BBC News, 7 December 2010, By Tim Weber, Business editor
Widespread adoption of cloud computing could give the top five EU economies a 763bn-euro (£645bn; $1tn) boost over five years, a report has said.
The CEBR said it could also create 2.4m jobs. The technology gives software and computing power on demand over the net.
But experts warn that cloud computing can be very disruptive to business, and companies could end up "disillusioned".
"Nothing kills a new technology better than a poor user experience," said Damian Saunders of Citrix.
The report, by the Centre for Economics and Business Research (CEBR), was commissioned by EMC, a data storage and IT solutions firm that provides cloud computing services. The company is just one of many pushing into the sector, all saying that 2011 will be the year of the cloud, when the technology will find mainstream adoption.
When a company uses cloud computing, it does not build all IT infrastructure by itself. Instead, it rents storage, computing power or software services from other companies. The services are accessed via the internet, which in network diagrams is shown as a cloud, hence the name.
The cloud turns information technology into a utility, consumed like electricity or outsourced payroll services, says Chuck Hollis, EMC's chief technology officer.
However, moving IT services to the cloud is more than just a technical upgrade. "Moving to the cloud is a cultural shift as well as a technology shift," warns Dave Coplin, until recently national technology officer at Microsoft UK. "The cloud is a tool, it's an enabler, but you have to think about the outcome: what is it that you are trying to do?"
Biggest winners
Cloud computing does indeed help companies drive down IT costs; studies by technology analysts such as Nucleus Research have shown that using the cloud sharply cuts the energy used by computing. Cloud computing also makes it easier to use fewer computers to do the same amount of IT work, while the workload itself can be scaled up or down at an instant.
The CEBR report suggests that the rapid uptake of "cloud computing service offerings [will make them] progressively cheaper as economies of scale take hold and service offerings increasingly mature".
The authors of the CEBR study acknowledge that their estimates depend on numerous assumptions and uncertainties, but they forecast that by 2015 the European Union's top five economies - Germany, France, UK, Italy and Spain - could get an annual boost of 177bn euro, and create net new jobs of 466,000 a year.
The biggest winner in absolute numbers could be Germany, followed by the UK. However, if the gains are measured in relation to the size of the economy, Spain comes out on top while the UK comes bottom as "the only country to show a disproportionately smaller share of the cloud computing benefits than the size of its economy might suggest," the authors of the CEBR report say.
Cloud disruption
While the cloud is "a really cheap place to do business," according to Microsoft's Dave Coplin, it forces companies to change their IT culture and learn that it comes at a price. "People lose full control and flexibility, but get scalability and power in return," he says.
Damian Saunders, in charge of the data centre and cloud group at software company Citrix, says there are four key drivers that are now accelerating the rate of cloud adoption.
For starters, technology has improved, with better connectivity, higher internet speeds and virtualisation technologies that allow the more efficient use of servers. Then there are new business models, with companies not charging a big lump sum per software licence but on an "as-you-consume" basis.
Consumerisation of IT is another driver. Mr Saunders calls it the "IT civil war" whereby every January "employees get a gadget for Christmas and then take it to work and don't understand why they can't use it". The move towards mobile computing, he says, is also driving the move towards cloud computing, which in turn is giving companies a competitive edge.
Arguably the biggest driver is the state of the economy. Cloud computing allows companies to invest in growth while spreading the cost. Instead of a big up-front costs, IT investment becomes a continuing operating expenditure that rises and falls with demand.
Until recently, says Mr Saunders, the risks of cloud computing "always overwhelmed the potential reward". This has changed now, he says, but also warns that "cloud is just reaching the peak of hype" that will soon end in disillusionment for those not prepared for the disruption it brings.
Echoing Mr Coplin's warnings about a cultural shift, Mr Saunders says companies will have to learn that "cloud computing will never replace everything that went on before". Companies will have to work hard to make cloud computing user-friendly, because "nothing kills the successful adoption of new technology better than a poor user experience".
And if companies get their roll-out of cloud solutions wrong, then all the optimistic forecasts - whether from the CEBR or others - will come to nought.
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