Cloud Computing: APAC Goes Beyond Revenue

Which is the hottest cloud-computing market in APAC? Where is the most revenue being generated? These are 2 questions that 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 as a winner or loser.

In early 2011, Cisco set out to examine the cloud market in the region 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 analyzed 784 unique events and data points over 6 consecutive quarters in Australia, Hong Kong, India, Indonesia, and Japan. The results were very revealing and led to 2 key questions that must be asked by cloud policy and business visionaries before they decide where their cloud role models are.

Are the Cloud Foundations in Place?

To get a local perspective, we must do the following tasks:

• Extent of Investment: First quantify the extent to which the national or local governments invest in the cloud. In Japan, cloud computing is viewed by the government as a means to enhance the countrys competitiveness at the global level. As part of the Digital Japan Creation Project, Japans 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 governments 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.
• Examine the State of the Regulatory Environment: We need to examine the state of the regulatory environment and whether that is being helped or hindered. Australias regulatory environment became restricted in early FY11 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 FY10, Hong Kong's formation of an association to explore regulatory issues and plans announced for regulatory activity have helped drive its cloud adoption. In contrast, in India the regulatory environment often lags behind the other markets. In Indonesia, the country's reaction to RIMs data privacy issues and harsh commentary from the country's information minister has hindered the regulatory environment.
• Broadband Infrastructure: 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 an 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.
• Data Centers: Last but not the least, the foundation for cloud growth in APAC also depends on the extent to which cloud factories'-data centers-are being built. The research revealed that Hong Kong did not perform highly in availability of tier-3+ data centers and Australia was perceived to have a middle position in the region for the same. However data center activity in India is moving at a breakneck speed although activity centers on the lower end of the data center spectrum as supply catches up with demand. With an influx of lower tier data centers, India runs the risk of needing to convert/consolidate a large portion of its data centers if cloud demand accelerates as expected.

According to a separate global study released November 2011-'Cisco Global Cloud Index: Forecast and Methodology, 2010-2015', an annual global cloud IP traffic is predicted to reach 1.6 ZB by the end of 2015 (133 EB per month) and global cloud IP traffic will grow at a CAGR of 66% between 2010 and 2015.

Therefore investment by the government, a favorable regulatory environment, and an effective broadband/IT infrastructure are critical for cloud development. Weakness in any of these factors will materially curtail development.

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 Japans 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 Q1FY10, with relationships forecast between firms across the IT spectrum, targeting every level of the cloud stack.

In 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 the 'best practice'. The next 2 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.