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Impact of cloud computing on the Australian economy

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Everywhere in the IT industry people have been obsessively talking about cloud computing. This disruptive technology has taken the global IT industry by storm. Based on recent research done by the International Data Corporation (IDC), global revenue for public cloud exceeded 21.5 billion US dollars in 2010 and is expected to reach 72.9 billion US dollars in 2015. This represents a compound annual growth rate (CAGR) of 27.6 percent. This CAGR is more than four times the growth rate (6.7 percent) of the global IT market as a whole.

According to IDC top 10 predictions for 2012, adoption of cloud services will result in more than 36 billion US dollars in revenue in 2012 (up 28 percent) representing a growth rate more than four times the industry overall. IDC also predicts that more than 80 percent of new applications developed in 2012 will be deployed and distributed through cloud. The cloud model will dominate over the traditional model for enterprise application distribution and deployment.

In this year, migration of legacy applications to cloud will also accelerate. About 2.5 percent of packaged applications will be migrated onto public cloud which is four times more than the result of 2011. CompTIA’s third Annual Trend in cloud computing study finds that 80 percent of companies use some form of cloud solutions and more than 50 percent are planning to increase their cloud investment by 10 percent or more in 2012. Gartner 2012 Hype Cycle for Cloud computing reveals that cloud computing is becoming a reality and finding a place in mainstream IT now and in the next few years. It has moved past the peak of Inflated Expectations. Definitely cloud has moved from fad to foundation.

I will just stop here. One can sift through the massive amount of information available online to find more data to study the impact and influence of cloud computing. The above convincing examples are sufficient to show that companies need to consider some cloud adoption strategies to compete in today’s competitive and borderless global market. In fact, the cloud adoption rate is increasing dramatically in global IT market.

Reverberation of cloud computing is seen in every facet of our life these days. Economies are also being positively impacted by this. In this post, I will discuss, with help of some numbers and data, about the impact of cloud computing on Australia’s economy. Tangible and intangible benefits will sprout out as a consequence of implementing some sort of cloud solutions directly or indirectly in different sectors and industries of economy. We will see later in the post how it will boost GDP per year and as such Australian economy.

According to A Snapshot of Australia’s Digital Future to 2050, prepared by IBISWorld and commissioned by IBM, Information and Communication Technology (ICT) enhanced by ubiquitous high speed broadband (fixed, mobile and wireless), analytics, cloud computing, cognitive computing and many others have been defined as a new utility.

In 2012, ICT is expected to generate revenue of 131 billion dollars in Australia. This study finds that by 2050, this new utility will generate 1 trillion dollars in revenue which is almost eight times the revenue of 2012.

This report defines the Post-Industrial age spanning from 1965 to the late 2040s as the Infotronics age. It is also known as Information age or Digital age.

The second half of Infotronics age (2007 to late 2040s) is of enormous importance to us. As the research report indicated, in this new age service industries are dominating the economy (more than 70 percent in 2012 versus around 50 percent in 1965) than the goods industries. Australia has long been known for its dependency on the export of natural resources. However, contribution of natural resources to economy is less than 12.5 percent of GDP each year. Furthermore, natural resources constitute less than 10 percent of Australian national assets. As pointed out in the research, developed resources, like an educated labor force, Internet and Internet-based products, communications (mobile, broadband), tourism, utilities and transport infrastructure, medical, bio and nanotechnology constitute 33 percent of national assets and produce 88 percent of annual wealth. It is obvious that developed resources along with utilities are very important for boosting Australian economy in Infotronics age, not the natural resources.

Australia has five industry sectors, 19 industry divisions and 509 industry classes. A panel of experts looked ahead of existing research to find the impact of ICT utility in all industry classes and also assessed the prospects of all classes in Australian economy in the next 40-50 years. Over this period ICT will help Australia shift from natural resource dependent economy to developed resources oriented economy.

It has also been pointed out in the research paper that quaternary sector industries account for 47% of Australian GDP in 2012. Quaternary sector together with quinary sector will contribute to more than 50 percent of GDP in 2012.

Quaternary sector includes[1]

“service industries of an information and/or finance based nature (Information Media and Telecommunications; Financial and Insurance Services; Rental, Hiring and Real Estate Services; Professional, Scientific and Technical Services; Administrative and Support Services; Public Administration and Safety; and Education and Training).”

The Quinary sector includes1

“service industries, mainly outsourced by individuals and households (Accommodation and Food Services; Health Care and Social Assistance; Art and Recreation Services; and Personal and Other Services).”

By 2050, GDP will have grown from $1.4 trillion in 2011 to $5.3 trillion (constant 2012 prices) using ICT as a utility. As we will see later cloud will also have a stake in this contribution directly or indirectly. In 2012, cloud contributes to 0.8 percent of 131 billion dollars revenue produced by ICT. It will be very hard to find services in near future without some sort of cloud technologies being used somehow. One can easily predict or envision that these two sectors will be greatly influenced by broadband and cloud computing. In fact, we have already started to see applications of cloud computing in all five sectors in Australia’s economy.

Readers are encouraged to read about other sectors from the research paper. Broadband and cloud computing are “made for each other.” I have briefly discussed about these two in an earlier blog post entitled “National Broadband Network: A game changer in adopting cloud computing in Australia.”

Cloud, the new IT delivery model coupled with broadband, will revolutionize all industries. People in this new age will use cloud to do new and innovative tasks or execute old tasks in a new way. Lower operational cost will be one of the many gains from cloud computing. There will be productivity and efficiency gain which will directly or indirectly impact the economy. As mentioned in the paper 15 industries out of 509 will possibly end if they do not reinvent themselves to take leverage of ICT. As such, the impact of ICT enabled with cloud computing and many others can not be ignored.

I believe the discussion so far has helped get a bigger picture of the impact of ICT enhanced by ubiquitous high speed broadband (fixed, mobile and wireless), analytics, cloud computing, cognitive computing and many others. Now I will direct my discussion towards analysis of cloud computing market in Australia and its impact on Australian economy with two more analyst papers.

IBISWorld Cloud Computing in Australia: Market Research Report finds that cloud computing has tremendous growth potential in Australia like rest of the world. In Australia cloud computing will generate 1.08 billion dollars in revenue in 2012. As new products are entering into markets, the technologies are being matured and broadband internet is coming to everyone’s reach, cloud revenue will grow at a rate of 5.4 percent per annum to exceed 1.41 billion by 2016. This report states that cost saving accrued from cloud computing can be significant based on the company size. Eighteen percent reduction in IT expenditure and 16 percent reduction in power costs to operate servers and storage can be achieved. This definitely cut down the cost of business services and developed resources (as mentioned in A Snapshot of Australia’s Digital Future to 2050).

KPMG Australia has analyzed and assessed all sectors of Australian economy except agriculture to model the economic impact of cloud computing on Australian economy in the research report entitled “Modelling the Economic Impact of Cloud Computing”. From statistical data and surveys KPMG indicated that ICT capital and operating expenditure in all sectors will reduce significantly in the next 10 years and beyond. This is very resonant with my earlier discussions.  According to this KPMG report, companies are able to produce more output with same level of input or generate the same output with reduced ICT input (IT infrastructure and manpower). Thus resources are freed up which can be used in other business critical areas to spur innovations and produce other significant outputs. Each of these outcomes results in an increase in GDP as a result of productivity and efficiency gains and tangible and intangible benefits from cloud computing services. It is time to summarize the results with some numbers. Cloud computing will boost Australian GDP by 3.32 billion Australian dollars  per annum in 10 years time if the cloud computing adoption rate is 75 percent. If the adoption rate is 50 percent, it is estimated that the GDP gain will be 2.16 billion Australian dollars per annum.

I love numbers and mathematics. I always understand things better when numbers are involved. In this blog post, I have taken an attempt to analyze the impact of cloud computing on Australia’s economy with statistical data and analyst reports. There is no doubt that cloud computing is a game changer in global ICT landscape. Cloud computing can not be ignored.

If you are a C-suite executive or IT decision makers in an organization, it is high time that you start or plan to start your cloud journey. You need to make significant inroads to reshape your IT strategy to integrate cloud computing to compete in today’s highly competitive world. I hope the numbers presented in this blog will surely convince you to reinvent your business processes leveraging ICT to survive in this Infotronics age. If you are an IT decision makers from other parts of the world, I am sure that you will find statistical and market analysis of cloud computing and economical modeling for your country too. The most important thing is that you include cloud computing in your IT agenda.

Senior Managing Consultant at GBS Cloud Centre of Competence

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