The Cloud in APAC: Going Beyond Revenue
Rajesh Rege, Senior VP, Data Centre, Virtualization & Cloud Business, Cisco India & SAARC
Which is the hottest cloud-computing market in APAC? Where is the most revenue being generated? These are two questions which run high on the minds of many CIOs, CFOs, CTOs and cloud vendors. The implication is that the answer to the second question will satisfy the first.
While at first glance, the assumption seems harmless and acceptable, this type of 'revenue first' analysis largely ignores the critical activity within each country and can be detrimental for anyone making decisions on the APAC countries that will ultimately turn cloud winners or losers.
Cisco set out to examine the cloud market in the region in early 2011 and enlisted The 451 Group, an independent research firm, to assist in identifying the key traits/factors for cloud-computing success, quantifying them and establishing a framework to rank countries across APAC on the basis of their relative standing on these fronts.
The study analysed 784 unique events and data points over six consecutive quarters in Australia, Hong Kong, India, Indonesia and Japan. The results were very revealing and led to two key questions that must be asked by cloud policy and business visionaries before they decide where their 'cloud role models' are:
Q1: Are the cloud foundations in place?
To get a local perspective, we must first quantify the extent to which the national or local governments invest in cloud. In Japan, cloud computing is viewed by the government as a means to enhance the country's competitiveness at the global level. As part of the Digital Japan Creation Project, Japan's Ministry of Internal Affairs and Communications (MIC) declared its bold move into the cloud arena. The telecom regulator has set its sights on building a massive cloud infrastructure, dubbed the 'Kasumigaseki Cloud,' to support all of the government's IT systems. The infrastructure project is one of the action points set forth by MIC to stimulate growth of the ICT industry in Japan, with the government-led cloud to be deployed in phases until 2015.
Secondly, we need to examine the state of the regulatory environment and whether that is being helped or hindered. Australia's regulatory environment became restricted in early FY'11 as a result of outsourcing guidelines issued by the Australian Prudential Regulation Authority (APRA), the regulator that oversees local banks, credit unions, insurance companies and most members of the superannuation industry.
Since early FY'10 Hong Kong's formation of an association to explore regulatory issues and plans announced for regulatory activity have helped drive its cloud adoption. By contrast, in India the regulatory environment often lags other markets. In Indonesia, the country's reaction to Research in Motion's data privacy issues and harsh commentary from the country's information minister has hindered the regulatory environment.
Hong Kong also shines in broadband infrastructure. Its ICT industry is well developed, mobile market is highly mature and broadband adoption is growing fast. Besides being a financial hub, it has a modern infrastructure and excellent connectivity. Similarly, availability and the overall status of the telco/IT infrastructure, makes Japan a clear leader in terms of broadband adoption, in the markets researched.
Last but not least, the foundation for cloud growth in APAC also depends on the extent to which cloud 'factories' - data centres - are being built. The research revealed that Hong Kong did not perform highly in availability of Tier3+ data centres and Australia was perceived to have a middle-position in the region for the same.
However, data centre activity in India is moving at breakneck speeds although activity is centred on the lower end of the data centre spectrum as supply catches up with demand. With an influx of lower tier data centres, India runs the risk of needing to convert/consolidate a large portion of its data centres if cloud demand accelerates as expected.
According to a separate global study released November 2011, titled: "Cisco Global Cloud Index: Forecast and Methodology, 2010-2015", annual global cloud IP traffic is predicted to reach 1.6 zettabytes by the end of 2015 (133 exabytes per month) and global cloud IP traffic will grow at a CAGR of 66 percent between 2010 and 2015.
Government investment, a favourable regulatory environment and an effective broadband/IT infrastructure are critical for cloud development. Weakness in any of these factors will materially curtail development.
Q2: Is the cloud supply chain building up?
The level of cloud vendor activity in each market must be examined as a leadership indicator alongside the level of partnership activity. Given Japan's recent status as APAC's second largest economy (only surpassed by China), the country has a broad and diverse pool of vendors to support its move to cloud computing. Cisco identified 59 total cloud partnerships in Japan since Q1-FY'10, with relationships forecast between firms across the IT spectrum, targeting every level of the cloud stack.
By contrast, Indonesia's relatively small economy and relatively closed business environment means the vendor pool for cloud products and adoption is materially smaller than other countries in the analysis. Multinationals and other vendors looking to partner, invest and expand will likely be drawn to more business-friendly destinations.
Connected to this is the level of VC funding and M&A activity in each market; Japan, Hong Kong and Australia are rising significantly and indicating a cloud leadership position. In India, deals in the SaaS market have dominated M&A activity.
As indicated above, there is a wide gap between Asia's developed and developing nations. On a broader regional basis, it confirms the thesis that these countries are still in the 'foundation' phase and it is too early to use revenue as a realistic, stand-alone measure of the level of cloud activity to highlight 'best practice'. The next two years are critical as far as government regulation, investment and support are concerned to help these markets grow. A great deal of development is required across the region to create viable, sustainable cloud markets. Looking 'beyond revenue' is the way forward.