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Summary:

A new survey of 600 large companies by Tata Consultancy Services shows that potential cost savings of a cloud computing move isn’t the primary motivation for a migration. Most companies simply want to standardize all of their applications and processes across their businesses.

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While saving money is a common reason cited for moving IT to the cloud, it is really not the overriding driver at all for most companies, according to new research.

What’s more important than cost savings for companies — at least in the U.S. and Asia-Pacific regions — is the ability to standardize their software and business processes across the company, according to a new survey of 600 large companies by Tata Consultancy Services, the $8 billion IT service provider. In Europe and Latin America, the primary rationale was the ability to ramp systems up and down faster.

According to the survey:

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 results confirm at least one bit of conventional wisdom — that European companies lag their U.S. counterparts in cloud adoption. Among U.S. respondents, 19 percent of their total applications run in the cloud compared to 12 percent in Europe. But both regions lag Asia and Latin America in adoption — at least in percentage of applications now running in the cloud: 28 percent for Asia and 39 percent for Europe Latin America.

However, companies in all regions expect their cloud usage to grow dramatically by 2014. For example, U.S. companies expect that 34 percent of their total applications will be cloud-based in two years. European repondents said they expect cloud applications to hit 25 percent in that period. But Asia and Latin America will keep up the pace, with Asia-Pacific companies expect to hit the 52 percent mark and Latin America 54 percent in 2014.

One of the reasons companies typically cite for moving to the cloud is that they’re able to move such IT budgets to an operational expense (OPEX) that can be spread out over the course of deployment as opposed to a larger, up-front capital expense. OPEX is far easier to get approved but, in terms of actual cost, there can be a point after which the cloud cost can exceed the capital expense. After five years paying a cloud provider for storing data — and also paying the networking charges for accessing that data — in some cases it may actually make sense to go with an on-premise solution. Companies need to do this math up front to determine which model works for them.

But, as Tata’s results show, cloud computing is big now, even if it’s not the  panacea for bloated budgets. Actual adoption likely will ramp up significantly as companies get comfortable with the model and better understand how and when to use it, and what it might cost.

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  1. Futurity Media Tuesday, March 27, 2012

    The other side of the coin is to consider if the cheapest deal is the best deal. Does the service lock your data inside proprietary technologies? Can you migrate easily to other services? How well does a cloud service work when used with other cloud services? There seems a need for standardization, and that’s something that’s slowly becoming important right now. http://blogs.orange-business.com/connecting-technology/2012/03/why-cloud-standardization-needs-to-evolve.html

    1. Agreed. The fear of lock-in that affected on-premises IT is pervading the cloud model as well.

  2. Steve Caniano Tuesday, March 27, 2012

    Cloud enables business velocity. And speed impacts time to market and agility in the market. That drives the top line, which is probably more important these days than cost savings for many businesses.

    1. Steve, agree with you on the above. I have found that all the cloud services/products I use are faster/more intelligent than any software that I have used in the past

      1. Mark,
        I believe the reason why the software is “faster and more intelligent” is because it is designed and developed by IT specialist without the interference of business users. It is usually created by upon a need identified by an IT person and then the solution is created in an environment outside of the usual politics and budget restrictions forced upon developers in a normal business environment.

  3. Reblogged this on BriefingsDirect.

  4. Should the last sentence in paragraph four be ’39 percent for Latin America’ not ’39 percent for Europe’, since it states ’12 percent in Europe’ just a bit above?

    1. great catch you’re way more eagle-eyed than i am. Corrected it.

    2. great catch you’re way more eagle-eyed than i am. Corrected it.

  5. “But both regions lag Asia and Latin America in adoption — at least in percentage of applications now running in the cloud: 28 percent for Asia and 39 percent for Europe.”
    ->
    But both regions lag Asia and Latin America in adoption — at least in percentage of applications now running in the cloud: 28 percent for Asia and 39 percent for LATIN AMERICA.

  6. Michael Kieran Thursday, March 29, 2012

    Great post. My two cents worth: Migration to Cloud Computing Driven by Benefits, Not Cost Savings – http://mrkieran.com/?p=933

  7. I would tend to agree with Steve. In my experience (full disclosure: I am an Architect in the PS group at RightScale) many of the customers I talk to, and in particular the larger enterprise customers, are enticed into the cloud by the agility it provides. We have numerous customers setting up IT vending machines for their internal users that allow these users to quickly spin up (and spin down) consistent pre-configured environments. And while cost is always a consideration, the flexibility and the efficiency that the cloud provides is almost always cited as one of, if not *the* driving factor in their cloud migration.

  8. Imran Anwar Sunday, April 8, 2012

    Good post, Barb. At the same time, I also urge readers or consumers of such ‘research’ data to keep in mind that the company doing the research has a vested stake in the results. I am not saying this about Tata in particular, but to keep in mind any time one draws strategic input from vendor financed research.

    Imran Anwar
    iCloud.pk

    1. great post…these cloud companies have a vested interest (i.e., they’re in business to make money), and anything said should be taken with a grain of salt..like others have said, once companies realize ,5-8 years down the road, that it is cheaper to have everything in-house, they’ll begin pulling things back,just like outsourced support and call centers in the 90’s are now coming back in-house..
      as your company grows so does its need for disk space, processing power, networking,etc, and all of that will cost more and more the higher you want it to go..a one time fee for a couple of high-end servers will always outweigh the need to outsource everything and get nickle-and-dimed to death by these cloud companies..I’d bet that in ten years the flow of companies leaving the cloud will be as fast as companies who are now adopting it..
      in other words, I wouldn’t bother with it..it’s moer of a media and mass marketing creation than anything else..

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