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Cloud Services in the Asia-Pacific Region

Thursday, April 7th, 2011
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Cloud Computing is touted as the next big trend in the IT industry that is set to redefine the way enterprises do business. It’s the rage today and a growing number of companies are devoting a significant part of their IT budget to cloud-based services, in order to lessen the demand on their IT resources, to work smarter, and be cost-effective. Ben Pring, a senior analyst at Gartner, says that Cloud Computing has become the phrase “du jour.”

There is almost zero operational cost when it comes to Cloud Computing, and only a computer and Internet connection are required to access the benefits of this much-talked about technology. Cloud-based services offer a scalable infrastructure and capabilities. They eliminate the need of any kind of application installation and move toward the hosting of applications online, as Internet and central remote servers are used to maintain the applications as well as the data.

In the U.S. and Europe, enterprises of all sizes are rapidly accepting the cloud computing approach, and it’s becoming an essential part of their IT department structure. However in comparison, the Asia-Pacific region is still lagging behind and this market has yet to realize the full potential of the cloud computing trends. The acceptance and the general awareness regarding this technical capability is still low, excluding Japan. In fact, most enterprises in this region still do not have a substantial plan to deploy cloud-based solutions, and leading cloud service providers such as Rackspace Cloud, Salesforce, Skytap, Microsoft and Google, have also shied away from investing and opening data centers in the region. Amazon Web Services (AWS) launched its first Asia-Pacific Region operations only last year. Prior to this launch, the data centers in the U.S. and Europe had offered AWS platform to Asia-based businesses and global businesses serving customers in Asia.

“Complex” is the term often used to describe the market for cloud services in the Asia-Pacific region, since the level of adoption varies from one market to another. Cloud related solutions have still not formed enough roots to flourish uniformly across all the countries in the region. A study published by Springboards Research notes that even with an increased uptake, different markets show different areas of interest in cloud services.

Breaking down the region, one finds that the Australian market for Cloud Computing is showing signs of rapid maturation. However, the levels of maturation vary since a majority of the local enterprises prefer that their data remain onshore. And prominent Cloud Computing providers such as Amazon, Google, Microsoft, and Salesforce.com have not shown any interest in building data centers in Australia. Steve Hodgkinson, a research director at Ovum, notes in a report that “the enterprise cloud market in Australia remains largely unexplored territory -- a market awaiting a dominant leader.” Also in the country, there is a growing call for an appropriate Cloud Computing regulatory model.

In emerging countries such as China and India, enterprises are increasingly showing interest in cloud-based solutions and are adopting or planning to adopt them. In early 2008, IBM and the Wuxi municipal government collaborated to establish a Cloud Computing center in Wuxi Software Park, thus ringing the first bell for cloud-based solutions in China. The Cloud Computing market is currently in the growing phase there, and a number of companies are showing interest in shifting to Cloud Computing. Last year, Japan-based electronics maker NEC announced a joint venture with a Chinese IT company to offer cloud computing services in China. At the time of announcement, the company said that it expects the market size of cloud computing services in China to grow 30 percent annually and exceed $2.4 billion in 3 years. Kai-Fu Lee, the former head of Google China, believes that Cloud Computing presents an opportunity for China to develop a software market. In an interview with Reuters, he said that the “kind of piracy that has hobbled Chinese IT was near-impossible in a cloud-computing model, in which companies or individuals pay to access services that are hosted elsewhere.”

Cloud Computing awareness has increased dramatically among organizations in India over the last 12 months, and a majority of organizations consider it relevant to their IT environments, according to a report titled ‘Cloud Computing in India 2010 - End-User Adoption Trends,’ published by Springboard Research. Michael Barnes, vice president of Software Research at Springboard Research, says that the adoption and awareness for cloud computing have increased rapidly, but still a large proportion of non-users still have no concrete plans to adopt cloud-based solutions.

There is a big chunk of the Asia-Pacific market that has failed to be tapped or showed any kind initiative to accelerate adoption of Cloud Computing and benefit from it. According to Gartner’s survey report published in October, 2010, despite all the hype, a majority of respondents (63 percent) in Asia-Pacific did not have the budget for any type of cloud service in 2010. However, the report also observes that the companies that allocated IT budget to cloud computing as a key initiative for their organization and those that are investing in cloud technology are planning high growth in spending in 2011.

In this region, most of the companies are in the learning stage when it comes to cloud service initiatives, despite a growing interest in this latest technology. Derry Finkeldey, principal research analyst at Gartner, says that this doesn’t mean they are not thinking about it -- data centre initiatives such as virtualisation are currently higher on the priority list than cloud, but these initiatives are the necessary precursors to a move towards cloud computing.

Japan is a completely different story and is usually excluded from the Cloud Computing research analysis done for the Asia-Pacific region. Considered one of the early adopters of cloud-based services, the Japanese market is analysed separately. One can see a significant adoption of cloud among enterprises in the country, and the interest and excitement for Cloud Computing is tremendous. According to Japan’s Internal Affairs and Communications Ministry 2010, the cloud computing market in Japan is expected to grow to U.S.$29.2 billion in 2015. Most of the Japan-based companies perceive Cloud to be relevant for reducing costs, which has resulted in growing acceptance and enthusiasm for it. Marc Benioff, Chairman and CEO of salesforce.com, says in his article, Why Japan Matters And Microsoft Doesn’t, “We’ve found that the Japanese love Cloud Computing because it gives them great software that is eco-friendly, democratic for all businesses, and upgrade-free.”

Sprinboard’s report, Cloud Computing in Japan 2010 - End-User Adoption Trends, found that the adoption, awareness and understanding for Cloud had accelerated sharply among Japanese organizations last year. The report also notes that the Cloud adoption rate in Japan is 13 percent and the average understanding level of Japanese respondents was the highest in Asia at 6.9 -- based on a 10-point scale with 10 being highest -- versus an average rating of 5.6 across Asia Pacific excluding Japan (APEJ). Last year in June, a report published by Gartner predicted that in 2014, Japan will represent 12 percent of the global cloud services revenue.

In June, 2010, Amazon.com and Yahoo Japan Corp. announced separate plans to launch cloud computing services for Japanese businesses in anticipation of their growing use, thanks to Japan’s large-capacity high-speed network. Yahoo Japan is also expected to introduce a full-scale cloud computing business in March this year, combining data center capacity from a Singaporean unit and its Web portal.

The two prominent reasons that are hampering the adoption of Cloud-related technologies in some of the countries of Asia are lack of proper infrastructure and the slow Internet connection. There is a considerable disparity in access to broadband Internet access, and that is why the region may not see a uniform adoption of Cloud Computing in the near future. Chris Morris, lead analyst of Cloud Technologies and Services for Practice Group at IDC Asia/Pacific, says that the ‘Asia-Pacific excluding Japan’ (APEJ) cloud services market will experience a period of rapid change between 2011 and 2014 as much improved regional broadband infrastructure reaches larger markets and the capability of cloud services matures and the breadth of services expands.

Blaming lack of awareness and limited understanding around the technical aspects of the technology for slow adoption of Cloud Computing in Asia, Mayank Kapoor, ICT research analyst at Frost & Sullivan, predicts a bright future for cloud computing services in Asia.

Additionally, the companies in the region are also concerned about integration, security, data storage regulations, and government policies. In a major development last year in November, Alcatel-Lucent, Cisco Systems, EMC Corporation, Microsoft, NetApp, Nokia Siemens Networks, PLDT/Smart, Rackspace, REACH, Telenor, and Verizon came together to form the Asia Cloud Computing Association, an open collaboration forum based in the Asia-Pacific region.

“The regulatory landscape and varying market maturity levels have fragmented the adoption of cloud computing in the region,” says Sundi Balu, chairman for Asia Cloud and chief information officer for REACH. The main objective of the non-profit, vendor-neutral organization is to address regional issues and challenges to adoption of cloud computing in Asia, including privacy and security concerns, compliance and regulatory mandates, licensing models, service levels, and other market risks.

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