Deutsche Bank - Cloud computing. Clear skies ahead

8/2/2019 Deutsche Bank - Cloud computing. Clear skies ahead

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E-conomicsDigital economy and structural change

Cloud computing is designed to enable users to concentrate on their corecompetences. Cloud service providers advertise with their ability to deliver

memory capacity and software over the Web whatever the users location anddevice, claiming they can rapidly adapt this to requirements. That way, userscan farm out peripheral business activities to specialised service providers.

An ambiguous empirical picture is typical of a new market. Cloud computing iscurrently advancing more slowly than widely hoped. Resistance and structuralimpediments exist among both users and providers of cloud computing.

Expectations often still not met. Following the launch of cloud computing, morethan half of Germanys Mittelstand (SME) businesses are not yet fully convinced

by the immediate results. Aside from the disillusionment typically associatedwith overblown expectations, the current reluctance to engage with cloudcomputing is motivated mainly by security concerns as well as by uncertaintyover which technical version will ultimately gain the upper hand.

16% cloud usage rate at Mittelstand firms. At the beginning of 2011 cloudsolutions were used by only a minority of SME businesses. But for 2012 aquarter of companies have already drawn up specific plans for its use. More-over, the ratio is likely to increase in the course of this year.Engagement with cloud rose appreciably in the course of 2011. Even though themajority of small and medium-sized businesses had still only addressed thepossibilities of cloud computing perfunctorily or not at all by the end of 2011,over the year they did begin to devote appreciably more attention to the subject.Companies are introduced to the topic through various channels. IT serviceproviders play an important part here, and will do so increasingly in future.

Good medium-term market outlook. Within the space of five years the market isexpected to grow to EUR 9 bn in Germany and EUR 71 bn worldwide. It is quitepossible that, following the hype typical of a new business sector and sub-sequent disillusionment, in a few years time the term cloud computing will have

faded away again entirely. Yet the fundamental idea behind the buzzwordfocusing on core business does stand a good chance in the medium-term ofbeing implemented more broadly in a world of globally organised value chainsregardless of the label that is then put on the product.

AuthorsStefan Heng+49 69 910-31774

[email protected]

Stefan Neitzel (techconsult)+49 561 [email protected]

EditorAntje Stobbe

Deutsche Bank AGDB ResearchFrankfurt am MainGermanyE-mail: [email protected]: +49 69 910-31877

www.dbresearch.com

Managing DirectorThomas Mayer

March 1, 2012

Cloud computingClear skies ahead


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Cloud Computing: Clear skies ahead

2 | March 1, 2012 E-conomics

Founded in 1992, techconsult GmbH are among the foremost market analysts inCentral Europe. Their strategic consultancy focuses on the information and

communications technology (ICT) sector. On the basis of regular user andchannel surveys representative of their respective segments, it is possible todepict the quality and quantity of the ICT market. Experienced statisticiansguarantee the structure and evaluation of the surveys, while acknowledgedindustry experts vouch for the interpretation and practical application of theresults.

HP creates new avenues for the meaningful use of technology by privateindividuals, businesses, public authorities and communities. As the worlds

biggest technology company, HP offers a comprehensive portfolio to help clients

achieve their objectives including solutions in the segments printing, personalcomputing, software, services and IT infrastructure.

You will find more information on HP (NYSE: HPQ) at http://www.hp.com. Pressinformation and photographic material is arranged chronologically andthematically at www.hp.com/hpinfo/newsroom/.

Deutsche Bank Research is responsible for the Deutsche Bank Groups

economic analysis and advises the bank, its customers and stakeholders.DB Research tracks the trends of relevance to Deutsche Bank on the financial

markets, in business and society, also examining the opportunities and risksthey entail.

For more than ten years DB Research has investigated the impact oftechnological progress and innovation on business and society. You will findfurther information at www.dbresearch.com/technology/


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Cloud computing is a very broad term which, despite various attempts at precisedefinition (see box 1), often remains nebulous

1, floating somewhere in the wide

expanse between the flexible delivery of IT software and capacities through tointernet applications, collaboration software, video conferencing andSETI@home2. This hazy interpretation gives rise to often-overblown businessexpectations of cloud computing. Companies are told, for example, that cloudcomputing can save them nearly 80% of their IT energy costs.

With all these positive expectations, however, the actual concept behind thebuzzword often gets lost. Basically, cloud computing takes the idea of IToutsourcing a stage further. The intention is to enable users to concentrate ontheir core competences and farm out peripheral parts of their operations tospecialised service providers. Cloud vendors advertise with the argument thatthey can make memory capacity and software available, for a charge, via theWeb whatever the users location and equipment and that they can rapidly

adapt their services to requirements. They like to subsume these offers underthe heading Internet of services. Cloud users are motivated chiefly by

considerations of reducing their IT capacities, which are designed for the fewmoments of peak demand, and of converting some of this fixed expenditure intovariable costs.

This study analyses the economic potential of cloud computing. The first partexamines the theory forming the basis of cloud technologies. Besides explainingthe most important terms and concepts, it identifies the main drivers andobstacles. The second section goes on to present empirical insights into cloudcomputing at Germanys SME Mittelstand businesses. For an empirically

underpinned investigation, techconsult und HP Deutschland have designed aCloud IndexMittelstand, whose periodic waves of data collection also make itpossible to deliver an analysis over time. The concluding section of the study

evaluates the analytical and empirical findings and discusses the prospects forfurther development of the cloud computing market.

More than just a cloud formation

Depending on their deployment model, cloud computing services are divided asfollows into the two pure forms Public Cloud and Private Cloud and a compositeform, the Hybrid Cloud (see chart 2):

3

In the case of a public cloud IT resources or software are provided by anexternal supplier via the Web. Users data and applications are all located

on the same physical infrastructure but with separate individual allocation. Inthis instance several users therefore share the cloud infrastructure.

With aprivate cloud IT resources or software are customised to therequirements of a single user and provided exclusively to that user by anexternal provider or even from within the user company. In this case onesingle user therefore has exclusive use of the special cloud infrastructure.The distinction between this and traditional hosting is somewhat blurred.

1See Heng, Stefan and Florian Schler (2011). Cloud Computing: The term will disappear, but theidea will continue to catch on. Deutsche Bank Research. Talking Point. Frankfurt am Main.

2One of the cloud computing projects to have captured considerable public interest isSETI@home. This is an internet-based public volunteer computing project with the aim ofidentifying signs of extraterrestrial intelligence from the overwhelming volume of data receivedfrom space.

3See National Institute of Standards and Technology (2011). The NIST Definition of CloudComputing. Draft. And: Berlecon (2010). Das wirtschaftliche Potenzial des Internets der Dienste.Berlin.

BITKOM definition of cloud computing 1

Germanys Federal Association for InformationTechnology, Telecommunications and New

Media, BITKOM, gives the following definition ofcloud computing in its cloud computing manualLeitfaden Cloud Computing: Was Entscheiderwissen mssen (Berlin 2010):

Cloud computing is a way of delivering shared,

flexible and scalable IT services through non-firmly allocated IT resources over a network.Typical characteristics are real-time, metereddelivery as a self-service on the basis of internettechnologies charged according to use. Cloudcomputing thus enables users to reallocateinvestment expenditure to operating expenses.The IT services can cover applications,application development and operatingplatforms and basic infrastructure.


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Between the two pure-play public and private cloud forms there exists awide variety of different mixed cloud computing types known as hybridcloud. The various hybrid cloud services aim to combine the advantages ofpublic and private cloud for their respective intended environments.

Wide variation in service models

As well as by deployment models, cloud computing provisioning is categorisedas follows according to the service models used to provide capability to theoutsourcing user (see chart 3 and remarks in the empirical section of thisstudy):4

With infrastructure as a service (IaaS) the cloud provisions such basic ITinfrastructure as storage, network and computing capacity.

With platform as a service (PaaS) the cloud provisions higher infrastructure-level services for the consumer. In both a runtime environment (RTE) andan integrated development environment (IDE) the cloud enables users toconfigure differentiated applications for their own individual needs.

With software as a service (SaaS) software is provided as an integratedservice network based on the cloud infrastructure. Consequently users savethe costs of hardware and software licences and maintenance of the IT

infrastructure.

5

Myriad ways of cutting costs

Businesses customary aim with cloud computing is to cut costs. Experts rate

the potential for this highly. Federico Etro6

from the think tank Intertic, forexample, says in what is undoubtedly an optimistic assessment that companiesin the EU can reduce their total fixed expenditure by up to 5% with cloud

4See Bitkom (2010). Cloud Computing Was Entscheider wissen mssen. Leitfaden. Berlin; andBerlecon (2010). Das wirtschaftliche Potenzial des Internets der Dienste. Berlin.

5A special type of SaaS is security as a service (SecS). This provisions applications of relevanceto IT security through the cloud infrastructure.

6See Etro, Federico (2009). The Economic Impact of Cloud Computing on Business Creation,Employment and Output in Europe. Review of Business and Economics, 2009/2. Leuven.pp. 179 209.

Many different varieties of cloud computing 2

Source: DB Research, 2012

Many different varieties of cloud computing 3

Schematic representation of cloud computing by

deployment models

Source: According to Gottfried Vossen, 2011


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computing.7

The potential economies in IT are confined chiefly to the followingcost categories (see also remarks in the empirical second section of this study):

Capital and labour costs: Businesses that outsource IT capabilities reduce

their capital formation and the need for internal IT specialists.8

In principle,cloud computing leads to more economical use of the resources availableand also makes it possible to convert fixed expenditure on capital andlabour into variable costs, with capital costs usually proving quicker toconvert into variable costs than labour costs.

Energy costs: By cutting back on its IT hardware the outsourcing companycan lower its energy costs for operation and cooling. Whilst many compan-ies pay scant regard to this expenditure item, it nevertheless often assumesa significant dimension not only at IT-intensive businesses (see chart 4).

9

Ultimately, however, businesses will often find it very difficult to make anauthor-itative assessment of the overall cost effect (including costs of training,imple-mentation and cloud services). This is mainly because even today quite anum-ber of corporate users in particular SME businesses are still only ableto give very rough estimates of their actual IT expenditure (and hence theoriginal pres-sure to act on cost-cutting and the overall impact of potential ITrestructuring).

Before deciding on IT restructuring moreover, companies should consider thatexternal provisioning can only make economic sense in the first place if thecloud provider really does deliver the service cost-effectively to the requisitequality standard and if the intensity of competition is such that the providerpasses on the efficiency gain obtained through specialisation and scale effectsto the cloud customer.

Cloud computing is more than simply a cost-cutter

In addition to the cost gains, cloud providers also promise considerable benefitsin terms of flexibility, access, data security and time to market (see chart 5):

Greater flexibility: With cloud computing companies can cushion seasonal orcyclical special effects and fluctuations in IT demand at particular times of theday with scalable resources. Especially for small businesses whose in-house ITresources are run on a very tight budget, cloud computing can thus improvecompetitiveness in their core business.

Wider access: Cloud computing is designed to give consumers access to dataand applications from any device wherever they may be. Such independence of

platforms and end devices forms the basis for modern cooperative, nomadicforms of work. It may be very convenient for businesses with an extensive fieldservice network, for example.

High level of data protection and data security: The public at large and decision-makers still inexperienced in this respect at user companies take a ratherambivalent view of the issue of outsourcing data.

10Yet cloud vendors advertise

with the argument that their specialisation and experience with data protection(i.e. the individuals right to determine the disclosure and use of personal

information as protection against the wrongful use of sensitive data) and datasecurity (i.e. securing the confidentiality, availability and integrity of the

7The potential savings range between 3% und 21% in the sectors examined, depending on their ITintensity.

8 But there can be no question of all IT staff being laid off if only because businesses require in-house IT specialists for service level agreements and their monitoring.

9See Heng, Stefan, Bernd Klusmann and Florian Knig (2010). Green IT: More than a passing fad!Deutsche Bank Research. E-conomics 81. Frankfurt am Main.

10In the following chapters we will address the challenges with regard to data protection, datasecurity and data concentration that stand against the opportunities described.

40 50 60 70 80 90

Cost savings

Low equipment costs

Wider access

Pay-per-use

Speeding up innovation

Concentration on corecompetences

Cushioning peak loads

* N=310 (SMEs in Germany that do not use cloudcomputing)

Cloud has a lot going for it 5

Reasons for using cloud computing in thefuture, in %*

Source: PwC, 2011

10

20

30

40

50

60

70

80

Capital Staff Energy

Private Hybrid Public

Great expectations of energy savings 4

Estimated cost cutting potential throughintroduction of cloud computing, in %

Source: Cebr, 2010


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information) enable them to offer a far higher level of service than an SME fromanother sector would normally achieve. So cloud vendors undertake to adaptsoftware and hardware regularly and just-in-time to current security require-ments.

Short time to market for innovation: Cloud computing can reduce times tomarket for innovations at outsourcing companies. For business start-upslaunching without an IT infrastructure of their own, cloud computing offers a veryconvenient way of focusing on their core business.

Technical, economic, organisational and legal challenges

For all the benefits that cloud computing promises, it also poses a number ofchallenges for providers and consumers, chiefly of a technical, legal, economicand organisational nature (see chart 6). The main hurdles to be negotiated lie in

sufficient utilisation of the IT capacities, contractual complexities, regulations ondata access, the concentration of data and the fact that the user is tied to onecloud provider.

Aiming for optimum capacity utilisation by diversifying the customer base

Cloud providers must find an economically efficient way of coping with daytime,seasonal and cyclical fluctuations in capacity demand. To achieve optimumutilisation of their IT infrastructure, they therefore usually try to acquire an ideallycomplementary customer portfolio of users diversified across individual sectorsand time zones. In most cases, however, cloud vendors have great difficulty inattracting the ideal mix of users.

Contract terms often opaque

The contractual relationship between cloud computing vendors and users isoften not set out in full, particularly since the contracting parties frequently fail tonegotiate a sufficiently comprehensive agreement. In many instances usershave absolutely no idea who is actually delivering the service at the end of along value chain of sub-contractors. In such cases a legally enforceablecontractual relationship can normally be deemed to exist only indirectly.

A further challenge is posed by the fact that issues pertaining to liability,responsibility and contractual obligations can often only be examined legally ona case by case basis. Such examination must, for example, take into account

that cloud users are, in turn, liable to their customers in the event of the cloudvendors failure to provide the proper service insofar as the cloud provider isacting as a vicarious agent of the cloud user in the legal sense. In long valuechains with companies cooperating across national borders, attempts to clarify

Multi-layered challenges confronting cloud computing 6

Source: According to Gottfried Vossen, 2011


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cloud computing liability issues definitively ex ante are fraught with considerablecomplexity.

If users are to be capable of assessing their risk, they must closely scrutinise a

whole host of requirements and have insight into the processes involved. Oneissue that needs to be clarified is how security management processes havebeen implemented. Certification such as ISO 27001/2, SAS70 and PCI DSSmay act as a good benchmark for this assessment.

11A harmonised legal

framework for data protection and data security such as the EU is presentlytargeting in the amendment to its Data Protection Directive and a universallyrecognised international seal of approval

12could give users a sense of greater

confidence in the service packages offered.

Agreement on the service quality required

In a sustainable partnership the parties involved should agree on the minimumlevel of service quality (with regard to system availability and speed) that is to beobserved. In practice, however, the issue of quality is frequently left open in theservice level agreement. Even where this essential service level aspect isaddressed, the infringement of contractual obligations seldom triggers clearsanctions. But without a service level agreement it is often impossible to enforcea contractual obligation swiftly in all its ramifications. 24% of German companiesinterviewed by management consultants PwC explicitly stated that their agree-ments did not set out conditions governing service availability (see chart 7).

Data protection and data security are pivotal challenges

In addition to the quality of service, the varied aspects of data protection anddata security are also extremely important for the cloud consumer when drawing

up a full and complete agreement. One angle that needs to be examined iswhether exporting personal data to locations outside the EU already constitutesa fundamental infringement of the legal requirements applying to the company.Checking this is absolutely essential if there is a possibility that the cloudproviders IT capacities or as is common with complex value chains those ofits sub-contractors are located in other jurisdictions, particularly since otherjurisdictions stipulate completely different regulations concerning dataprotection, data security and government access to data (see box 8).

Above and beyond some sector-specific legal features,13

all companies inGermany must observe in particular Sections 3, 11 and 28 of the GermanFederal Data Protection Act (BDSG). With reference to cloud computing, the Actstipulates special responsibility on the part of the sub-commissioning company

with regard to the integrity of the data that is to be outsourced.14

Obvious risks of data concentration

The fact that applications can be used flexibly makes cloud computing attractiveto users, for whom cloud vendors able to provide a comprehensive range of

11See Eckhardt, Jens, et al (2010). EuroCloud Leitfaden: Recht, Datenschutz und Compliance.Cologne.

12 In their joint study Survival of the Fittest Wie Europa in der Cloud eine fhrende Rollebernehmen kann, Munich, 2011, SAP and Roland Berger propose a European Cloud GoldStandard.

13For example, particularly stringent data protection and data security standards apply to banks.The Federal Financial Supervisory Authority (BaFin) has formulated key regulations here in theMinimum Requirements for Risk Management (MaRisk).

14 Section 11 of the BDSG states: Where other bodies are commissioned to process or usepersonal data, responsibility for compliance with the provisions of this Act and with other dataprotection provisions shall rest with the principal. ()The agent shall be carefully selected, withparticular regard for the suitability of the technical and organizational measures taken by him.

US authorities want access to data 8

In comparison to the United States, theEuropean Union attaches far greater signific-ance in its regulatory framework to data protect-ion and data security. The US Patriot Act, forexample, requires that US authorities be givenaccess to all data stored or processed by acompany domiciled in the US, regardless ofwhere this data is physically located. For Euro-pean companies in particular the requirementsof the Patriot Act therefore undermine theagreements initially reached in the Safe HarborTreaty at the beginning of this millennium on thetreatment of corporate data.

29

258

24

14

>99,9% > 99%,


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services are therefore especially relevant. The supply-side cloud computingmarket consequently inclines towards concentration with just a few providers. Asa result, as more and more data is farmed out by cloud users there will be agrowing concentration of data at cloud providers. This data concentration withthe attendant potential prospect of very few data centres remaining in the longerrun lays providers wide open to hacker attacks, for example. Even moreserious than the theft of data, however, would be the complete outage of one ofthese computer centres, resulting in the destruction of information with palpablemacroeconomic repercussions.

Highly averse to being highly dependent

The prospect of being tied closely to a single cloud provider for a very long time(vendor lock-in) may act as a deterrent to outsourcing companies. Manycustomers are particularly concerned that even in the event of a markeddeterioration in price and service levels they would have great difficulty switch-

ing their cloud provider. One of the main reasons for this is that there are not yetany universally valid technical standards in place. Faced with vendor lock-in,users should scrutinise offers very carefully and also examine what possibilitiesthey have to terminate the contract (e.g. in case of dismissal or businessclosure). In practice, what would happen to corporate data in such a case is alltoo often vague. 18% of the German cloud providers surveyed told managementconsultants PwC that their contracts did not fully cover data migration (seechart 9).

Affinity and satisfaction hinge on three aspects

Given the technical, legal, economic and organisational challenges previously

discussed, many potential users are noticeably uncertain about the uses towhich cloud computing can be put. In practice, however, the length of time acompany has been in business, its degree of specialisation and sector-specificsecurity needs have emerged as the key determinants of affinity and satisfactionwith cloud computing in general and private cloud or public cloud in particular(see also the comments in the empirical second section of this study):

Duration of the company: The younger the company and the less ITinfrastructure it already has in place, the greater the likelihood that it will usecloud.

Specialisation:The more specialised the companys IT requirements, themore difficult it is to outsource strategic corporate processes and business-

critical processes to a public cloud. Security requirements: Data protection and data monitoring needs differ

from one sector to the next. Companies in the IT sector are culturally morereceptive to innovation, whereas the public sector and the financial servicesindustry are obliged to tread far more cautiously in this respect andconsequently make very little use at present of cloud solutions in generaland public cloud in particular.

Fewer reservations towards private clouds

Cloud consumers tend to favour tailor-made private cloud service packagesover standardised public cloud products. At this early stage of market develop-

ment quite a lot of users are therefore evidently prepared to accept the higherservice charges and lower returns to scale of smaller private clouds incomparison to large public clouds in order to enjoy the benefits of offerscustomised to their special requirements.

Yes59No

18

Nodetails

23

* 51 Cloud providers in Germany

What happens to data when thecontract ends is often unclear 9

"Do arrangements exist on when and how datais returned when the contract ends?", in %*

Source: PwC, 2011

0 10 20 30 40 50

Public cloud

Private cloud

Hybrid cloud

June 2011 Oct. 2011 Jan. 2012

*SMEs polled in Germany that plan to introduce or continuewith Cloud computing in the next three months

Private could rated highly 10

Planned use of services for the next 3 months,% of Cloud users*

Source: techconsult, 2012


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This calculated consumer strategy is reflected in surveys. Almost one-fifth ofrespondents in the latest poll of SME companies by techconsult

15said they

planned to roll out or continue with cloud computing in the coming three months.Nearly half of these companies spoke of plans for a private cloud. A quarter waslooking at a hybrid cloud and not quite a third at a public cloud (see chart 10 andcomments in the empirical second section of this study). These companies seethe merits of a private cloud in that it satisfies their personal need for securityand monitoring of data outsourcing. The German businesses interviewed by IDCexpressed themselves in a very similar vein. Just over one third of companiescited reduced possibilities for intervention (i.e. governance) as an argumentagainst public clouds, with one quarter each mentioning the need forcompliance and doubts about the service level actually guaranteed (servicequality and availability).

16

Consumers expectations often not entirely satisfied

In practice many of the hopes placed in cloud computing have so far beendisappointed. Uncertainty is rife in this new area of application implying thatbusinesses still have a lot to learn. More than half the German companiessurveyed by management consultants Deloitte said they had not fully achievedthe objectives associated with the introduction of cloud computing.

17Their

dissatisfaction is most apparent with regard to the flexibility and cost savingsthey had hoped to achieve (see chart 11). Management consultants Hurwitz &Associates

18and IDC,

19for example, speak optimistically of potential savings of

as much as 55% of the total IT spend. Aberdeen Research20

and McKinsey21

argue far more cautiously that the overall cost savings for companies from cloudcomputing are in fact negligible. In a worst-case scenario they even identify adanger of cost increases running into double digit figures. Given that companies

which opt for cloud computing initially incur substantial investment (e.g. inconsulting, hardware and training), it will not be possible to deliver an empiricallyvalidated assessment of the overall impact on costs for some years to come.

Market development still in its infancy

The cloud computing market still has most of its development ahead of it. In linewith this, surveys on the use of cloud computing arrive at very different results.The consultancy IDC, for instance, paints a positive picture with 70% of SMEfirms in Germany working on a cloud strategy. techconsult, on the other hand,points out that at present a scant 16% of the German SMEs polled are actuallyemploying the technology at all even selectively. Indeed, 25% of SMEs see

only specific positive aspects of cloud computing for their own business.

This currently ambiguous picture is typical of a new market like the one for cloudcomputing. Cloud technology is making slower progress than widely hoped for.Resistance and structural obstacles exist among both users and providers ofcloud computing. The following four aspects are the most pronounced:

Resistance from IT vendors: The potential of cloud computing obliges ITvendors to rethink the traditional business model. In many areas demand-

15

See techconsult (2011). Noch geringer Cloud-Einsatz im deutschen Mittelstand. Press release.Kassel.

16See IDC (2011). Cloud Computing in Deutschland 2011. Frankfurt am Main.

17See Deloitte (2011). Cloud Computing in Deutschland. Berlin.

18 See Dufft et al. (2010). Das wirtschaftliche Potenzial des Internet der Dienste, Bundesministeriumfr Wirtschaft und Technologie. Berlin.

19See IDC (2009). Cloud Platform Drives Huge Time to Market and Cost Savings. Frankfurt amMain.

20See Aberdeen Group (2009). Business adoption of cloud computing. Boston.

21See McKinsey (2009). Clearing the Air on Cloud Computing. Berlin.

The market still has to develop

0 5 10 15 20 25 30 35

Cost cutting

Flexilility

Avoidance of majorinvestment

Independence from ITdepartment

Swift distribution

Expanded functionality

Others

Targeted Achieved

Not up to expectations 11

"Were the objectives associated with cloud comp.achieved, % of the companies surveyed, DE

Source: Deloitte, 2011
http://www.zew.de/en/publikationen/publikation.php3?action=detail&nr=6010http://www.zew.de/en/publikationen/publikation.php3?action=detail&nr=6010


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side pressure will result in new cloud computing offers ousting the hithertocustomary on-site provision of extensive IT hardware and software. Thesenew offers will trigger significant changes in distribution channels, valuechains and hence margins. This is likely to encounter resistance from withinorganisations at least in the initial stages of reorientation.

Resistance from the outsourcing companies IT departments: Before theirupcoming reorganisation, outsourcing companies will certainly have someconvincing to do within their own organisation if they are to keep their in-house IT department on board. Re-educating staff is important in order tohead off the potential upsurge of a greater or lesser groundswell ofapprehension particularly during roll-out which would block theintroduction of a technology that makes sense for the company as a whole.The concerns are likely to be wide-ranging from fears of job losses for ITworkers to the prospect of less operational influence for IT management.Dealing with such issues frankly and openly will presumably pose notinsignificant challenges for management.

22

Lack of generally accepted standards: A generally accepted technicalstandard could significantly facilitate the interoperable use of cloudcomputing services across different architectures and take marketpenetration as a whole further forward, all the more so since quite a fewpotential users are currently still holding back for this reason. There iswidespread fear of choosing a solution that may not ultimately make thegrade. However, agreement within the industry on generally acceptedstandards may prove difficult to reach. Indeed, some vendors maydeliberately rely on proprietary services, a business strategy driven by thehope that restricting interoperability will make it much more difficult forcustomers to change providers.

Network availability and speed: Communications networks have to copewith ever higher data volumes and quality requirements. Inefficientcommunications networks (particularly with regard to system availability andspeed) cause interruptions in cloud users operations, often also resulting in

substantial downtime costs. The prospects of success for the new cloudservices therefore depend directly on the distribution and efficiency of thecommunications network. Development of the communications networkthe pivotal economic issue is therefore also an issue affecting thebusiness fundamentals for cloud computing (see box 14).

23

22See comments in the second, empirical part of this study.

23See Heng, Stefan (2011). Net neutrality: Innovation and differentiation are not polar opposites.Deutsche Bank Research, E-conomics 86. Frankfurt am Main.

Interoperable use is the ideal

Excursus: High-powered communications networks in demand 14

Far from being a distant figment of the imagination, capacity constraints in the data network are thus

a foreseeable reality amid the steady increase in IP traffic (see chart 12). All the same, networkutilisation varies considerably depending on the time of day, weekday and user groups. DeutscheTelekom states that 65% of its data traffic is generated by just 10% of its subscribers. In addition,peak loads normally occur between 6pm and 10pm, although this can be heavily influenced byunscheduled day-to-day occurrences.

Mindful of the social and economic importance of adequate broadband supply, the EuropeanCommission has set ambitious objectives for expansion. By 2020 every EU citizen should be able togo online at a minimum internet access speed of 30 Mbit/s; furthermore, at least 50% are to haveaccess with a minimum speed of 100 Mbit/s. Germany is even raising the bar somewhat higher,targeting an internet access speed of 50 Mbit/s by 2015 for 75% of Germanys 40 million householdsand by 2018 for every single household.

These ambitious bandwidth targets entail huge infrastructure investments (see chart 13). In what arerelatively conservative estimates for the EU as a whole the European Investment Bank (EIB)projects that these costs will exceed EUR 220 bn.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014

Average growth p.a.: +35%

Limit to growth unforeseeable 12

Monthly IP data volumes, DE, exabytes(10^18 bytes)

Source: Cisco, 2011

0 10 20 30 40 50

AT

ES

IT

GB

FR

DE

Total EU 221

Broadband expansion: A major project 13

Estimated investment required for broadbandexpansion, EUR bn

Source: EIB, 2011


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Good openings on a market in flux

Development of the market for cloud computing has been hamstrung so far bythe challenges involved, notably insufficient supply-side growth, the high price

level in which this results, and reservations on the part of users. Even so, cloudcomputing can look forward to favourable market opportunities on the demandside as users become more aware of the service, and on the supply side with amore broadly differentiated product range increasing deployment pressure onusers. That said, the time horizon will be longer than many providers had initiallyhoped.

24

techconsult, for example, is working on the assumption of 40% growth in usagefor the next six months (see remarks in the empirical second section of thisstudy) admittedly from a low base level. And the industry association Bitkomspeaks of cloud computing at least generating 10% of the total IT spend inGermany by 2016.

By this reckoning, we estimate that within five years market volume in Germanywill climb from EUR 2 bn at present to EUR 9 bn, corresponding to averagegrowth of 36% p.a. Globally, market volume over the same period is likely toincrease from EUR 21 bn today to EUR 71 bn, representing average growth of28% p.a. (see charts 15 and 16). Management consultants Roland Bergercalculate that up to 70,000 jobs per annum gross could be created in theEuropean cloud computing segment as a result.

25As already discussed,

however, at least some of these positions could then be lost in other IT sub-segments and regions. On balance therefore, cloud computing will notforeseeably boost the total of somewhat more than 15 million IT jobs on amassive scale, although it will help stabilise the labour market throughproductivity gains.

This momentum will transform supply-side structures. Quite a number of internetservice providers, infrastructure providers, IT consultants and cloud vendorsintend to expand their range far beyond the limits of their respective corebusinesses while at the same time significantly increasing their degree ofvertical integration (see remarks in the empirical second section of this study).This trend is likely to ratchet up the competitive pressure, which in turn shouldplace the larger, successfully established providers at an advantage.

Stefan Heng (DB Research, +49 69 910 31774, [email protected])

24See. Lamberti, Hermann-Josef (2012). Frankfurt Cloud strkt Innovationskraft des Finanzplatzes.Brsenzeitung, Sonderbeilage 60 Jahre Brsenzeitung.

25See Roland Berger (2011). Survival of the Fittest: Wie Europa in der Cloud eine fhrende Rollebernehmen kann. Munich.

0

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2

3

4

5

6

7

8

9

2011 2016

Averagegrowth:+36% p.a.

Steep growth in cloud 15


Cloud computing market volume, DE, EUR bn

0

10

20

30

40

50

60

70

80

2011 2016

Averagegrowth:+28% p.a.

Bright outlook worldwide 16

Cloud computing market volume, global, EUR bn

mailto:[email protected]:[email protected]


12/20



Empirical analysis: The Cloud Index Mittelstand

To examine the role played by cloud computing, at the beginning of 2011techconsult and HP Deutschland set up the Cloud Index Mittelstand. In contrast

to the large number of recent studies, research and surveys, the Cloud Indextakes a long-range view, offering analysis over time by means of periodicsurveys.

Study design and contentThe Cloud Index aims to provide users and suppliers with an overview of thediffusion, development and establishment of the cloud computing trend. Itsfindings enable IT professionals and business decision-makers to follow thedevelopment of the cloud market practically in real time and to benchmark theirown strategic focus against their competitors. In the process, the SME sectorsneeds are picked up and communicated to the IT market professionals.

Secondly, the importance of cloud computing in the German SME sector ismade transparent. The Cloud Index is designed to create visibility for businessdecision-makers and to raise their awareness of this cutting edge technology.The study concept is based on an expanded definition of Germanys Mittelstand

(the SME sector) determined by the number of employees (full-time equivalent),so that the research covers companies with a headcount of 20 to 1,999.

The surveys are conducted quarterly at techconsults own call centre, drawing

the random sample for the interviews from techconsults Mittelstand database.

This is governed solely by considerations of representative distribution by sectorand size class. Unlike purely online surveys, the poll guarantees an undistortedrepresentation of the Mittelstand sector. In online surveys it is hardly if at allpossible to monitor the quality of the responses. Additionally, the method

chosen generally results in a greater willingness to take part by people whohave an affinity with the subject matter.

Content dimension of the indexThe HP Cloud Index Mittelstand captures and illuminates the subject of cloudcomputing at German SME businesses from various angles. Besidescompanies usage and their plans to implement cloud solutions, the hoped-forbenefits and anticipated disadvantages of using cloud are quantified andreasons given for these assessments. Companies cloud fitness the termrefers to their level of preparedness to implement cloud technology is alsoinvestigated. The fitness rating surveyed here produces a measure of thepotential for the use of cloud at short-term. Emphasis is placed on the followingaspects:

Cloud usage by the German Mittelstand: Cloud usage in the past threemonths and projected cloud usage, including differentiation by cloudsolution levels (SaaS, IaaS, PaaS) and service models (private, public,hybrid).

Engagement with cloud computing: Depth in which the company treats thesubject of cloud computing and department-specific rating of intensity.

Assessment of cloud benefits: Assessment of the benefit to the companyfrom the implementation of cloud computing together with the reasons for apositive or negative assessment of the benefits based on a set list.

Cloud fitness rating: Assessment of how well the company is prepared toroll out and use cloud solutions together with the reasons for a positive ornegative fitness rating based on a set list.

Fitness rating as a measure ofpotential cloud usage


13/20



Cloud usage by Germanys Mittelstand has increased

There was a significant increase in the use of cloud computing during 2011.Some 10% of SME firms were implementing cloud solutions for their businesses

at the turn of the year 2010/2011, a number that has since risen to around 16%of the companies interviewed. The strongest growth was registered in the fourthquarter, driven chiefly by the software-as-a-service and infrastructure-as-a-service models. Although the rate of expansion slowed in the first quarter of2012, in the medium term roughly one quarter of companies plan to use cloudcomputing.

Whilst the number of companies entering the cloud computing world rosesteadily, adaption and diffusion of the cloud model within corporate cloud users

various IT segments failed to keep pace. Often the companies interviewed makeonly selective use of cloud solutions or their usage is confined to isolated or veryfew areas of application. So whereas SMEs perceive cloud computing as anadditional option, it is not a substitute for traditional IT service models. As a

result, the establishment and diffusion of cloud is tending to fall short ofproviders expectations. Farther down the line, however, respondents say they

plan to make more use of cloud. As a rule, actual demand and planning for aspecific project are decisive to the deployment of cloud technologies. At thesame time, experience with concrete cloud projects opens a companys eyes to

new ways in which cloud solutions can ideally support business processes(see charts 17 - 20 and remarks in the analytical first section of this study).

Software as a service driving the use of cloud

In 2011, software in particular was used in a cloud model, and in 2012 SaaS willsimilarly act as the driver and indicator of cloud computings establishment at

German SMEs. SaaS is therefore presently cornering the lions share of currentspending on software as a service. The deployment of software under a servicemodel has already gained a firm place as an alternative supply strategy at thecompanies surveyed, where it is present on the strength of previous experiencewith application service providing (ASP) and similar models. With increasingsupply density and more differentiated SaaS services, the use of software as aservice is gaining in appeal to IT professionals. Among the most favouredapplications are highly standardised versions for collaboration, security andfinancial accounting, for example. Customer relationship solutions are anotherfront runner owing to the high demands on mobility. This solution segment inparticular is quite rightly considered a pioneering field of SaaS. 2012 is expectedto see very intensive use of office and email solutions.

Dynamic use of infrastructure as a service

SME businesses make more flexible use of IaaS than software services.Infrastructure services are extremely popular among IT officers as a means ofresponding flexibly to short-term demand and cushioning peak loads. IaaSusage in 2011 concentrated on the provision of servers and storage, with morearchiving and backup solutions being used in the second half of the year. Asexpected, towards the end of the year IaaS services experienced above-average overall growth in usage, with sectors that traditionally enjoy briskyears-end business playing an instrumental part, such as Christmas trade in theretail sector. The clear majority of businesses that employ IaaS say they intendto intensify and expand their usage of infrastructure as a service in the coming

year. Here and there firms are also beginning to deploy services through thePaaS level, the aim being to offload more of their administration and resourcemanagement work. All told, almost one-fifth of the SMEs polled plan to useinfrastructure services in 2012.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012

SaaS IaaS PaaS

n=200 companies per quarter

Rapid growth in 2011 17

Percentage of SMEs surveyed that use cloud,Germany


0%

2%

4%

6%

8%

10%

12%

14%

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012


SaaS a well-known softwaredeployment model 18

Percentage of SMEs surveyed that use SaaS,Germany


0%

2%

4%

6%

8%

10%

12%

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012n=200 companies per quarter

Intensive IaaS use at year-end 19

Percentage of SMEs surveyed that use IaaS,Germany



14/20



Teething troubles for platform as a service

Although PaaS did start to make distinct inroads in the third quarter of 2011, forthe year as a whole it lagged behind the other service models at a low level.

Most of the respondents surveyed misperceive PaaS as a purely developmentenvironment. And it is with platform as a service that they have the greatestdifficulty in characterising the model and rating its upsides and downsides.Going forward, PaaS will play a particularly important role in the integration ofmultiple cloud services such as their combination in mash-ups.

Preferred cloud deployment models: Private cloud as an entry-level model

Most cloud services in 2011 were deployed and delivered under a private cloudmodel. Although a growing number of businesses did dip their toes in the waterwith the public cloud model in the second half of the year, private cloud still

remains the entry-level cloud model of choice for the Mittelstand, with more thanhalf of SMEs aiming for that option since it allays the concerns over security andloss of control frequently associated with outsourcing and is expected tofacilitate integration into legacy systems. On the basis of the virtualisationtechnology already established, in a private cloud environment IT resources aremade available to users dynamically, automatically and as a needs-basedservice. With migration to the service-oriented IT model, flexible infrastructuresare designed to enable businesses to generate significant efficiency gains byreplacing siloed solutions. The respondents see private cloud as the logicalevolution of virtualisation through standardisation and automation of theinfrastructure (see chart 21 and remarks in the analytical first section of thisstudy).

Hybrid cloud as a model for the future

Many private cloud users wish to enhance and expand the targeted efficiencyand flexibility gains with public cloud solutions. However, in the course of theyear many participants in the study discovered to their cost that conversion to ahybrid cloud is a more challenging and complex task than envisaged. Yet inmany cases there was not even any need for additional external services. Evenif conversion to a hybrid model was not realised as forecast, the companies stillstuck to their plans. Public cloud, on the other hand, is registering steadygrowth, with particular use being made of it in the software-as-a-service andplatform-as-a-service segments.

The study has revealed that large Mittelstand companies mainly initiate privatecloud projects. These SMEs have often already consolidated their IT systemsfor the most part and see considerable cost and resource management benefitsin the introduction of cloud computing, as well as greater flexibility. In contrast,IT infrastructures at small SMEs have generally evolved heterogeneously. In thiscase public cloud solutions offer an ideal way of supporting requirements suchas increased mobile availability and the need to cushion peak loads.

Increasing engagement with cloud

Whilst the majority of respondents are aware of the term cloud computing, mostof the Mittelstand companies surveyed have not yet explored its possibilities in

any depth. In the course of 2011, however, they did show signs of engagingmore closely with the subject. Whereas in the first half of the year more thanthree-quarters of the companies polled had examined cloud computing-modelsonly superficially or not at all, in the second six months a marked increase was

0%

1%

2%

3%

4%

5%

6%

Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012


PaaS catching up 20

Percentage of SMEs surveyed that use PaaS,Germany


0% 20% 40% 60%

Private Cloud

Public Cloud

Hybrid Cloud

Q2/2011 Q3/2011 Q4/2011 Q1/2012F

Basis: Companies that use cloud computing

Private cloud most commonly used 21

Percentage of the cloud service models in use,Germany


9%

28%

32%

32%

In great depth In depth A little Not at all

n=200 companies

Engagement with cloud computing

(still) only superficial 22

Depth to which businesses engange with cloud,computing, in %, Germany Q4/2011



15/20



apparent in the level of involvement with cloud technologies (see charts 22and 23).

Striking is the reduction in the share of companies that have not yet addressed

the subject of cloud computing at all. At the same time, slight fluctuations areevident in the proportion of businesses that have engaged very intensively withcloud computing. Prominent in this segment are firms that had consideredventuring into hybrid models on the basis of their experiences with the use ofprivate cloud models in recent months but then encountered a variety ofinteroperability and orchestration obstacles. Time and again, even private cloudconsumers report the emergence of new kinds of problems that throw upobstacles in the course of further rollout. Perhaps the network infrastructures arenot designed for the new paradigms and have to be adapted, or legacyinfrastructure components can only rise to the clouds with considerable effortand/or expense.

Both the media and SMEs own staff are increasingly introducing Mittelstand

firms to the subject of cloud computing. At the same time direct contact withproviders and recommendations from local, established partners are importantpoints of contact for companies addressing cloud models. They exert a powerfulinfluence on the level of involvement with this issue. Although a clear drive isapparent here towards resolving the lack of information that companies identify,firms that have addressed the issue of cloud computing in the recent past stillpoint out that the information provided is inadequate. What they take mostexception to, however, is the lack of transparency and comparability of cloudsolutions (see the remarks in the analytical first section of this study.

IT departments as cloud drivers

It comes as no great surprise that the IT departments at the firms surveyed arethe drivers behind their companies use of cloud technology. Cloud computingfalls within the remit of IT departments, and as a rule their expertise is consultedfor the evaluation of cloud solutions. This similarly applies to a com panysfundamental engagement with innovative IT solutions. Often, however, the ITprofessionals sceptical attitude towards cloud already mentioned hinders area-wide cloud usage. As a rule once the IT department has thrown the model out,the only impetus can come from an external partner.

It is often said that cloud is used by a companys management or controlling

department as a means of lowering IT costs and making them more flexible. Butin the light of the empirical findings, it would seem that management often stillrequires a considerable amount of persuasive education. In contrast to the

increasing engagement with cloud by IT departments, management addressesinnovative IT solutions only marginally, and cloud computing models even lessfrequently. At more than half of all cloud users the initiative comes from IT,followed by external service providers. IT units within the company, such as dataprocessing centres, play a very important part here.

Specialist departments are already devoting rather more attention to the issue ofcloud, and indeed to innovative IT solutions in general, than their companys

management, often in search of the best specific ways to support businessprocesses with IT systems. Failure of a companys IT to offer satisfactory

support in this respect may lead to the development of a shadow IT system.Public cloud makes an ideal outlet for this (see chart 24 and remarks in theanalytical first section of this study).

Cloud benefit and cloud fitness ratings on the rise

At the 200 companies surveyed a marked increase was apparent in 2011 intheir assessment of the benefits of deploying cloud computing. Although the

2.0%

46.0%35.5% 32.0%

25.5%

32.5%31.5%

17.5% 25.0%27.5%

9.0% 7.0% 9.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2/2011 Q3/2011 Q4/2011

Don't know Not at all

A little Intensively

Very intensively


Depth to which businesses engage with cloudcomputing, in %, Germany


Engagement with cloud increasing 23

1

2

3

4

Management Specialistdepartments

IT departments

Cloud computing

Innovative IT solutions

n=200 companies

IT departments driving cloud 24


Depth of engagement by corporate sectors(1 = great depth, 4 = not at all), Germany


16/20



majority of respondents still anticipate few or no advantages from the use ofcloud computing, steady growth was registered during the year in the responsecategories useful and very useful.

The question of whether or not to use cloud is determined for the respondentseither through concrete evaluation of the use of technologies or based simply ontheir having considered the abstract model and the value it would hypotheticallyadd for the company. Not even half the companies that rated the benefits of usehighly have been able to gather experience yet with specific cloud projects. Thesurvey results therefore need to be put into perspective. It is striking that theshare of respondents that rate the benefits of use positively is growing far fasterthan the cloud usage rate.

Companies that rate the benefits of using cloud computing positively are alreadyaware of its merits and possibilities. As a rule firms with a low opinion of thebenefits conferred will have been involved only superficially with cloudcomputing so far and often dismiss its use over-hastily. Companies that are

implementing cloud solutions, or have done so in the past, but see very little orabsolutely no benefits or advantages in using them constitute isolated cases inwhich the expectations of cloud were disappointed or unforeseen problemsarose that led to a rather negative assessment in the subsequent evaluation.But the companies that perceive little or no benefit from the use of cloudcomputing also include a growing number of businesses which have evaluatedthe deployment of cloud but decided against it for various reasons (seecharts 25 and 26 and the remarks in the analytical first section of this study).

Low benefit ratings need often not recognised

Throughout the year companies that awarded cloud computing low benefit

ratings explained this mainly with the absence of a suitable occasion or need todeploy cloud services. More than 80% regularly state that their in-house IT,operating along traditional lines, covers and satisfies the needs and require-ments of their day-to-day business. These respondents exclude even privatecloud options from their considerations. What we are seeing here is that thepicture many companies have built up of public cloud applications is maskingtheir view for the possibilities of private cloud. But many respondents believethat developing a private cloud would overtax the companys capabilities and

resources and that the cost-benefit ratio would not compare favourably with theoperational model used so far.

IT security remains a crucial issue

Among the respondents who see little benefit in cloud computing, concernssurrounding data protection, data security and compliance are a hot topic. Thisis also reflected in the fundamental strategic statement frequently encounteredfrom Mittelstand companies that they are not prepared to let their data leave thepremises under any circumstances. Some respondents consider data security astumbling block even with a private cloud, saying that the added level ofabstraction increases complexity and complicates backup and recoveryprocesses. In this context many companies have already had and are stillhaving problems adapting their strategies to virtualisation technology andbelieve that rolling out a private cloud would necessitate yet further adjustmentsand alterations to practised procedures.

Individual solutions sought

At the same time many companies possess highly individualised IT systems thathave been minutely and elaborately attuned to their business processes. Theserespondents maintain that highly standardised systems, such as SaaS solutions

Data protection, data security andcompliance hot topics

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Q1/2011 Q3/2011

Benefit/advantages Fitness


4=very bigadvantages/

very wellprepared

1=no ad-vantages/

inadequatelyprepared

Cloud benefit overtakes cloud fitness 25

Average assessment of cloud benefit and cloudfitness, Germany


4.5% 5.0%

33.0%

3.0%

34.0%

28.5%

11.0%

33.0%

25.5%

54.0%

21.0%

8.5%

32.0%

7.0%

0%

10%20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Use of cloudcomputing

No use ofcloud

computing

Don't know Not useful

Not particularly useful Useful

Very useful

n=200 companies

Positive benefit ratings by cloud users 26

Cloud deployment benefit rating Q4/2011

Source: techconsult


17/20



in a public cloud model, do not fully satisfy SMEs requirements. It is particularly

striking that as the year progressed this lack of individualisability wasincreasingly cited as an obstacle to the introduction of cloud computing. And inthis respect users and vendors opinions certainly are diametrically opposed. As

a rule, providers take the line that small and medium-sized businesses stand togain enormously from standardising their IT systems, whereas users perceivean important advantage precisely with individualised systems.

Respondents assigning low marks to cloud benefits have reservations about thecost savings frequently targeted, insisting that the economies promised will notbe achieved. The most common argument is that rolling out private cloudsolutions would, for one, initially require investment in their infrastructure andthat using public cloud models would make hardly any difference to their currentcost structures. At the same time they believe that deploying external solutionswould mean increased expenditure on integrating these services into thesystems operated in-house.

Many reasons given for high cloud benefits

The overwhelming majority of companies that currently apply cloud computing-solutions or specifically plan to do so expect the services to confer considerablebenefits. Companies with actual experience see reduced pressure on their ITresources and increased flexibility as the main reasons for their positive benefitratings. The more closely a company has addressed the issue of cloudcomputing without yet deploying any solutions, the more varied are the reasonsgiven for the rating. Companies interested in public cloud models focus theirexpectations on cost cutting. Either their licensing agreements are expiring orspecific investments in their IT infrastructure are forthcoming. Companies eyingSaaS services hope chiefly to economise by eliminating their IT support

expenditure. A minority in this category, which consists mainly of companiesfrom the enterprise size segment with more than 1,000 employees, additionallyexplain their high cloud benefit ratings with the promotion of standardisation.These companies expect the roll-out of a SaaS solution in a public cloud toachieve cost-efficient software distribution, relieve them of administration andmaintenance work and, to a lesser extent, to give them mobile access. Thepotentially better IT security measures that can be adopted at a serviceproviders data processing centre are of less importance, although it should be

borne in mind that with private clouds operated in-house this aspect is notrelevant to the decision-making process (see chart 27 and remarks in theanalytical first section of this study).

Degree of engagement instrumental in cloud fitness

In a mean value analysis the benefit rating overtook the fitness rating for the firsttime to gain a clear lead (see chart 25). At the same time the level of prepared-ness for the use of cloud computing is rising steadily. A key factor in evaluationof cloud fitness is the growing degree of engagement with cloud services. Themajority of companies see insufficient knowledge about cloud computinginterfaces and technologies as a key factor in low cloud fitness levels. This isnoteworthy inasmuch as the assessment applies to all cloud service models.Essentially, businesses with highly standardised IT systems considerthemselves ready for cloud since this standardisation means they are alreadywell positioned to deploy private cloud models. This suggests that at SMEcompanies the IT departments are the drivers of cloud acceptance. Often,however, the IT staff is still not familiar enough with the new services. Increasinginvolvement with cloud technologies is thus vital to better cloud fitness ratings.

Only limited cost savings achieved

Users expect high benefits

0% 25% 50% 75% 100%

Reduced pressure onIT resources

Increased flexibility

Cost savings

Encouragesstandardisation of IT

Greater mobileavailability

Higher availabilityguarantees (than withinternal provisioning)

Heightened security atservice provider's data

centre

No long-termcommitment to

provider necessary

Q2 2011 Q3 2011 Q4 2011

Basis: companies that use cloud computing

Hopes of greater flexibility and lesspressure on IT resources 27

Reasons for high cloud benefit ratings



18/20



New role for IT service providers

Roughly one-third of companies with a positive fitness rating also state that theywould prefer to approach cloud computing in collaboration with their IT partners

and systems houses. This is striking in that many IT service providers are onlynow embarking on the integration of cloud computing into their own serviceportfolios: So as well as altering the use of IT resources at the user companies,cloud also requires their service partners to adjust. If they are to be in a positionto accommodate user companies mounting interest, the partners must first

address the model themselves and determine their own future role in the cloudparadigm.

Systems houses and IT service providers are already gearing up perceptibly,although some of their thinking is still longer-range and focused on a medium-term time frame. Whilst cloud pioneers have already succeeded in carving out acompetitive edge, many companies continue to place their faith in the previoustactic of taking their lead from fundamental industry developments. Under-

standably, the definition of their own role and their integration into the cloudworld is an evolutionary process for service partners. Meanwhile, usersthemselves are setting out in search of information and solutions. At this pointsystems houses find themselves no longer competing with local rivals alone;instead they must also square up to large cloud vendors and supraregional ITservice providers. Ultimately this is a welcome situation for users, notwith-standing survey respondents insistence that they intend to maintain their

previous local partnerships.

As a rule, there is unlikely to be any fundamental reorganisation of previousactivity. IT service providers role profiles are very varied, allowing companies

sufficient scope for new developments. For example, software producers maydevelop new markets in cooperation with established cloud providers or host the

software in an environment of their own. It is precisely collaboration withtechnology and infrastructure providers, who make special technology availableto partners for refinement or as a technological basis for cloud services or whoare themselves acting as hosting partners in a cloud solution, that forms thebasis for the integration of cloud computing into the service portfolio. But in mostcases systems houses will presumably act as cloud architects, building upclouds at the user companies on the strength of their previous activity and briskdemand for private cloud services. This activity is closest to the position theyhave occupied so far, comprising such areas as desktop, server and storagevirtualisation, network servicing and application networking.

In addition, cloud resellers will retain their position as distributors of externallyprovided IaaS/PaaS or SaaS solutions, while cloud consultants offer services

relating to the entry into cloud environments and the integration of individualcloud services. Cloud aggregators are a special form of provider. As cloudservices managers they bundle different services to create new offerings fromheterogeneous infrastructure and application solutions. As well as orchestrationof the various solutions, this frequently also comprises application developmentand testing. It is, however, likely that the previous business models operatinglargely in isolation from one another will increasingly merge into cloudcomputing (see chart 28 and remarks in the analytical first section of this study).

Stefan Neitzel (techconsult, +49 561 8109 128, [email protected])

Role definition in the cloud paradigm

Full-blown reorganisation unlikely

Increasing merger of stand-alonebusiness models


19/20



Conclusion: Clear skies ahead for cloud

In conclusion, it is important to note that at the moment cloud computing iscertainly labouring under often inflated expectations the result of marketingtactics and the wide-embracing nature of the term. After the hype typical of

such new fields of activity and subsequent disillusionment it is therefore quitepossible that in a few years time cloud computing will have faded entirely from

the scene again as a catchphrase. Even so, in a world with globally organisedvalue chains the basic idea behind the buzzword specialisation and concent-ration on core business does stand a good chance of implementation atcompanies, regardless of the term then used to describe it.

Whereas large corporations often seek to roll out the model company-wide froma strategic aspect, looking to achieve cost savings and make their IT resourcesmore flexible by introducing cloud at their own data processing centres, atGerman Mittelstand and small businesses this is still the exception rather thanthe rule, a major breakthrough not yet having been achieved there with a big-bang approach. Instead, cloud is usually considered for specific investment

projects. But as cloud awareness increases within the SME sector, in themedium and long term the evaluation of cloud solutions will become a perm-anent institution; and going forward, cloud fitness and user-friendly integrationinto cloud environments will serve as an important criterion as companies seekto safeguard their investment. It remains to be seen whether public cloudservices will play a more prominent part in future. Looking forward, surveyrespondents repeatedly insist that they wish to benefit from the advantages of ahybrid cloud world; but at present hybrid clouds are implemented by only aminority. As a rule companies continue to focus on successfully entering thecloud world by building up a private cloud. This clearly reflects expectations ofbringing to completion their virtualisation, automation and standardisation drivesso far whilst aiming to carry on using the infrastructure already in place and thusextending its useful life. Underlying all this is the determination to retain controlover data and IT systems in-house too great is the fear of surrendering controland forfeiting data integrity. At SMEs the user companies IT departments havethe most say on implementation of cloud systems. By adopting a defensiveattitude the IT professionals there can delay or indeed prevent a rollout because

Many different interfaces between cloud partnering roles 28

Source. techconsult, 2011

Basic idea very appealing

Hybrid cloud as model for the future


20/20


management and specialist departments rely on their technical expertise in anyevaluation. The 2011 survey results clearly show IT departments playing anambivalent role here. On the one hand, at most of the companies that imple-ment cloud computing the initiative came from the IT units, but on the otherthese often still dismiss the model entirely. The information deficit evident up tothe end of 2011 is a key factor here. However, a marked trend was revealed inthe course of the year to increased awareness of and involvement with cloudcomputing.

On this basis we can empirically identify a logical chain of different factors:where engagement with cloud computing deepens, survey respondentsrecognise greater benefits from the model. Both ultimately make companiesmore inclined to implement cloud computing or draw up concrete plans to do so.In 2012 providers of IT services to SME businesses will have a very importantpart to play in the introduction of cloud computing. There usually exists a close,historically evolved relationship of mutual trust between the user companies andthe IT partners that service them. Indeed, not infrequently access to the user ispossible only through a systems house with exclusive rights. Some IT serviceproviders last year made huge efforts to integrate cloud solutions into theirportfolios and business models. These are significant not only for the impetusthey provide to the future development of cloud in the Mittelstand sector but alsoin terms of further resolving the information deficit and building up knowledge atthe user companies. If this is achieved, the adoption of cloud computing atMittelstand businesses and large corporations alike should persist in 2012.

The outlook for the cloud computing market therefore looks rosy. And it will beall the more positive if factors currently having a curbing effect, particularlysecurity concerns and, very importantly, uncertainty over which technical versionwill ultimately assert itself, can be successfully addressed. Above and beyond

the existing certification standards, a harmonised legal framework and auniversally recognised international quality label should give users addedconfidence in the services offered. What is more, increased public sectorinvolvement at the various administrative levels, especially in universities, couldlend added momentum to development of the market.

The fundamental cloud computing concept behind the buzzword thus stands agood chance in the medium-term of being implemented more broadly in a worldof globally organised value chains. We therefore expect market volume inGermany to climb within the space of five years from EUR 2 bn at present toEUR 9 bn, staging annual growth of 36% p.a. Globally, market volume over thesame period is likely to increase from EUR 21 bn to EUR 71 bn, representingaverage growth of 28% p.a.

Stefan Heng (DB Research, +49 69 910 31774, [email protected])26Stefan Neitzel (techconsult, +49 561 8109 128, [email protected])___________________________

26My thanks to Florian Schler for his valuable input.

The closer the engagement, thesooner the full benefits will be

recognised

Harmonisation and certification helpful

Bright outlook for the basic ideabehind the buzzword

Copyright 2011. Deutsche Bank AG, DB Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite DeutscheBank Research.The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author,which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinionsexpressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided forinformational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness,completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated byDeutsche Bank AG Frankfurt, authorised by Bundesanstalt fr Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/orcommunicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct ofinvestment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche SecuritiesKorea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche SecuritiesLimited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referredto in this report and consider the PDS before making any decision about whether to acquire the product.Printed by: HST Offsetdruck Schadt & Tetzlaff GbR, Dieburg

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Deutsche Bank - Cloud computing. Clear skies ahead

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