated carefully. Until the government clarifies regulations on cloud computing and data privacy, most Chinese organizations will remain cautious. The fundamental technical requirements for effective cloud computing are not fully in place in China. Cloud applications run sluggishly unless they operate over high-speed networks. While broadband technology is widespread in China, speeds remain low compared to other nations. 4 And compared to foreign companies, Chinese organizations are slower to adopt server virtualization, a computing technique that enables software to run on any available server in a network, and one of the foundational technologies of cloud computing. What must large Chinese companies do to take optimal advantage of cloud computing technology and services in as timely a way as possible? As one of our respondents said, the adoption of cloud computing needs the joint efforts of companies, [service] providers, IT vendors and consultants. 3 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

4 IT decision makers should become well informed about cloud computing, its requirements, and potential benefits. It is up to them to shape Chinese perceptions about cloud computing, and to guide their organizations in prudently using the technology. Business and technology leaders must encourage state authorities to put cloud computing at the top of the technology agenda. Without state support and regulation, Chinese organizations will not get far with cloud computing. The IT and consulting industries must develop a market within China of trusted cloud computing services. This will require the support and engagement of its customers and the government. CIOs, business executives, consultants and state overseers should continually explore the potential of cloud computing. Over time, innovative new cloud services can be used to transform how business is conducted. In this research report, the Accenture Institute for High Performance and the Chinese Institute for Electronics Cloud Computing Expert Committee will set out in greater detail the findings from our survey of over 100 executives at major Chinese organizations and provide insight into these questions: What is the current state of cloud computing in China? How does that compare with the United States and other nations? To what extent has cloud computing been adopted in China? How will that change over the next two years? What are Chinese executives hopes and concerns? How are some Chinese companies getting started with this technology? At the end of the report, we will provide specific recommendations for how cloud users, the cloud industry, and the Chinese government can advance the use and benefits of this technology. Under the right conditions, cloud computing can and should quickly grow to play an important role in China s success. 4 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

5 What is cloud computing? At its most basic level, cloud computing allows users, wherever they are, to obtain computing capabilities through the Internet from a remote network of servers. (A server is a computer that provides applications to other computers.) (See Figure 1, A guide to cloud terminology. ) When provided as a service from other companies, cloud computing lets organizations bypass the expense and bother of buying, installing, operating, maintaining and upgrading the networks and computers found in data centers. Instead of licensing software, users tap into a service when it s needed for as long as it s needed. All that is required is a broadband Internet connection, and a phone or personal computer with a browser. Organizations pay by the kind and amount of services used, plus any additional fees. At the other end of the Internet connection are computing clouds supersized data centers containing tens of thousands of servers hosting web applications. Some cloud providers even house them in cargo ship containers. 5 Clouds are designed so that processing power can be added simply by attaching more servers; software can be run on any available server with excess capacity. The basic technologies can be duplicated by any company. That makes it possible for organizations to build smaller private clouds for their own use; for a consortium to build industry or community clouds for its members; or a central, provincial or city government to provide cloud services to other agencies or businesses. Clouds the size of those run by Microsoft, Amazon and Google require additional technologies so they can support many millions of users around the world without becoming sluggish. 6 This description barely skims the surface of the underlying complexities. But for business leaders, it gets at two crucial points: cloud computing combines extraordinary power with flexibility, and in the case of public cloud services, the major burdens and expenses of IT power become someone else s problem. Figure 1: A guide to cloud terminology The term cloud computing originated as a twist on computing cloud, an easy-to-draw way to portray a group of computers or the Internet itself in a diagram. Today, cloud computing has come to encompass several kinds of services, and is often confused with other technologies. Synonyms Cloud services Cloud providers Foundation technologies Antecedents Internet computing: seen by some as more fitting than cloud or utility computing On-demand computing: popularized by IBM Utility computing: popularized by author Nicholas Carr Software as a service: cloud-based applications Infrastructure as a service: processing and storing data Process as a service: business processes built upon cloud applications Platform as a service: developing, testing, and running applications on clouds or for clouds Public cloud: a cloud made available to the public by a company Private cloud: a cloud maintained for a single organization Community cloud: a cloud shared by groups of businesses or organizations Government cloud: a cloud maintained by a government agency for public use Virtualization: a way to run more applications or store more data on fewer computers Grid computing: divides processing among computers; enables speed and scalability Broadband Internet: enables vast amounts of data to quickly travel over the Internet Web 2.0: applications and technologies that make the Web a vehicle for collaboration Service-oriented architecture: designs systems to act like interconnected services Time sharing: how companies shared mainframes in the early days of computing Application service providers: the first software services accessed via the Web 5 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

6 The State of Cloud Computing in China Cloud computing is and will remain an emerging technology in China for the foreseeable future. Less than half of the companies we surveyed are now exploring the technology; a small fraction of these are using it. Cloud spending is poised to grow significantly over the next two years, but the adoption rate will still remain lower than in other countries because of security fears and other concerns. Cloud computing adoption: a slow start Chinese companies are starting to investigate cloud computing, but are moving cautiously on putting the technology to work. For now, they are focusing more on creating private clouds than using public cloud services. or store data on the cloud), process services (which operate business processes built upon cloud applications), and cloud platform services (which are used to create, test and host applications). Platforms for building and running private clouds are used more Figure 2: Adoption of cloud computing in China Not using clouds Using clouds Now Private cloud platforms 57% 43% Now frequently. Few users are willing to entrust critical applications to the cloud. Instead, they are relegating the technology to limited, low-risk uses and trial projects. In two years, many more large Chinese organizations will start to use cloud computing 12% 88% In two years but very few will move beyond testing and investigation, except for private clouds and infrastructure services 15% 12% 21% 26% 26% Only 43 percent of our respondents are now using, testing or investigating cloud computing, less than half as many as in the United States. Less than twenty percent now use public cloud services such as cloud-based applications (commonly known as software as a service, or SaaS), infrastructure services (which process Process services Platform services Infrastructure services Software services In two years Private cloud platforms Process services Platform services Infrastructure services Software services 9% 21% 29% 41% 1% 3% 22% 44% 31% 1% 6% 15% 27% 51% 9% 15% 36% 41% 19% 22% 31% 24% 5% 3% 12% 39% 31% 15% 1% 7% 43% 40% 9% 3% 16% 24% 25% 32% 2% 11% 30% 44% 13% Using for critical applications Using for less important applications Testing or piloting Investigating Not using or investigating 6 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

7 and adoption will continue to be slower than in the U.S. and other countries. 88% Software services Infrastructure services Platform services 94% 94% 88% 92% 91% 89% 29% 32% 68% 32% 34% 35% 93% 37% 75% 65% 62% 49% 56% 58% 83% 54% 56% 13% 19% China USA Outside China China USA Outside China 8% China USA Outside China 86% Process services 86% 28% 92% 30% Private cloud platforms 95% 94% 94% 33% 31% 54% 71% 58% 62% 15% China USA Outside China 61% 63% 41% China USA Outside China Testing, piloting or investigating Using Cloud activity in China will significantly increase in the next two years, according to survey respondents. The percentage using clouds to at least some extent will more than double. The percentage that will use or test both private and public clouds will reach 36 percent, while another 40 percent of respondents will only use or test private clouds, and 13 percent just public clouds. Most of that use will be in the form of investigating, piloting or testing cloud systems, whereas in other nations most companies will have moved on to implementation. On average, 15 percent of Chinese employees will use cloud-based applications in the next two years, while 69 percent of US employees will. Still, given the large percentage of companies that are investigating cloud computing today, we expect far more organizations to start testing and piloting clouds beyond Cloud computing spending: rapid growth ahead Given the low level of cloud activity at this time, it is not surprising that Chinese organizations that use cloud computing services or build private clouds spend only 6.3 percent of their total IT budget on the technology, about half as much as the American organizations in our survey. And when communications and high-tech firms that are entering the cloud computing market are removed from our sample, the percentage falls to 3.8 percent. (See Figure 4, Cloud spending in China. ) But spending on cloud computing will climb rapidly in China. Of the companies that are now using, testing or investigating cloud computing, over 80 percent of respondents say they will increase spending on cloud computing in the next two years, and a third say spending will increase by 100 percent or more. This is a slightly larger percentage than that reported for other nations. Even when companies that provide cloud services are not counted, over threequarters of respondents plan to increase cloud spending. Cloud computing appears poised to play a significant part in China s 11.5 percent overall increase in IT spending, as forecast by IDC, a global IT market research company. 7 Estimates of cloud spending in China from market research firms vary widely. Springboard Research estimates China s cloud market will grow by 56 percent to reach US$ 171 million (1.16 billion RMB) by the end of That is less than one percent of the $17.4 billion spent worldwide on cloud computing in 2009, as estimated by IDC. CCW Research places the total SaaS market in China much higher, at billion RMB in 2008, and predicts it will grow at an aggregate annual rate of 24.5 percent to 61.3 billion RMB by Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

8 Cloud computing s potential While clouds are still too new to fully understand their benefits, many of the potential benefits of cloud computing have been identified. (See Figure 3, Initial opportunities for using cloud computing. ) Bargain prices on cloud services are a big part of their allure. For example, American drug manufacturer Eli Lilly paid Amazon Web Services only US$ 89 (RMB 600) to analyze data on a drug under development. To do the job themselves, its researchers would have had to buy 25 servers. 9 Add the savings from eliminating the cost of servers, software licenses, maintenance fees, data center space, electricity and IT labor, and the benefits of replacing a large up-front capital expense with a low, pay-for-use operating expense, and the financial appeal of cloud computing is obvious. Private clouds too can be less expensive to operate than conventional data centers. Bechtel, one of the world s largest construction companies, found it could reduce its total IT costs by 25 to 30 percent by adopting a private cloud architecture. 10 Clouds also offer extraordinarily flexible resources. They are scalable because of their technical design. Clouds can be summoned quickly when needed, grow by assigning more servers to a job, then shrink or disappear when no longer needed. That makes clouds well suited for sporadic, seasonal or temporary work, for finishing tasks at lightning speed and processing vast amounts of data, and for software development and testing projects. The New York Times used cloud services to quickly and inexpensively digitize its archive of 14.5 million articles and make them available to the public on the Web. Researchers at the Harvard Medical School used cloud services to develop genetic testing models within 25 days. And media giants Time Warner and the Disney Company are turning to clouds to store and distribute their movies and television shows. Clouds can also supplement conventional systems when demand for computing exceeds supply. One US health care claims processing company turned to cloud services when it suddenly needed 30 million claims checked for accuracy. 11 And since they are an operational expense, cloud Figure 3: Initial opportunities for using clouds Accenture has identified many different possible uses for cloud computing. Hard Ease of implementation Easy Business continuity (storage) Extensive storage Backup and recovery Desktop productivity Web 2.0 applications Workgroup applications Office suites and calendaring Legacy Specific existing infrastructure Complex legacy systems Software development and testing Software development and testing environment Performance testing Non production projects R&D activities Reduced time to market Geographic expansion Replicate standard processes in new locations and branches. Sensitive applications Mission critical applications Regulation-protected data New business Provide IT support for new ventures Batch and data intensive applications One-off applications that don t rely on real-time response Data and high performance intensive applications (financial risk modeling, simulation, data compression, graphics rendering ) New back-office applications Peak load demands New business activities Applications with peak-loads Seasonal websites Applications with scalability needs Source: Accenture Technology Labs Value to the enterprise High value 8 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

9 services can often bypass the capitalexpense approval process, and thus be quicker to procure than conventional systems. In Eli Lilly s case, using clouds shaved three months off the IT budget and approval process. That represents US$ 1 billion (6.8 billion RMB) in opportunity costs avoided, when translated to faster time to market. Clouds, paradoxically, can both decentralize technical innovation and impose centralized control on IT resources. The barrier to entry for providing an innovative IT service has never been lower. Any programmer could create a software service using free or low-cost development tools, host it on a public cloud, and quickly make it available to all. Clouds are also a fast and easy way for organizations to impose a standard set of applications or processes. Users only need pay for a cloud service and then require employees to go online and use it. Cloud computing can benefit companies of all sizes, but it can be especially helpful to small and mid-sized enterprises. Public clouds provide access to advanced applications and storage with minimal upfront costs. They also allow small companies to conduct business online without the risk of having to quickly invest in buying and installing servers should their site unexpectedly attract large numbers of visitors. For example, the Outback Steakhouse restaurant chain used cloud services to quickly develop and host an application to promote the restaurant on a social networking web site. 99Designs, a small company that connects graphic designers to companies needing design services, runs their service on a public cloud. 12 When considering clouds, business leaders should begin by looking for specific benefits for their own organization ways to reduce costs, improve processes and more. They should also investigate when clouds do not make sense. For example, to operate a complex legacy system on a cloud would require a costly redesign. And projects requiring a guaranteed response time should be avoided, since guarantees are risky when data has to run over the Internet. 13 Executives are likely to find the greatest benefit by envisioning new processes, applications, services and offerings that had been too difficult or expensive for the organization. Bechtel, one of the world s largest construction companies, found it could reduce its total IT costs by 25 to 30 percent by adopting a private cloud architecture. 9 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

10 However, not all cloud computing services require their users to spend money. Some Chinese web sites, such as Taobao.com, provide free , CRM and other applications over the Web. While just over ten percent of Figure 4: Cloud spending in China companies ban the use of such services altogether, a large majority percent permit employees to use them on a restricted basis. Spending on cloud computing is relatively small, but will soon grow. Average cloud spending as percentage of IT budget 6.3% China 13.2% USA 17% Outside China Change in cloud spending in China during next 12 months Remain the same 19% Increase less than 100% 47% Increase by 100% or more 34% Using cloud computing: seeking efficiency and effectiveness The organizations we surveyed are not only interested in using cloud computing to reduce IT costs, but also to operate their businesses more flexibly and effectively. In contrast to executives outside of China, however, the Chinese are significantly less likely to view cloud computing as a means of creating innovative products or processes. Saving money is certainly a main driver of Chinese interest in clouds. (See Figure 6, Drivers of cloud computing activity. ) Reducing upfront IT costs is the most important reason respondents say they start to explore or use the technology. Reducing or avoiding the cost of maintaining IT Figure 5: China and US: greatest differences and similarities Greatest differences Now using or testing any form of cloud computing 43% 89% Now using or testing software as a service 23% 70% Considers faster product development an important driver for cloud computing 32% 62% Expects half or more of the 500 largest companies in their country to use cloud computing for critical business activities within three years 16% 40% Will use cloud computing to support projects within next 18 months 9% 40% Greatest similarities Planning to increase cloud spending in next 12 months 81% 81% Concern about compliance with legal, regulatory and auditing requirements 65% 67% Uncertain about the ROI of cloud computing 50% 48% Will use cloud computing to provide an IT platform for processes involving multiple organizations within 18 months 44% 45% Says cloud computing has no potential for their organization 1% 1% China USA 10 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

11 infrastructure also ranks high. Five years from now, two-thirds believe permanently and significantly lowering operating costs will be one of the greatest benefits clouds can provide their organization. Companies that are the most focused on cutting costs are using clouds to lower the expense of running their web sites. Chinese sites generate millions of hits from China s web users. Cloud services and architectures allow organizations to scale up and meet demand at lower cost. Chinese organizations show relatively little interest in using clouds to cut energy costs or to backup data. However, using cloud technology to improve or facilitate day-to-day operations is just as important as reducing costs, if not more so, according to survey respondents. Five years from now, according to 70 percent, enabling speed, flexibility and responsiveness will prove to be cloud computing s greatest benefit to their company, more than any other benefit. How do companies plan to use clouds? Chinese organizations are especially interested in using them to interact with other organizations, and to promote uniform processes among the large and often far-flung base of users they must support. (See Figure 7, Putting clouds to work, and the profile of China Ocean Shipping Company.) Providing an IT platform for business processes involving multiple organizations is by far the most common use for clouds at this time. Running CRM, ERP and supply chain management applications is the second most often cited use. Figure 6: Drivers of cloud computing activity Savings and operational improvement are the main reasons Chinese organizations decide to use or explore cloud computing. (top ten responses by percentage responding very important or important ) Reduce upfront IT costs 49% Exchange data more efficiently with outside organizaitons 47% Establish uniform processes in different regions 46% Enable processes that are not otherwise cost effective 43% Improve analytical capabilities 42% Reduce or avoid cost of maintaining own IT infrastructure 42% Provide IT services where IT infrastructure, resources or labor is limited 39% Improve communications and collaboration between individuals 38% Provide platforms for standardized, efficient business processes 36% Develop new or improved services/products more quickly 32% Figure 7: Putting clouds to work Over the next 18 months, Chinese organizations will use cloud computing and cloud services to build platforms, run web sites and enterprise applications, and provide productivity tools. (top ten responses) Provide an IT platform for business processes involving multiple organizations 44% Run e-business or e-government web sites 34% Run CRM, ERP, or supply chain applications 34% Provide personal productivity and collaboration tools to employees 33% Back up data 24% Analyze data for research and development 23% Process and store applications or other forms 21% Meet spikes in demand on our web site or internal systems 21% Develop and test software 21% Analyze customer or operations data 19% Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

12 Chinese companies also frequently cite communication and collaboration as an important motivation for using clouds. One-third are using or will soon use cloud-based productivity and collaboration tools. At this early stage, clouds are more a means for providing spot solutions than broad platforms. We expect more Chinese respondents will seek to use clouds as platforms for standardized, efficient business processes in the future than they do now. Figure 8: A pragmatic vision of cloud computing Supporting innovation is a low priority Outside of China, many organizations especially those that are growth-focused, or that are early adopters of IT consider cloud computing as a technology with great potential for supporting product and service innovation. Chinese organizations show less interest in the potential for innovation than non-chinese ones. Relatively few Chinese respondents say they were motivated to start adopting cloud computing by the desire to develop new services more quickly (32 percent in China say this is very important or important versus 62 percent in the United States), find new ways to engage customers (32 percent China, 64 percent US), or develop products Over the next five years, say Chinese respondents, cloud computing s greatest potential benefits will be enabling savings, speed and flexibility, and lowering costs. Enable speed, flexibility and responsiveness Permanently and significantly lower operating costs 70% 59% 57% 66% 58% 51% or services (30 percent China, 65 percent US). Likewise, less than a third of Chinese respondents say supporting product/service innovation is one of the main benefits their company can gain from cloud computing, and less than one in five think clouds could help them expand operations to new markets. These percentages are higher in other countries. (See Figure 8, A pragmatic vision of cloud computing. ) In the short term, Chinese organizations are primarily focused on process improvement, efficiency and savings, rather than on finding innovative ways to make use of the enormous computing power, speed and flexibility of cloud computing. Farther in the future, more Chinese organizations will start to explore the potential of cloud computing for innovation: significantly, 21 percent of Chinese respondents say clouds can transform business more than any other country. However, foreign companies are likely to find ways to transform business first, because they are more actively seeking innovations which, intended or not, wind up being transformative. Enable new, innovative processes Support product/service innovation Improve decision making Expand operations to new markets 31% 48% 49% 31% 41% 42% 28% 26% 35% 18% 27% 35% China USA Outside China Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

13 The cloud services market in China Chinese organizations that are interested in cloud services have fewer choices than in other countries. Elsewhere, a few large global vendors have begun to roll out a wide range of cloud services, and are on the way to establishing themselves as first tier suppliers. But in China, the same global firms are less visible. Few domestic firms have ventured into cloud computing, and their offerings are primarily focusing on SaaS. As a result, Chinese organizations that wish to use cloud computing do not yet have a variety of established, trusted brands and services to choose among. This is one factor slowing down cloud computing in China. Globally, the cloud services market is developing in three phases: establish, partner, and broaden. The market was established first by American Internet pioneers like Google, Salesforce.com, Amazon.com and Facebook, which were soon joined by established IT companies like Microsoft, IBM, Fujitsu and SAP, telecom companies like Singapore s SingTel and Japan s KDDI, business process outsourcers like India s HCL, and startups like Joyent. 14 The companies that establish the market then forge partnerships with consulting firms such as Accenture, provide infrastructure services to other companies entering the SaaS market or enter marketing alliances. For example, cloud services providers in Europe have formed an organization called EuroCloud to promote locally based cloud companies 15 While they partner, cloud providers broaden their offerings by entering other cloud services markets, as SaaS provider Salesforce.com did when it launched its Force.com cloud development platform. Gartner, a global IT research firm, has identified at least 30 cloud concepts and technologies which provide opportunities for offering services. 16 In China, for now, the market is still being established. Partnerships have been limited to ventures between local authorities and foreign companies. Cloud providers have not yet started to broaden their line of offerings. As in Singapore, one of the first major domestic players is likely to be a large telecom company. China Mobile s BigCloud offering will provide mobile Internet services including storage to consumers and enterprises. 17 A few other stars of China s high-tech and Internet industry are entering the cloud market. The Alisoft subsidiary of the Alibaba Group, known for its online B2B marketplace that matches Chinese suppliers with foreign companies, is promoting its new Shopkeeper accounting and financial management SaaS services to small and midsize enterprises. 18 Lenovo, China s largest PC maker, will start offering SaaS services and thin-client PCs designed for cloud computing. (Thin clients, unlike conventional PCs, lack the processing power and memory to run most software programs, and rely on servers connected via the Internet or a company network.) Sogou.com, the search engine subsidiary of Internet portal Sohu.com, offers a free cloud-based input service for entering thousands of Chinese characters. In addition, dozens of other Chinese companies and startups are entering the software, infrastructure and platform service markets. (See Figure 9, A partial list of Chinese cloud service providers. ) Fifty Chinese IT companies and research firms have banded together to form a cloud computing committee comparable to the EuroCloud initiative. 19 To date, the major foreign cloud computing providers have only a limited, supporting role in China s cloud computing market. They are establishing themselves through partnerships with local development agencies, companies and universities. For now, they are not rolling out the same cloud product line they offer in other countries. 13 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

14 Microsoft has not yet begun to offer its Azure platform in the People s Republic, although it has started to in other parts of Greater China. It has teamed up with Suzhou Industrial Park and Fengyun Network services to provide SaaS services to small and mid-sized enterprises. Microsoft provides the SaaS platform and backend technology, upon which Fengyun develops SaaS. Microsoft has also established a Cloud Computing Training center in Hangzhou, which provides cloud computing sources and services to small and mid-sized Chinese businesses. 20 For the municipality of Wuxi, IBM has built a cloud computing center at the Wuxi Tai Hu New Town Science and Education Industrial Park. The center provides IT services to local high-tech companies and government agencies. 21 IBM also plans to build cloud centers in Hong Kong, and in the capital with the Beijing University of Technology. 22 Joyent, an American company, brought its cloud computing infrastructure, web hosting, and application services to China by working with the Qinhuangdao Economic and Technology Development Zone. 23 NTT Data of Japan recently launched a joint venture with Yuchang Technologies Ltd. to provide cloud services, as well as systems integration and consulting services, to China s banking industry. 24 Dell has signed a memorandum of understanding with Beijing Infobird Co., Ltd. to provide cloudbased call centers in China. 25 These arrangements with development agencies and Chinese companies can help foreign cloud service providers gain trust and build the Chinese cloud market. Because of security concerns, Chinese enterprises are reluctant to use foreign cloud providers, especially if they do not have data centers within China. Chinese customers are more likely to have confidence in foreign cloud companies if they build data centers in China, and partner with Chinese agencies and cloud providers. Still, until they can venture out on their own or form more alliances, Chinese users will have limited access to the major global cloud service providers. 14 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

15 Figure 9: A partial list of Chinese cloud service providers Vendor Cloud service Availability Description 21ViaNet Infrastructure Now Data center service provider entering IaaS market 800Apps Software Now Start-up provides CRM services Alisoft (Alibaba Group) Software Now CRM, sales force management, inventory management, financial and marketing information management service China Mobile Platform This year Mobile internet cloud services CNSaaS.com Software Now Joint venture between Fengyun Network, Suzhou Industrial Park and Microsoft China; uses Microsoft as platform for offering SaaS services to Chinese small and midsized businesses eabex Software Now Management software and e-business services Infobird Software Now Call center systems and service provider partnering with Dell to provide cloud-based services Inspur (Langchao) Software Next two years Server software and manufacturing company Jingoal Software Now Management software and service provider Lenovo Software This year SaaS services, cloud-based storage, thin-client PCs for cloud computing Sogou.com Software Now Free cloud-based input service for entering Chinese pinyin Wecoo.com (Ufida Software) Software Now Online marketing and management services Xtools Software Now CRM Youshang.com (Kingdee International Software Group) Software Now Online management e-business services Yoyo Systems Platform Now Has cloud R&D centers in China (Beijing Zhongguancun) and US (Silicon Valley) Yucheng Lian Rong Data Technologies Software 2010 Joint venture between NTT Data Technologies of Japan with Yucheng Technologies, a Chinese company offering systems and call centers for the Chinese banking industry. 15 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

16 What Makes China Cautious? China s approach to cloud computing can be summarized as not just conservative and pragmatic, but also as cautious. What is keeping China from adopting cloud computing more quickly? Why are Chinese organizations focusing much more on building private clouds than on public clouds? And why have they pursued thus far the more modest benefits of efficiency, but not the more substantial ones that come from innovation? Our data suggests that the use of cloud computing is influenced by several factors that are unique or especially prevalent in China. Lack of knowledge deepens caution. Executives all over the world are still attempting to understand what cloud computing is, how it can be put to work, and what the costs and risks are. However, knowledge of cloud computing among IT executives remains lower in China than in other nations in our survey. Only 21 percent of Chinese IT executives describe their level of knowledge as either advanced or expert. This was the case even though Chinese respondents were more likely to be the top IT executive in their organization than respondents elsewhere. In the other countries in our study, 64 percent of IT executives claimed advanced or expert knowledge of this new technology. One reason China s IT executives know less: since only 43 percent of the Chinese survey respondents work in organizations that operate both inside and outside of China and few of these operate outside of Asia many Figure 10: Concerns about cloud computing Security, integration and reliability top Chinese concerns with using public cloud services (top ten concerns; percentage very concerned or concerned ) Data security/privacy/confidentiality issues 89% Integration with existing systems 79% Service level agreements/guarantees/contact issues 76% Reliability/uptime/business continuity issues 75% Legal or regulatory ambiguity 71% Maturity of cloud computing market 71% Loss of control/ownership of IT 68% Lack of industry standards 67% Compliance with legal, regulatory and auditing requirements 65% Features, functionality and performance 63% Chinese IT executives have not been exposed to how foreign competitors are using clouds. Until they know more, Chinese respondents tend to take a cautious stand towards this new technology. They have many concerns about the technology, and the extent of their concern is higher than other nations. (See Figure 10, Concerns about cloud computing. ) They are also more divided over what cloud computing can do for their organizations. Chinese executives are more likely to view cloud computing as a temporary fad, and less likely to be convinced that their organizations need to adopt the technology or that other large companies in their country will quickly adopt cloud computing. They also display less confidence that cloud computing can solve their most difficult problems, or bring lasting competitive advantage (See Figure 11, Skepticism about cloud computing. ) Compared with traditional IT applications, cloud computing can optimize the IT infrastructure and save money, says Zhu Dong, director of the information and technology department, China National Aero-Technology Import & Export Corporation. But whether cloud computing can work reliably, fast and flexibly is still hard to know. Cloud 16 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

17 Figure 11: Skepticism about cloud computing Compared to other nations, fewer Chinese executives are convinced of the potential of cloud computing to provide competitive advantage, solve difficult business issues, or the need to adopt the technology. (Percentage substantially agree or agree to a very large extent ) My organization needs to adopt cloud computing 18% 33% 38% Cloud computing can help solve our most difficult business issues 21% 42% 48% Cloud computing could provide my company with a lasting competitive advance 23% 37% 47% China USA Excluding China computing is still in its infancy. It is too optimistic to say that cloud computing is a game changer. There is a long way to go. In their personal lives, Chinese consumers are notably wary about product claims, and frequently conduct product research and seek personal recommendations before a purchase decision. 26 Similarly, it will take experience, personal recommendations and the opportunity to research the technology before the Chinese trust cloud computing enough to embrace it. The more leading companies in China adopt the technology, the more likely others will too. But until they see real benefits, and become better educated about cloud computing, Chinese executives are more likely to give credence to the technology s potential problems than its possible benefits. Figure 12: Data security worries Chinese executives cite more data security and privacy issues as concerns to their organization than executives in other nations. (Percentage substantially agree or agree to a very large extent ) Hackers could steal our data from the cloud provider 81% 76% 71% Cloud providers may permit access to data to the wrong employees 79% 61% 61% Other customers of our cloud provider might obtain our data by accident 75% 53% 47% Physical security at cloud vendor locations 59% 45% 33% Foreign governments may obtain my organization s data from the cloud provider 56% 52% 51% Security concerns make Chinese companies wary of using clouds. Security is the main concern with cloud computing across the world. But in no nation are these worries stronger than in China and they force Chinese CIOs to take a cautious approach, especially with public cloud services. Fifty-nine percent of Chinese respondents say they are very concerned about data security, privacy and confidentiality on the cloud, compared to 50 percent in the US and 42 percent for nations besides China. The Chinese are more likely to state their organization has data which is too sensitive to allow outside the walls of their enterprise than respondents in nearly all other nations. Chinese executives especially worry that their data could be stolen by hackers, or accidentally released to other customers of a cloud provider or to the wrong employee. (See Figure 12, Data security worries. ) China USA Outside China 17 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

18 But executives at the Chinese enterprises we surveyed many of which are partially or entirely state-owned are also concerned with possible national security risks from the cloud, since public cloud computing environments are externally provided and shared. Fifty percent of respondents say the single greatest factor impeding the adoption of cloud computing is that Chinese business leaders worry that cloud computing could damage China s national security. Along with Chinese officials, business leaders fear that highly confidential data about the Chinese economy, military, and government, as well as crucial technology and science developments, can be stolen or accidentally disclosed to foreign competitors, or end up in the hands of groups or individuals who seek to overturn the national government. And like their peers in other countries, slightly more than half of Chinese executives worry that foreign governments could obtain data from cloud providers. Data privacy laws and regulations are still in their infancy in China, so the guidelines and requirements for securing data remain unclear. The untested nature of the cloud market further undermines confidence that cloud providers are capable of securing data on the cloud. I do not have confidence in public clouds, says Xiao Peng, the CIO of ENN Group. Data security is of the highest concern of our executives. We are reluctant to store sensitive data and commercial secrets on public clouds that can be shared by other customers. Accidental release of the data to our competitors could have a disastrous impact on our company. We won t trust public clouds unless the relevant laws, regulations and service level agreements are implemented to periodically assess, monitor and audit providers. Figure 13: Willingness to use foreign cloud providers Chinese organizations are adverse to letting sensitive data leave the country. They strongly prefer to entrust customer, employee or patient data to domestic cloud service providers. (Percentage definitely, probably or possibly willing) Foreign provider with foreign cloud 18% 40% 62% Foreign provider with local cloud 46% 68% 78% Domestic provider 66% 85% 87% China USA Outside China Chinese organizations are likely to limit their use to private clouds, despite its potential benefits, until they are more confident the cloud can be secured. An immature cloud market provides few services and trusted vendors. Nearly two-thirds of Chinese respondents, nearly all of whom are IT executives, say Chinese business leaders believe the cloud market is still immature, which makes this issue a top factor impeding the adoption of cloud computing. But the limited offerings that are available today are only part of the problem. (See The cloud computing market ) Chinese organizations are especially reluctant to use foreign cloud providers or turn to start-up companies, given their concerns about the reliability of cloud services and the sensitivity of their data. A scant two percent of Chinese respondents said they are definitely or probably willing to source cloud services from a startup, and only 28 percent say they are possibly willing to do so. That is far fewer than respondents in the US and other nations. Fifty-eight percent of American executives say they are or might be willing to use cloud services from new companies. Chinese organizations are also averse to entrusting foreign providers with their data. Less than half say they are willing, even if the provider keeps the data within China s borders. The number falls to below 20 percent for foreign providers that do not have cloud data centers in China. (See Figure 13, Willingness to use foreign cloud providers ) 18 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

19 Most Chinese executives would prefer to use proven and well-established domestic cloud vendors. But at this time, few if any meet that description. The best known cloud computing brands are American. Domestic companies in the cloud market are still establishing themselves and their own credibility. As a result, only 14 percent of Chinese executives say they are definitely or probably willing to use their current IT and telecommunications vendors, far lower than the 77 percent of American respondents who would be willing to do so. Chinese CIOs are in a difficult position. Even though local venders cannot compete with global companies because of technical barriers, we are reluctant to use foreign cloud providers, says Ding Tao, an IT executive with Shenhua Beijing Guohua Electric Power Co., Ltd. I still believe that local Chinese cloud providers will provide better services to local customers. The domestic cloud computing market is immature. There is an urgent need for the government and organizations to push forward the establishment of technology standards. This will require a joint effort of consultants, integrators, vendors, institutes and government. Until domestic vendors start providing more cloud services and earn the trust of Chinese corporations by offering guarantees and service level agreements, and foreign firms prove they can keep Chinese data secure, Chinese organizations will not eagerly use their services. Limited use of virtualization, slow broadband speeds and questions about integration hamper public and private clouds. Virtualization makes cloud computing possible. Chinese IT executives say that the extensive use of virtualization is the most important thing a company can do to speed up its adoption of cloud computing, along with providing evidence to top executives that cloud computing significantly lowers costs. However, far fewer Chinese companies have committed to the technology than those in the United States or other nations. 27 (See Figure 14, Adoption of virtualization ) China also lacks a broadband network that can support cloud computing across the country. China is a world Figure 14: Adoption of virtualization leader in broadband penetration: 94.3 percent of Chinese Internet users have broadband access. But most download speeds available in China reach no more than 4 Mbps (megabits per second). That is considerably lower than the average speed of 17.4 Mbps found in developed countries. Other Asian countries most notably Japan and South Korea provide download speeds that are up to 20 times faster than those in China. 28 After data security, Chinese IT executives are most concerned about integrating clouds with existing systems. For example, how many sources of data can a cloud-based application draw upon before it becomes sluggish? Will it be more challenging to integrate data when it must be shared between cloud services or with their complex Chinese organizations are least likely to have extensively or moderately virtualized their servers. However, 63% of Chinese organizations are considering virtualization. 14% 63% Already virtualized 74% 14% 64% 18% China USA Outside China Considering virtualization 19 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.

20 conventional systems? How do companies make sure they can easily reclaim the data held for them by one cloud provider, so they can easily switch to another? Chinese organizations will find it difficult to utilize public clouds, and be unable to implement private clouds as broadly as they might, until answers are found to these questions about integration, more companies adopt virtualization, and faster broadband services become available. Chinese IT executives want the government to help make cloud computing more secure and reliable. The Chinese central government has declared informatization (the application of information technology in business, government, and education) one of its most important economic priorities. 29 Cities and provinces such as Nanjing are supporting the softwareas-a-service industry by teaming up with foreign and domestic cloud providers to build cloud computing centers that provide e-commerce and computing services to local businesses. 30 Compared with traditional IT applications, cloud computing can optimize the IT infrastructure and save money. But whether cloud computing can work reliably, fast and flexibly is still hard to know. Zhu Dong, director of information and technology department, China National Aero-Technology Import & Export Corporation However, government support for cloud computing is primarily focused on extending SaaS to China s 42 million small and mid-sized businesses. Less than ten percent of these companies now conduct business online, and cloud services can provide access to the IT resources they need to do business on the Web. 31 The initial steps by government have not convinced large organizations to move forward on cloud computing. Fifty-one percent say official Chinese policies on cloud computing are unclear, and are one of the major impediments to cloud computing. As one Chinese CIO told us, I am not optimistic about cloud computing and storage unless laws, regulations and SLA agreements have been put into practice. Respondents are split on whether it is necessary for the government to show it supports the use of the technology. But there is a consensus that the government should be involved in setting standards and regulating the industry. Cloud computing must be made safer, technically and legally, if it is to be used more widely in China. 20 Accenture Institute for High Performance Copyright 2010 Accenture. All rights reserved.