TCS Cloud Study Report 2012


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TCS Cloud Study Report 2012

  2. 2. Published March 2012001
  3. 3. CONTENTS02 I. Executive Summary (10 Key Findings) II. The State of Adoption of Cloud Applications n applications as a percent of total applications Cloud (by region of world) n applications as a percent of total applications Cloud06 (by size of company) Case Study: Commonwealth Bank of Australia n III. Why Companies are Using Cloud Applications n driving companies to shift on-premises applications Factors to the cloud n driving companies to launch whole new applications Factors14 in the cloud Case study: CTB/McGraw-Hill n IV. The Benefits That Companies Have Gained from Cloud Applications Operational and financial improvements from shifting on-premises n applications to the cloud Operational and financial improvements from launching new n applications in the cloud24 Case study: AOL Inc. n Case study: Major telco n V. Which Business Functions are Using the Most Cloud Applications How the cloud application budget is being divided32 n (by regions of world) How companies plan to allocate their cloud budgets in 2014 n
  4. 4. VI. The Most and Least Popular Cloud Applications n applications most frequently shifted from Cloud on-premises technology36 n applications least frequently shifted from Cloud on-premises technology Case study: Dell Inc. n VII. Differences in Cloud Adoption Across Global Industries Industry comparisons in number of cloud applications/company n Industry comparisons in number of cloud applications/ n company by 2014 Industry leaders and laggards in benefits from shifting n on-premises applications to the cloud Industry leaders and laggards in benefits from launching n44 new cloud applications Case study: $5 billion consumer products company n54 VIII. Differences in Cloud Benefits by Region of World Contrasting U.S., European, Asia-Pacific and Latin American companies n in cloud benefits achieved to date58 IX. Willingness of Companies to Use Public vs. Private Clouds Differences by region of world n62 X. Key Success Factors in Capitalizing on the Cloud Comparing responses by region of world n68 XI. What Companies Look for in Cloud Vendors nimportant capabilities that customers look for in cloud vendors Most72 XII. Demographics and Research Approach
  5. 5. Demographics and Research Process 066
  6. 6. I. Executive Summary001
  7. 7. Executive Summary In the fall of 2011, Tata Consultancy Services (TCS) conducted an extensive study on how 600+ primarily large companies (most with more than $1 billion in revenue) were using applications in “the cloud” – software residing on remote data centers that organizations access via the Internet. Such data centers can be run by third parties that co-locate applications of multiple companies (so-called public clouds). Or these data centers can be run for the sole use of one organization, operated by that organization itself (private clouds). Public cloud computing vendors provide shared computing resources (hardware and software) to companies that don’t want to incur the cost of such IT infrastructure. A cloud vendor’s offerings typically provide computing resources on demand, automated system deployment and scaling, and pay-per-usage pricing. There are three primary benefits of cloud services: computing resources on-demand (which saves companies from having to plan ahead for securing such resources); the elimination of upfront commitments to IT (and thus avoid purchasing new hardware, software or whole data centers for computing demand that may be uncertain in the future); and pay-per-usage pricing (e.g., processors by the hour), which reduces the amount of computing resources that are sitting idle. TCS believed that while numerous studies have been published on cloud computing since 2008, none had deeply explored how business functions such as marketing, sales, R&D, distribution, manufacturing, operations, finance and others were using cloud applications (also known as “software as a service,” or SaaS). We conducted several research streams.We designed the study to explore five core issues: The first was quantitative research: an online survey of 600+ companies fromThe factorsn that are driving companies to put their four regions of the world. The survey was applications software in the cloud – whether those cloud extensive and polled the experiences of applications were shifted from computers on-premises or both senior business functional were entirely new applications that had no on-premises managers and corporate IT executives. predecessors The second stream of research wasWhichn cloud applications have been adopted by what in-depth interviews with six companies business functions and why on their attitudes and experiences with cloud applications. Their stories shedThe benefits they had generated to date from shifting on-n further light on what’s driving premises apps to the cloud and from launching entirely co m p a n i e s to s h i f t e x i s t i n g new apps in the cloud applications or put new applications in the cloud, the benefits and competitiveThe successn factors to generating buy-in, adoption and advantages those applications are benefits generating, and the challenges to getting the organization to adopt cloudnfuture plans for cloud apps – specifically, what typesTheir applications (both those in public and of cloud apps their business functions planned to have by private clouds). These companies were: 2014 003
  8. 8. CTB/McGraw n Hill – an educational assessment testing company that believes cloud applications will help it fund the investments it needs to continue to move its school assessments from a print to an online world. Commonwealth n Bank of Australia – One of the four largest Australian banks has moved dozens of sales, customer service, HR, operations and IT applications to the cloud over the last three years. The result: the ability to offer bank customers a range of innovative new banking services. Dell Inc. n – The $61 billion technology company has been using the cloud to provide engaging online marketing programs that win over customers and keep them coming back for more. Major n telecommunications services company – Why a telco is rapidly shifting on- premises applications to the cloud in order to create common applications and cut millions of dollars in data center costs. n consumer products company – How cloud computing has helped the $5 billion Large company more effectively field consumer complaints while keeping technology costs low. AOL Inc. – The cost savings and other benefits that the iconic consumer online media n company has gained from a new private cloud. Our final stream of research was capturing the experiences of TCS cloud experts – professionals who are working with companies on a daily basis about cloud computing issues. From our analysis of the data from all three research streams, we uncovered 10 findings that explain how large companies around the world are using cloud applications, to what benefit, with what concerns, and with what future plans: Finding No. 1: Despite the hype, cloud applications do not rule the large corporation, although their usage is expected to increase significantly. Cloud applications are still in the minority of all applications in companies (19% of the average large U.S. company’s applications, 12% in Europe, 28% in Asia-Pacific, and 39% in Latin American companies). But they expect the ratio of cloud to on-premises applications to increase greatly by 2014. The case of Australia’s largest bank, Commonwealth Bank of Australia, illustrates why many companies have gained a voracious appetite for cloud applications. (See page 12.) Finding No. 2: The biggest driver of cloud applications is not to cut IT costs. IT cost reduction is an important factor, but not the most important. Rather, standardizing software applications and business processes across a company (in the U.S. and Asia- Pacific) and ramping systems up or down faster (in Europe and Latin America) are the most highly rated drivers for shifting on-premises applications to the cloud. And the factors driving companies to launch entirely new applications in the cloud are quite different – to institute new business processes and launch new technology-dependent products and services. The case of assessment testing company CTB/McGraw-Hill shows why cloud computing will become a key tool for delivering pioneering IT-enabled offerings. (See Page 22.)004
  9. 9. Executive SummaryFinding No. 3: The early returns on cloud applications are impressive. Companies usingcloud applications are increasing the number of standard applications and businessprocesses, reducing cycle times to ramp up IT resources, cutting IT costs, and launchinga greater number of new products and processes. The story of a major telco shows theambitions of the some of the most aggressive cloud adopters. (See Page 15.)Finding No. 4: Customer-facing business functions are garnering the largest share of thecloud application budget. Marketing, sales and service are capturing at least 40% of thatbudget in all four regions. The experiences of Dell’s enterprise sector online marketingfunction shows how one large company is trying to get closer to customers through cloudmarketing applications. And a new private cloud at Web media company AOL Inc.explains how a technology-dependent company can make its technology moreresponsive and cost-effective. (See Page 28.)Finding No. 5: Many companies are reluctant to put applications with sensitive data in thecloud. In the U.S. and Europe, the applications least frequently shifted from on-premisescomputers to the cloud were those that compiled data on employees (e.g., payroll), legalissues (legal management systems), product (pricing and product testing), and certaincustomer information (e.g., customer loyalty and e-commerce transactions). Still, somecompanies had shifted applications with customer data to the cloud, especially incustomer service, and many planned to shift a number of customer-related applicationsto the cloud by 2014. (See Page 32.)Finding No. 6: The heaviest users of cloud applications are the companies thatmanufacture the technology hardware that enables cloud computing(computers/electronics/telecom equipment), while healthcare services providers arethe lightest users (in terms of average number cloud apps per business function).(See Page 44.)Finding No. 7: The most aggressive adopters of cloud applications are companies in Asia-Pacific and Latin America. They report having much higher percentages of cloud appsto total apps – and bigger results from cloud apps than their peers in the U.S. and Europe.(See Page 54.) We show how a large consumer products company uses the cloud torespond rapidly and effectively to consumer issues around the world.Finding No. 8: Despite a significant shift to cloud applications, most companies(especially in Europe) remain conservative about which applications they put in publicclouds. Less than 20% of U.S. and European companies would consider or seriouslyconsider putting their most critical applications in public clouds. But 66% of U.S. and48% of European companies would consider putting core applications in private clouds.(See Page 58.)Finding No. 9: The keys to adopting and benefiting from cloud applications areovercoming fear of security risks and skepticism about ROI. (See Page 62.)Finding No. 10: Companies evaluate cloud vendors most on their security andreliability/uptime capabilities – and far less on their price. This was the case in all fourregions. In fact, price typically finished at the bottom of a list of nine factors in making thecloud application purchasing decision. (See Page 68.)In the following pages, we dive deeply into these and other statistics and stories. 005
  10. 10. II. The State of Adoption of Cloud Applications005
  11. 11. The State of Adoption of Cloud Applications Despite all the press and technology research firm coverage of cloud computing in the last few years (especially in 2011), software applications that are hosted in public or private clouds still represent only a minority of total applications software for large companies. The clear majority of applications in 2011 – 81% in the U.S. companies and 88% in European companies – were resident on computers located on their premises. To a lesser extent, this was also the case in the Asia-Pacific and Latin American companies that we surveyed. In Asia-Pacific, on-premises applications were 72% of all applications in 2011, while 28% were based in the cloud. In Latin America, 61% of all corporate applications software were on-premises vs. 39% that were in the cloud. However, the companies we surveyed expected these percentages to change significantly by 2014. American companies projected cloud applications to increase from 19% of all applications (cloud + on-premises) to 34% by then. The European companies surveyed expected that cloud applications as a percent of total applications would double, from 12% in 2011 to 24% by 2014. In Asia-Pacific and Latin America, cloud applications are expected to be at least half of total corporate applications by 2014 – 50% for Asia-Pacific companies and 56% for Latin American firms. Exhibit II-1 Cloud Applications as % of Total Corporate Applications -- 2011 and 2014 (Projected) 19%United States 34% 12% Europe 24% 28% Asia-Pacific 50% 39%Latin America 56% 0% 10% 20% 30% 40% 50% 60% 2011: # of Cloud Apps as % of Total Apps (Average Per Company) 2014: # of Cloud Apps as % of Total Apps (Projected) (Average Per Company) 007
  12. 12. The comparisons of the above regions reflect a mix of company sizes, both large and mid- sized. For example, 88% of the European respondents had revenue of at least $1 billion, while 75% of the Asia-Pacific and 49% of the Latin American respondents were $1 billion+. Even if we look only at companies with at least $1 billion in annual revenue in all four regions of the world, cloud applications as a percent of total corporation applications show a trend similar to the overall results. Exhibit II-2 Cloud Applications as % of Total Corporate Applications -- 2011 and 2014 (Projected) ($1B+ Companies) 19% United States 33% 12% Europe 25% 2011 29% Asia - Pacific 52% 2014 42% Latin America 54% 0% 20% 40% 60% In the U.S., $1B-$10B Companies Have the Greatest Percentage of Cloud Apps008
  13. 13. The State of Adoption of Cloud ApplicationsIn each region, we looked at cloud apps as a percent of total apps by company size and sawsome interesting patterns. One was that in American companies the “mid-sized” largefirms ($1 billion to $10 billion in revenue) were the heaviest users of cloud applications. Inthese companies, cloud applications represented 27% - 28% of total applications. And by2014, U.S. companies with revenue of between $1B-$5B said they expected cloudapplications to be 52% of all applications – more than twice the percentage (23%)expected by companies of more than $50B in revenue. (See Exhibit II-3.) Exhibit II-3 U.S.: Number of cloud applications as 2011 2014 a % of all applications All companies (>$500M) 19% 34% Companies $500M-$1B 16% 44% Companies $1B-$5B 27% 52% Companies $5B-$10B 28% 31% Companies $10B-$20B 17% 35% Companies $20B-$50B 17% 30% Companies > $50B 14% 23% 009
  14. 14. In contrast, cloud applications were only 14%-17% of total applications in companies with revenue of more than $10 billion. In Europe, there was much less variation in cloud applications as a percent of total applications by company size (for 2011, and projected for 2014). (See Exhibit II-4 below.) Exhibit II-4 Europe: Cloud Applications as Percentage of All Applications (Average per Company) 12% All companies 24% 9% $500 million to $1 billion 15% 12% $1-5 billion 24% 10% $5-10 billion 22% 15% $10-20 billion 23% 11% $20-50 billion 23% 13% $50 billion+ 33% 0% 5% 10% 15% 20% 25% 30% 35% 2011 2014010
  15. 15. The State of Adoption of Cloud ApplicationsCloud Adoption: Reaching Critical MassThe numbers showing future cloud usage by 2014 are striking – ranging from one-quarterof all corporate applications being in the cloud in Europe, to one-third in U.S. companies toabout half in Asia-Pacific and Latin American companies. Yet even though these numbersare projections of future adoption trends, we nonetheless believe that large corporationshave passed the inflection point, or critical mass, in adopting cloud applications – at thevery least, in private clouds that a company owns (or are run for them by a third party).Our study of a large telco illustrates this point. Today, about 30% of its applications arecloud-based (mostly private cloud-based systems that it runs in its own data centers). Inthe last two years, the company has moved all its financial systems for its general ledger,payables and fixed assets to the cloud. At the end of 2011, it was moving all HRapplications to the cloud, standardizing on SAP and other enterprise applications.However, by the end of this year the company expects 80% of its applications to be in itsprivate clouds. The company has also launched many new cloud applications that had noon-premises predecessors. A good number of these were cloud-based financialapplications – specifically, general ledger and fixed asset applications that are helping thecompany track its sizable capital investments in both its wire-line and wireless networks.The telecommunications services company’s aggressive of adoption of cloud computingwas far from unusual, even outside the U.S. Consider the Commonwealth Bank ofAustralia. The bank began shifting applications to the cloud in 2008. Today, the bank hasdozens of cloud applications serving its sales, customer service, HR, operations and ITfunctions. And the bank continues to identify which of its more than 3,500 applicationsthat it has amassed over the last 30 years can (and can’t) be shifted to the cloud.The objective, however, is to put as many applications into the cloud as possible, saidDilan Rajasingham, executive advisor to the bank’s chief information officer. (See case 011
  16. 16. Commonwealth Bank of Australia: Using the Cloud to Fund a Wave of Innovative Financial Services Founded exactly 100 years ago and headquartered today in Australia’s largest city (Sydney), Commonwealth Bank of Australia is the country’s largest bank, with revenue of US $35 billion. Naturally, as a large financial institution, the bank has a healthy appetite for IT, spending nearly $1 billion on it annually. It has more than 3,500 software applications, amassed over 30 years. That’s where cloud computing comes in: Given the bank’s penchant for introducing a steady stream of innovative technology-based services to its retail and other customers, it must find ways to economize on IT. Four years ago, the bank launched what it refers to as a core banking modernization program for its vast number of information systems. It has also been identifying applications that should go in public clouds, a private cloud or a hybrid of the two. By shifting dozens of on-premises applications to the cloud starting four years ago, the bank has reduced operational costs. This has freed up money that the bank has reallocated into delivering new services. “We want to get out of infrastructure computing and into fine-grain components and highly granular data so that our customers enjoy new services,” the bank’s chief information officer, Michael Harte, explained to CIO magazine. To reduce costs, CBA has created “As a Service”/ cloud offerings in sales, customer service, HR, operations and IT applications and environments over the last four years, says Dilan Rajasingham, executive adviser to the CIO. Some of these are core enterprise systems – e.g., payments and talent management, while others are pilots and proof of concepts such as “Big Data,” and others still are support environments such as development and testing. How can moving to “As a Service” and cloud reduce IT costs at CBA? A prime example is the bank’s “as a service” payment hub. By developing a single payment solution once to be used across the bank, from front office to back office, and with standard interfaces, CBA has achieved significant savings in system integration and development costs and time. Components of the solution’s modular architecture, such as SWIFT (for international money transfers), have also been extended to CBA group entities across Australia and Asia. The bank has also become a provider of cloud services to its customers. For example: It has n collaborated with pharmaceutical, manufacturing, and distribution companies – and even other banks -- in the creation and provision of cloud- based databases “as a service.” It provides cloud infrastructure services running on CBA servers (as well as the n capability to run on Amazon’s cloud servers). With these services, CBA develops and tests new computing applications used internally and externally. Harte told CIO magazine that the bank can launch new cloud computing services in less than 10 minutes and at as little as one-tenth the cost of testing and developing applications in the past.012
  17. 17. The State of Adoption of Cloud ApplicationsSo how do you add up the benefits? Rajasingham categorizes them in threeways:n reduction.Cost For example, “as a service” storage has cut CBA’s cost of computing storage by around 40%. Even more impressively, the “as a service” overdraft offering has reduced processing time of standard overdrafts by 90%. Harte told the Australian Financial Review that CBA was “saving tens of millions of dollars and [potentially] hundreds of millions [over the next three or four years] from buying services on demand, paying a unit price for them and having the flexibility.”n development of computer systems. The bank refers to this benefit asFaster one of “agility.” The bank’s payment system – which combines a stack of technologies necessary to offer payment services (the application, its underlying middleware, operating system and other infrastructure, and the server and storage hardware) – is a case in point. No longer does the bank need to build a new payment system every time a business unit or department asks for one.Mindset shifts from getting business units to share IT applications. CBA’sn HR function has adopted so-called talent management applications to better understand trends in turnover, recruitment, hiring patterns and future hiring needs, absenteeism and other areas. CBA has created a cloud-based talent management application that any of its banking units – e.g., Bankwest (a 2008 acquisition) and ASB (its New Zealand bank) – could adopt. This has reduced costs dramatically.Harte has talked publicly about how the IT infrastructure cost savings from cloudcomputing is freeing up time and money for CBA to focus on providing newbanking services (much of it online) that let customers do such things as get offerson financial products in real time. This is because more bank people can now focuson evaluating customers’ individual needs and pricing products and servicesbased on their risk profile and loyalty. Cloud computing, he said, will let CBA shiftfrom spending “half of our budget on maintaining lights-on [IT] infrastructure, andget more of that money into creating really high-value, highly responsive services.”He sees cloud computing as enabling banks like CBA to invest less in the backendIT infrastructure and more in online banking services that customers have come todemand – applications to bank from their mobile phones, tablet computers andother digital devices.Shifting technology spending from backroom to front office applications isnecessary because banks are no longer competing just against other banks inexploding areas such as mobile payments, CBA’s CEO Ralph Norris said in a 2011presentation to investors. “Our business is not going to be about competingagainst banks or other current payment players; it’s against phone companies,providers of technology themselves, and the new social media entities,” saidNorris. “You have to bring to bear new features and functions that are goingto resonate with customers using those sorts of facilities.” 013
  18. 18. III. Why Companies are Using Cloud Applications
  19. 19. Why Companies are Using Cloud ApplicationsWe asked companies to rate on a scale of importance (1 to 5) what had driventhem to implement two kinds of cloud applications:Cloudn applications that had previously been installed on on-premises computersEntirelyn new cloud-based applications for which there had been no on-premises versions beforeHow they rated a set of drivers that we offered provides insights into themotivations for adopting cloud applications. We’ll start with the factors thatpushed companies to shift on-premises apps to the cloud.Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’tthe Leading DriverAmong U.S. and Asia-Pacific companies, the most important driver of shifting on-premises applications to the cloud is not what many think it would be – to reducetechnology costs (although that is a key driver). Ahead of that is something that isnot as well understood by the press, analysts and others covering cloud trends:standardizing applications and the business operations that those applicationssupport.Numerous large companies – especially those with multiple businessunits/divisions – are saddled with huge duplications in technologies: commercialapplication software packages, hardware and data centers that are serveindividual business units (and sometimes even just a single compute-intensivebusiness function such as R&D or manufacturing in a division). By givingcompanies the ability to take such applications out of departmental or businessunit data centers and put them in a centrally accessible location – a privateor public data center that hosts the applications – cloud computing creates theprospect of standardizing applications across a big business.The major telco that we spoke with said offering standardized cloud applicationswill help its business units reduce their IT costs and the need for so many datacenters (which today are in the hundreds). Having dozens of financial, HR,customer management and other applications today – each devoted to a narrowslice of its business – has resulted in huge IT costs (software, hardware and datacenters). In fact, the company believes that its shift to cloud applications will helpit reduce its number of data centers by 80%, which would produce an estimatedannual cost savings of $100 million to $200 million. 015
  20. 20. Another highly rated driver of cloud applications in both the U.S. and Asia-Pacific companies was increasing applications or systems “flexibility.” In both regions, this was the third most important driver of shifting on-premises applications to the cloud. What does this mean? It refers to the ability to scale an application up or down. Exhibit III-1 U.S.: Why Companies are Shifting On-Premises Applications to the Cloud To standardize applications and 46% 32% business processes To reduce IT costs 41% 30% To increase application flexibility (ability to 45% 26% launch or shut down applications quickly) To improve data and trend analysis 41% 24% To make faster applications enhancements 46% 19% To reduce application downtime 39% 25% To improve applications maintenance 43% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Important Factor Very Important Factor The need to process “big data” – huge volumes of transactional and other digitized data (video, social media chatter, and other) -- appears to be a big driver of cloud applications. Nearly two-thirds (65%) of the U.S. survey respondents they were driven to the cloud to improve the way they gathered and analyzed data (rated as an important or very important factor). A similar number of Asia-Pacific companies said this was an important or very important driver of their shift to the cloud. Less than half (47%) of the European companies said it was an important or very important factor in using cloud. However, 80% of the Latin American companies said this was an important or very important factor. One of the biggest differences that we found between the companies that had generated the largest benefits from the cloud and the ones that had generated the least benefits was, in fact, their interest in using the cloud to manage “big data.” (See sidebar, “Big Data and the Push for Cloud.”)016
  21. 21. Why Companies are Using Cloud ApplicationsBig Data and the Push for CloudOur U.S. data shows that savvier uses of cloud applications are distinct in many ways – oneof which is their interest in using the cloud to process and analyze volumes of digital data.We compared the answers of the companies in the top quartile of benefits achieved fromshifting on-premises apps to the cloud (the “leaders”) to those in the bottom quartile(“laggards”). Some 74% of the leaders said using the cloud to process and analyze data fortrend identification was important or very important. But a much lower percentageof laggards (55%) said that was a key driver.We found a similar set of drivers in the Asia-Pacific companies that we polled. The threemost important drivers in this region – just like in the U.S. – were 1) standardizingapplications and business processes, 2) reducing IT costs, and 3) increasing applicationflexibility.The biggest factor driving Commonwealth Bank of Australia to shift on-premisesapplications to its private cloud was to use the savings in IT costs to providing more bankservices through mobile applications and social media. “For us, cloud is not just abouton-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that intodelivering more value-added services.” Exhibit III-2 U.S.: Cloud "Leaders" Place Much Greater Importance on Using Cloud to Process and Analyze Data to Identify Trends 50.00% 44.78% 45.00% 38.81% 40.00% 35.00% 32.84% 29.85% 30.00% 25.00% 19.40% 20.00% 16.42% 15.00% 10.00% 7.46% 4.48% 5.97% 5.00% 0.00% 0.00% e nt nt nt nt nc rta rta rta rta rta po po po po po m m Im m Im ll I tI yI ha ta r or Ve ew in ta M No m of So Laggard Leader 017
  22. 22. Exhibit III-3 Asia-Pacific: Why Companies are Shifting On-Premises Applications to the Cloud To standardize applications and business processes 44% 33% To reduce IT costs 46% 29% To increase application flexibiity (ability to 45% 29% launch of shut down applications quickly) To reduce application downtime 44% 27% To improve applications maintenance 45% 24% To improve data and trend analysis 34% 32% To make faster application enhancements 40% 26% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Important Very Important In both Europe and Latin America, the most important driver of shifting to cloud applications was the need to increase “system flexibility” – the ability to launch or shut down applications quickly. Exhibit III-4 Europe: Why Companies are Shifting On-Premises Applications to the Cloud To increase applications flexibility (ability to 46% 20% launch or shut down applications quickly) To reduce IT costs 34% 29% To standardize applications and 38% 24% business processes To reduce application downtime 37% 21% To improve applications maintenance 39% 13% To make faster applications enhancements 37% 15% To improve data and trend analysis 34% 13% 0% 10% 20% 30% 40% 50% 60% 70% Important Very Important018
  23. 23. Why Companies are Using Cloud Applications In Latin America, standardizing applications and business processes ranked below four other drivers, which were led by increasing application flexibility. IT cost-cutting was rated the lowest of the seven options we provided. Perhaps Latin American companies look at cloud less as giving them more efficient ways to deploy computing applications and more as a tool giving them a greater ability to adopt strategic applications of technology. Exhibit III-5 Latin America: Why Companies are Shifting On-Premises Applications to the CloudIncreasing applications flexibility (ability to 39% 44% launch or shut down applications quickly) To improve applications maintenance 47% 35%To make faster applications enhancements 35% 47% To improve data and trend analysis 40% 40% To standardize applications and 37% 42% business processes To reduce systems downtime 46% 32% To reduce IT costs 32% 37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Important Very Important Why Companies are Launching Entirely New Applications in the Cloud: They Want to be Quicker to the Punch with New Business Processes We also surveyed companies about any new applications that they launched in the cloud – applications for which they had no previous versions installed on their on-premises computers. In three of the four regions (all except for Europe), the factor rated as the most important was the need to institute new business processes to generate revenue and increase customer loyalty. This was not a surprise to us. Increasingly, companies are doing business with customers online, and cloud computing can give those businesses a faster route to changing the way they do business on the Web. The Web has become a critical place for many customers to find out about a company’s products and services, place orders, check on shipment status, and (post-delivery) get answers to questions about how to use the product or otherwise get support. 019
  24. 24. Take the case of Dell Inc., the multibillion-dollar supplier of innovative technology and technology services. One of the Round Rock, Texas-based company’s online marketing groups caters to large corporate and government customers (the Public and Large Enterprise business unit). It has put cloud applications at the center of the marketing tool strategy that it uses, according to Rishi Dave executive director of online marketing. Many vendors of online marketing tools – for example, those that assess social media influencers – provide their products via the cloud, he explained. Using cloud vendors’ applications enables Dell’s online marketing function to execute online marketing, social and community programs without having to “touch our internal infrastructure,” Dave explains. The cloud helped Dell introduce gamification to customers and prospects at the 2011 Dell World conference. In the four months prior to Dell’s first Dell World client conference (which ran from Oct. 12-14, 2011 in Austin, Texas), Dell’s online marketing group decided to provide gamification to motivate customers to download Dell marketing content, visit physical locations at the conference, and network with each other. By using the cloud- based gamification services of one vendor, Dell was able to plan and execute the project in less than four months. Exhibit III-6 Europe: Why Companies are Launching Whole New Applications in the Cloud To launch new applications faster 36% 24% To launch new business processes that increase 37% 22% revenue and customer loyalty To enter new markets faster 33% 20% To test new products/services 32% 18% To test new business processes 33% 16% To launch new products/services that 32% 17% generate revenue 0% 10% 20% 30% 40% 50% 60% 70% Important Very Important020
  25. 25. Why Companies are Using Cloud Applications Exhibit III-7 U.S.: Why Companies are Launching Whole New Applications in the CloudTo launch new business processes that increase 39% 32% revenue and customer loyalty To launch new applications faster 47% 22% To enter new markets faster 36% 24% To launch new products/services that 34% 23% generate revenue To test new business processes 35% 19% To test new products/services 39% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% Important Factor Very Important Factor Exhibit III-8 Latin America: Why Companies are Launching Whole New Applications in the Cloud To test new business processes 49% 35% To enter new markets faster 37% 42% To launch new applications faster 37% 40% To launch new products/services that 37% 39% generate revenue To test new products/services 49% 26%To launch new business processes that increase 40% 25% revenue and customer loyalty 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Important Very Important 021
  26. 26. Exhibit III-9 Asia-Pacific: Why Companies are Launching Whole New Applications in the Cloud To test new business processes 43% 31% To launch new applications faster 44% 26% To launch new products/services that 39% 28% generate revenue To enter new markets faster 32% 34% To test new products/services that 41% 25% generate revenue To launch business processes 43% 20% 0% 10% 20% 30% 40% 50% 60% 70% 80% Important Very Important CTB/McGraw-Hill: Looking to the Cloud to Set the Pace in Online Student Testing CTB/McGraw-Hill is one of the three largest suppliers of assessment tests for public and private schools in the U.S. and other countries. Million of students in all 50 states take CTB’s tests. They help school districts and states rate the quality of the teaching delivered in their classrooms, as well as determine how to improve it. The company, based in Monterey, Calif., believes cloud computing will be essential for competing in a highly price-sensitive market (U.S. public schools). CTB/McGraw-Hill also feels that cloud will be critical to shifting its testing services from a paper-and-pencil process to an online experience – one with great potential to improve teachers’ ability to address students’ learning deficiencies. The company believes cloud computing will be a crucial channel for delivering its products and services to school districts in the future. But given the nature of CTB’s business – delivering tests to hundreds of thousands of K-12 students over two weeks each year – that creates enormous demand for the ability to scale computing resources up or down to administer online tests, which it believes will be the wave of the future. “Given that we have high spikes in capacity, we must be able to increase it and lower it quickly,” says CTB’s chief technology officer, Jayaram “Bala” Balachander. “We can’t do that today. That’s where cloud will be critical.”022
  27. 27. Why Companies are Using Cloud ApplicationsIn 2011, CTB delivered online assessment testing to 180,000 U.S. K-12 students over a two-week period. With each student taking as many as five tests, this meant the company hadto score 800,000 online tests concurrently. “This lends itself very much to the cloudbecause we can go up or down depending on the activity in our business.” In 2012, thenumbers are expected to more than double, creating an increasing need for ramping upand down infrastructure resources. As a result, CTB is experimenting with cloud-basedsolutions.Balachander predicts that about a million U.S. students will take their assessment testsonline (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of theirassessment testing to be online at some point, that would require CTB to have thecomputing resources to serve the online assessment needs of millions of Americanchildren in K-12 grades at once, a number he believes could be reached as early as 2015.Even if that turns out to be a smaller number in three years – say 75% of the 55 million U.S.students take online assessment tests -- if CTB commanded a 20% share of that market,it would need computing resources to support the delivery and scoring of more than 40million tests in a short period of time. “It would be very difficult for us to do that without thecloud – to invest in the infrastructure from a capital expenditure standpoint, and thenmake the ongoing technology investments,” Balachander explains.By this August, CTB intends to shift six to eight on-premises applications to the cloud, oneof which is the online testing. The firm’s website and extranet are also being evaluatedas potential candidates to put in the cloud.Balachander believes all new CTB applications should be cloud applications. “With newapplications, we are saying that by default we should put them in the cloud.”“At the end of the day, CTB needs IT services that can adapt to varying scalability demands,”Balachander says. “We clearly don’t want to invest in fixed infrastructure costs to handleour spikes in volume and scalability. The current set of cloud services and ongoingadvances in technology in this area give us an ability to approach our infrastructure needsin a whole different way.” 023
  28. 28. IV. The Benefits That Companies Have Gained from Cloud Applications021
  29. 29. The Benefits That Companies Have Gained from Cloud ApplicationsWe asked the companies we surveyed whether their use of cloud applications hadgenerated benefits – both cloud applications that they shifted from on-premisescomputers, as well as whole new cloud applications for which they previously had no on-premises versions. For both types of cloud applications, their answers indicate that cloudapplications are generating significant improvements in operational and financialperformance.Benefits from Shifting Existing Apps to the CloudIn all four regions of the world, the average benefits from cloud applications of this typewere impressive, especially in Latin American and Asia-Pacific companies:In IT costs, 28% (Europe) to 55% (Latin America) average reductionsnIn standardn applications and business processes, between 34% (Europe) and 60% (Latin America) increases in the number of apps and business processes that have been made common across a company or business unitIn cycle-timen reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductionsIn systems downtime, 33% (Europe) to 59% (Latin America) reductionsnIn then time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductionsApplicationn fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patchesIn analytic reports, from 34% (Europe) to 66% (Latin America) increases in the numbern of reports, which gives companies greater ability to mine and analyze volumes of dataThe more aggressive adopters of cloud computing – Latin American and Asia-Pacificcompanies (which had higher percentages of cloud apps to total corporate apps) – alsoreported much greater benefits from their cloud apps. Why is this the case? Perhapsgreater benefits is a function of experience; the more you use cloud applications, the moreknowledge you gain about how to deploy and use them, and thus the greater likelihoodto generate benefits. Or it could be that using a higher number of cloud applicationssimply brings more cumulative benefits. 025
  30. 30. For a $5 billion consumer products company, the cloud enabled one of its business functions to implement a new application without needing the typical “$10 million and 18 months to build it,” says an IT executive in the company. And the aforementioned telco hopes that standardizing applications through its private cloud data centers will help it reduce the number of those centers by 80% and save as much as $200 million in annual IT costs. Exhibit IV-1 Comparing 4 Regions of the World on Benefits Achieved From Shifting On-Premises Applications to the Cloud % increase in number of analytic reports 40% 34% (ability to mine and analyze data) 42% 66% % reduction in number of application fixes 35% 36% 43% 64% % cycle-time reduction in making 37% 37% application enhancements 42% 57% 34% % reduction in systems downtime 33% 39% 59% % reduction in cycle time to ramp IT 35% 36% resources up or down 41% 64% % increase in standardized apps and 38% 34% business processes they support 41% 60% 31% % reduction in IT costs 28% 37% 55% 0% 10% 20% 30% 40% 50% 60% 70% United States Europe Asia-Pacific Latin America026
  31. 31. The Benefits That Companies Have Gained from Cloud ApplicationsCompanies Report Sizable Benefits from Launching WholeNew Apps in the CloudWe also asked survey respondents to report on benefits received to date from newapplications that they launched in the cloud. Specifically, we had them indicateimprovements in six areas:n of new business processes that they would have considered too costly to testTesting prior to the advent of the cloud (because of excessive technology costs). Here we asked them to indicate the percentage increase in new business processes tested.The number of new business processes they actually launched or institutednThe number of new products/services they testednThe number of new products/services they launchednThe annualn revenue increase from launching new products/services in markets that they already servednaverageThe reduction in the time it took to enter new markets with new products/servicesWhile the average percentage improvements in these areas were about half those thatcompanies reported from shifting on-premises applications to the cloud, they werenonetheless noteworthy:Increasesn from 15% to 19% in the number of new business processes tested and launched in U.S., Europe and Asia-Pacific companies. Latin American companies, however, reported higher average numbers (22-27%)Increasesn from 13% to 19% in the number of new products or services tested and launched by companies in the U.S., Europe and Asia-Pacific (which, again, trailed the 31-32% increases in new products/services in Latin America)An averagen 14-17% reduction in cycle time to enter new markets with new products/services in the U.S., Europe and Asia-Pacific (bested again by Latin American companies, which claimed an average 35% cycle time reduction)Average revenue increases of 13-17% from launching new, cloud-based products andn services in existing markets (vs. an average 32% revenue increase reported by Latin American companies) 027
  32. 32. Exhibit IV-2 Comparing 4 Regions of the World on Benefits Achieved From Launching Whole New Applications in the Cloud 14% % cycle-time reduction to enter 16% new markets 17% 35% 13% % increase in revenue from new 14% products/services in existing markets 18% 32% 13% % increase in number of new 17% products/services launched 18% 32% 15% % increase in number of new 17% products/services tested 19% 31% 15% % increase in number of new business 17% processes launched 18% 27% 15% % increase in number of new business 16% processes tested 19% 22% 0% 5% 10% 15% 20% 25% 30% 35% 40% United States Europe Asia-Pacific Latin America At AOL, a Private Cloud is Helping the Shift to a Web Advertising Model Three decades ago AOL Inc. was a trailblazer in opening the online world to the American public. Today, despite competition from Facebook, Google, Yahoo and many other sites, AOL remains the sixth most heavily visited U.S. Website, with 106 million unique visitors in November 2011. The $2.4 billion company will be 30 years old next year, an unusual lifespan in an industry that buried AltaVista,, and many other online companies long ago. AOL outlasted them all because of its ability to shift strategies quickly and capably as the Web created new capabilities and competitors. The company has reincarnated itself several times – from proprietary online service in the early 1990s (supported by subscription fees) to Internet access provider in the late 1990s and 2000s (dial-up access fees) to online media content provider today (funded by advertising). In just the last five years, the company’s revenue mix has changed from about 43% advertising/54% subscription to 60% advertising/40% subscription and other.028
  33. 33. The Benefits That Companies Have Gained from Cloud ApplicationsBut because of its long history of providing online services such as email, instantmessaging and Web media and entertainment content, AOL had accumulated a vastamount of computers, storage, other computing devices and software over that time, saysMichael Manos, senior vice president of technologies at AOL. He has a playful name for thistechnology tangle: “cruft.” These legacy systems can weigh down companies that mustcontinually adopt new web technologies while keeping IT infrastructure costs low.This is especially the case at AOL, whose strategy today requires focusing investmentson online content and the people who produce it.“Cruft adds tremendous complexity to a company’s technology operations and makesit difficult for it to be agile,” Manos explains.To reduce its IT costs, AOL has embraced a private cloud infrastructure over the last year.It has dramatically lowered the technology expenses of sales, marketing and customerservice. Manos estimated that 20% of the company’s business applications have movedto cloud in the last six months, and that another 15% will shift by mid-year.That’s crucial in a company whose subscriber revenue has been falling sharply over theyears. A decade ago, AOL had about 30 million subscribers. Today, the number is around4 million. In 2011, the company reduced total expenses more than $500 million to makeup for the decline in subscription revenue.Adopting a Private Cloud at Light SpeedManos joined AOL in January 2011 after 17 years of managing data centers for such mediaand technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid trackrecord in making data centers more effective and efficient.In just 90 days, Manos and his team implemented AOL’s first-ever private cloud in a newdata center the company calls ATC. (AOL operates three other data centers in the U.S. – twoin Virginia and one in Silicon Valley.) Since going live last Oct. 1, ATC and the private cloudhave enabled AOL to shut down about 10,000 computer servers at its other computerfacilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computingcapacity on demand, without the need for additional manpower. Such “dynamicscalability” is essential in a business like AOL, where breaking news such as election resultsgenerates huge spikes in viewers clicking on its websites.Because of its private cloud, AOL can now get a new server up and running in just minutes,compared to 6-12 weeks a decade ago. In fact, on the ATC data center’s first day ofoperation, it took only an hour to have nearly 100 virtual servers running. Manos saysprovisioning a new server now takes only about 5 minutes via the cloud, compared to the8-12 hours it previously took. “We now can spin up capacity extremely quickly,” he says.“More importantly, we can spin down capacity very quickly. So it’s given us a substantialamount of agility within our business that we’ve never had before.” The cloud has alsoreduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced3,000 old servers, paring AOL’s electricity bill by about $700,000 a year. 029
  34. 34. Biggest Barrier to Embracing the Cloud: IT People Manos says the biggest barrier to adopting cloud technology at AOL is that IT employees worry that cloud technology will replace them. However, companies like AOL have no choice but to reduce costs in technology and other realms. ATC is a 100% “lights-out” facility, meaning it doesn’t need anyone operating the machines on its premises. Manos’ team of five people can now manage 12,000-15,000 servers that are spread across the company’s data centers. Still, the main objective is not to eliminate IT staff but rather to deploy them in jobs where they can play a more important role. Manos has gained support for cloud computing throughout AOL, from the CEO down. Through regular emails, newsletters and meetings, CEO Tim Armstrong has gone to great lengths to make the transition transparent. Armstrong has become a big proponent of the firm’s private cloud because of the cost savings and ability to launch new Web content more quickly. “If you would have told me nine months ago that the CEO would be talking about the technology side of the business, I would have said you were crazy,” Manos says. “But he is now saying that AOL is a technology company as well as a media company.” Major Telco: Cloud as Game-Changer and Data Center Consolidator This company sees cloud as a major external and internal opportunity -- to sell new services to customers and induce large reductions in its technology costs as well as standardized business processes and applications software. Top management at the telco believes that if the company wishes to get numerous customers to adopt cloud services, it must demonstrate how it has benefited from using the cloud internally. With that mandate, the company in the last two years has moved financial systems such as general ledger, payables and fixed assets to its private cloud. It is also moving human resource applications to the cloud (including the corporate email system, and employee savings and financial plans). Customer records ordering and processing will move to cloud as well. All in all, the company has moved 30% of its applications to its private clouds (data centers that it owns and operates), a number it hopes will reach 80% by year-end. The company is moving to organize its IT architecture completely around its private clouds, with the intention of eventually putting all applications in the cloud and providing cloud services for each company business unit. Today, its business units have their own financial, HR, customer management and other systems. That, of course, results in large duplications of software, hardware and data center space that could be consolidated if business units could standardize on many fewer applications and let them run on hardware at fewer but centrally managed data centers.030
  35. 35. The Benefits That Companies Have Gained from Cloud ApplicationsIf the firm can achieve this, it believes it will reduce the need for dozens of data centers(reducing the number by as much as 80%), which would achieve cost savings in the rangeof $100 million to $200 million.What must the company do to reach such ambitious goals? The two biggest obstacles thatwe heard were “fear of the unknown” and “fear of losing control” – both coming especiallyfrom the IT functions within the company’s business units.That said, the company believes the issue is no longer whether the company will broadlyadopt cloud computing but rather how quickly it will do so. “We believe cloud issomething that is going to be gaming-changing,” said one executive. “It’s going to becomea way of life. I think we’re at the very beginning of this, and that many companies have a‘toe in the water’ approach because of the security concerns.” The gating factor, hebelieves, is whether cloud vendors can provide a highly secure service with nearly 100%uptime. 031
  36. 36. V. Which Business Functions are Using the Most Cloud Applications029
  37. 37. Which Business Functions are Using the Most Cloud ApplicationsWith cloud applications representing anywhere from 12% (Europe) to 39% (Latin America)of total applications at the companies we surveyed, it is clear that they have becomea fixture in large corporations. But we also wanted to know exactly how companies wereallocating their cloud application budget, business function by business function.So we asked our respondents to estimate how their companies had apportioned theirspending on cloud applications across 10 core business functions: customer service,marketing, sales, manufacturing (or the equivalent of “production” or “operations” inservice firms), research & development, human resources, distribution, purchasing,finance, and legal. Furthermore, we asked companies to estimate their budget allocationsat present (for 2011) and their projections for 2014.For 2011, spending on cloud applications is, for the most part, spread well across all 10functions. Across all four regions of the world, not one business function had commandedmore than 19% of the total cloud applications budget. In Latin America, customer servicecloud applications were 19% of total cloud applications spending. And in Europe, themarketing function garnered the largest slice of the total cloud applications budget,at 18%.On the other end of the spectrum, none of the 10 business functions received an averageshare of less than 4% of total cloud applications spending in any region of the world.Distribution and purchasing received 4% of the total cloud applications budget in Europe,and legal received 4% of the average cloud applications budget in Asia-Pacific companies.Despite that fragmented spending, in all four regions three functions collectivelycommanded at least 40% of total cloud applications investments: customer service (15%of total spending across all four regions), marketing (14%) and sales (13%). Of course,these three functions are “customer-facing”: their operations directly touch a company’scustomers on a daily basis. In contrast, three functions that don’t touch customers everyday – legal, purchasing/procurement and HR – collectively accounted for only 19% of thetotal cloud applications budget. 033
  38. 38. There were a few regional exceptions to overall trend. In Asia-Pacific companies, the manufacturing/production function accounted for 14% of total cloud applications spending – twice the percentage of U.S. companies. In Latin America, companies spent more on manufacturing/production cloud apps (12% of total cloud applications spending) than they did on marketing apps. Exhibit V-1 2011: How Companies Around the World are Dividing Their Cloud Applications Budgets (Functional Spending on Cloud Apps as % of Total Company Cloud Apps Spending) 20% 19% 18% 18% 17% 16% 16% 15% 15% 14% 14% 14% 13% 13% 13% 12% 12% 11% 10% 10% 10% 9% 9% 10% 10% 10% 10% 9% 8% 9% 8% 8% 8% 8% 7% 7% 6% 6% 6% 6% 6% 5% 6% 5% 5% 4% 5% 4% 4% 4% 4% 2% 2% 0% 0% n n s s g g ice ce D r al le ce he tio io in in R& g an Sa rv ut ur t as Ot Le uc ke Fin Se rib so h od ar rc Re er st M Pu Pr m Di an g/ to m rin s Cu Hu tu ac uf an M United States Europe Asia-Pacific Latin America Why are companies in all four regions putting more of their cloud applications investments in these three customer-facing functions? We believe it’s in part because such cloud applications are more directly able to generate revenue or increase customer loyalty than cloud applications supporting back-room functions. The other part of it is that companies are starting to recognize the value of cloud computing for processing and analyzing enormous volumes of customer data – particularly data generated from customers and prospects on the Web from social media.034
  39. 39. Which Business Functions are Using the Most Cloud Applications In the U.S., 58% of companies had shifted to the cloud on-premises applications that reported and analyzed sales data. Nearly half (45%) had created entirely new application in the cloud for sales analysis and reporting. And 44% of U.S. companies plan by 2014 to have new cloud applications that collect and analyze social media data, four times the number of companies that had such cloud applications in 2011. How Companies Plan to Allocate the Cloud Applications Budget in 2014 The companies we surveyed believe that sales, marketing and customer service will continue to snare the largest shares of their cloud applications investments through 2014. Among U.S. companies, marketing (15% of all cloud applications spending), sales (15%) and customer service (14%) will lead the way. In Europe, marketing (16%), sales (19%) and customer service (10%) will account for 45% of all cloud apps spending. Asia-Pacific companies expect to continue investing more heavily in cloud manufacturing apps (15% of the total cloud apps budget), although they project that 35% of total spending will go to marketing, sales and service. And Latin American companies expect marketing, sales and service cloud apps to be 44% of total cloud apps spending. Exhibit V-2 2014: How Companies Around the World Project How Theyll Divide Their Cloud Applications Budget (Functional Spending on Cloud Apps as % of Total Company Cloud Apps Spending)20% 19% 19%18% 16%16% 15% 15% 15% 14% 14% 14%14% 11% 12% 12% 12%12% 11% 10% 10% 9% 10%10% 9% 9% 9% 8% 8% 8% 8% 8% 8% 8% 7% 7% 7% 7% 7% 6% 6% 6% 6% 6% 5% 4% 5% 4% 4% 4% 4% 2% 1% 1% 0% n n s es g ice g ce D r l le he ga tio io tin in R& rc an Sa rv ut as Ot Le u uc ke Fin Se rib so h od ar rc Re er st M Pu Pr m Di an g/ to m in s Cu Hu tur ac uf an M United States Europe Asia-Pacific Latin America 035
  40. 40. VI. The Most and Least Popular Cloud Applications033
  41. 41. The Most and Least Popular Cloud ApplicationsIn the previous section, we mentioned that across all four regions of the world, companieswere in most cases putting the largest share of their cloud applications budgets inmarketing, sales and service. Yet in spite of that, many companies appear to be stayingclear of putting sensitive data into cloud applications.We found this to be the case in looking at other data in our survey. In the U.S. and Europe(where we had large-enough sample sizes to explore what applications companies had inthe cloud in each of the 10 core business functions), we found that the applications thatwere most frequently shifted from on-premises computers to the cloud were those thattypically do not have highly sensitive information on employees, customers, new-productplans, and other data that companies go to great lengths to protect (see Exhibit VI-1). Exhibit VI-1 US (2011): Applications Most Frequently Shifted from On - Premises Technology to the Cloud (% of Companies) Recruitment/staffing 69% Warehouse management 67% Inventory management 67% Sales analysis and reporting 58% Enterprise resource planning ... 56% Vendor management 54% Production mgt (product ... 53% 0% 20% 40% 60% 80% 037