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Cloud computing issues, impacts and insights

IT services=cloud computing

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Cloud computing services are available across the entire computing spectrum.

The IT services now known as cloud computing have been around for decades, but they never grew beyond a small fraction of total industry revenue. Now, however, their time has come: over the past few years, a dizzying array of hardware and software available as services over the internet has emerged.

Consumers and businesses have embraced a multitude of cloud services, from mature sales force management services to email and photo editing to the latest smartphone applications and the entire social networking phenomenon. Further, researchers project an imminent inflection point in the adoption of cloud services by organizations both large and small.

Is cloud computing transforming the industry?

In fact, research firm International Data Corporation (IDC) calls cloud computing the foundation for the technology industry’s next 20 years of growth, saying, “it is nothing less than the complete transformation of the industry’s core offering and business models.”1

According to IDC, public clouds (delivered to multiple customers via the internet) and private clouds (built by or delivered to a single organization via private network) accounted for 15% of IT spending in 2011 and grow at a compound annual rate of about 26% for the next four years. This is roughly five times the growth rate of the technology industry as a whole.

In addition, 80% of all new software offerings in 2011 were available as cloud services (regardless of whether they are also available via traditional on-premise business models).

Technology advances, business agility drive cloud adoption readiness

Cloud services are finally taking off because technology advances, particularly ubiquitous high-speed internet connectivity and the ever-decreasing cost of storage, have finally enabled service providers to meet buyers’ needs for simplicity, cost and flexibility.

For consumers, the recent proliferation of smart mobile devices that are actually handheld wireless computers has accelerated the development of cloud services that provide application functionality to those devices. This is an example of why consumers have been such rapid adopters of the cloud: cloud computing has the potential to instantly deliver simple, easy-to-use, sophisticated and high-powered computer applications and information that consumers could not otherwise access.

For business organizations, the core elements of CSP business models have always been attractive: pay-as-you-use instead of “install-and-own,” and inherently greater flexibility in IT. Cloud computing services generally shift major up-front capital expense from the buyer of IT to the provider of IT services — a strong incentive in a world that continues to struggle with economic uncertainty and more restricted access to capital.

The flexibility to trial solutions before committing

Of note, this shift enables organizations to further manage their investment risk by rapidly implementing and trialing new solutions before making long-term commitments. Even more alluring for businesses, however, is the promise that cloud computing will increase their business agility in at least two dimensions.

“First, clouds can free companies from the drudgery of building and maintaining IT infrastructure so that they can focus on value-creating differentiation to ride atop that infrastructure,” explains Kevin Price, Global Technology Industry Advisory Services Leader. “Second, clouds provide flexibility in the form of highly elastic scalability, enabling organizations to rapidly increase or decrease their IT infrastructure costs as fast as their business needs change,” he adds.

That flexibility dimension is the primary way in which cloud services differ from traditional IT services, and why some experts refer to cloud computing as “the next generation of outsourcing.” These factors combine to lower IT barrier (and risk) to business change, including barriers to entry for start-up businesses, whether entrepreneurial or inside an established organization.

The migration of small and medium sized businesses

The same factors also enable small- and medium-sized businesses (SMBs) to take advantage of sophisticated applications and a breadth of functionality that previously could be afforded primarily to large enterprises only, and can do so at much lower cost. As a result of these factors, SMBs appear to be migrating to the cloud more rapidly than larger companies, and start-ups are virtually all cloud users.

An example already in progress is the mobile applications market: it is relatively new, is cloud-enabled, includes a plethora of small companies that sell directly to consumers via app stores and is projected to grow to $32 billion by 2015.2

As cloud adoption becomes widespread, its characteristic of enhancing business agility is likely to lead to an increasing pace of change for all industries worldwide. Adding fuel to the interest in cloud computing is that cloud services advance “green” agendas: they allow fuller utilization of shared infrastructure capacity, thus consuming less power and lowering the carbon footprints of their users versus alternative IT approaches.

1IDC Predictions 2011: Welcome to the New Mainstream, International Data Corporation, December 2010.
2“Indie App Stores Struggle,” The Wall Street Journal, 24 November 2010, via Dow Jones Factiva, © 2010 Dow Jones & Company, Inc.

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