The State of Cloud Application Adoption in Large Enterprises

A TCS Global Trend Study - 2012March

UPTAKE?PUBLIC VS. PRIVATE?

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ROI? VENDORCRITERIA?

PUBLIC VS.PRIVATE?

UPT

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DATACONCERNS?

DRI

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NEW APPS VS.EXISTING APPS

BUDGETALLOCATION

INDUSTRYCOMPARISON

REGIONALDIFFERENCES

001Published March 2012

I. Executive Summary (10 Key Findings)

III. Why Companies are Using Cloud Applications

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V. Which Business Functions are Using the Most Cloud Applications

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II. The State of Adoption of Cloud Applications

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IV. The Benefits That Companies Have Gained from Cloud Applications

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Cloud applications as a percent of total applications (by region of world)

Cloud applications as a percent of total applications (by size of company)

Case Study: Commonwealth Bank of Australia

Factors driving companies to shift on-premises applications to the cloud

Factors driving companies to launch whole new applications in the cloud

Case study: CTB/McGraw-Hill

Operational and financial improvements from shifting on-premises applications to the cloud

Operational and financial improvements from launching new applications in the cloud

Case study: AOL Inc.

Case study: Major telco

How the cloud application budget is being divided (by regions of world)

How companies plan to allocate their cloud budgets in 2014

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06

14

02

32

CONTENTS

001Published February 2012

I. Executive Summary (10 Key Findings)

III. Why Companies are Using Cloud Applications

n

n

n

V. Which Business Functions are Using the Most Cloud Applications

n

n

II. The State of Adoption of Cloud Applications

n

n

n

IV. The Benefits That Companies Have Gained from Cloud Applications

n

n

n

n

Cloud applications as a percent of total applications (by region of world)

Cloud applications as a percent of total applications (by size of company)

Case Study: Commonwealth Bank of Australia

Factors driving companies to shift on-premises applications to the cloud

Factors driving companies to launch whole new applications in the cloud

Case study: CTB/McGraw-Hill

Operational and financial improvements from shifting on-premises applications to the cloud

Operational and financial improvements from launching new applications in the cloud

Case study: AOL Inc.

Case study: Major telco

How the cloud application budget is being divided (by regions of world)

How companies plan to allocate their cloud budgets in 2014

24

06

14

02

32

CONTENTS

VI. The Most and Least Popular Cloud Applications

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VIII. Differences in Cloud Benefits by Region of World

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X. Key Success Factors in Capitalizing on the Cloud

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XII. Demographics and Research Approach

Cloud applications most frequently shifted from on-premises technology

Cloud applications least frequently shifted from on-premises technology

Case study: Dell Inc.

Industry comparisons in number of cloud applications/company

Industry comparisons in number of cloud applications/company by 2014

Industry leaders and laggards in benefits from shifting on-premises applications to the cloud

Industry leaders and laggards in benefits from launching new cloud applications

Case study: $5 billion consumer products company

Contrasting U.S., European, Asia-Pacific and Latin American companies in cloud benefits achieved to date

Differences by region of world

Comparing responses by region of world

Most important capabilities that customers look for in cloud vendors

VII. Differences in Cloud Adoption Across Global Industries

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IX. Willingness of Companies to Use Public vs. Private Clouds

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XI. What Companies Look for in Cloud Vendors

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36

445458626872

066

Demographics and Research Process

VI. The Most and Least Popular Cloud Applications

n

n

n

VIII. Differences in Cloud Benefits by Region of World

n

X. Key Success Factors in Capitalizing on the Cloud

n

XII. Demographics and Research Approach

Cloud applications most frequently shifted from on-premises technology

Cloud applications least frequently shifted from on-premises technology

Case study: Dell Inc.

Industry comparisons in number of cloud applications/company

Industry comparisons in number of cloud applications/company by 2014

Industry leaders and laggards in benefits from shifting on-premises applications to the cloud

Industry leaders and laggards in benefits from launching new cloud applications

Case study: $5 billion consumer products company

Contrasting U.S., European, Asia-Pacific and Latin American companies in cloud benefits achieved to date

Differences by region of world

Comparing responses by region of world

Most important capabilities that customers look for in cloud vendors

VII. Differences in Cloud Adoption Across Global Industries

n

n

n

n

n

IX. Willingness of Companies to Use Public vs. Private Clouds

n

XI. What Companies Look for in Cloud Vendors

n

36

445458626872

066

Demographics and Research Process

003

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. The first was quantitative research: an online survey of 600+ companies from four regions of the world. The survey was extensive and polled the experiences of both senior business functional managers and corporate IT executives.

The second stream of research was in-depth interviews with six companies on their attitudes and experiences with cloud applications. Their stories shed

further light on what’s driving companies to shi f t ex ist ing

applications or put new applications in the cloud, the benefits and competitive advantages those applications are generating, and the challenges to getting the organization to adopt cloud applications (both those in public and private clouds). These companies were:

We designed the study to explore five core issues:

The factors that are driving companies to put their applications software in the cloud – whether those cloud applications were shifted from computers on-premises or were entirely new applications that had no on-premises predecessors

Which cloud applications have been adopted by what business functions and why

The benefits they had generated to date from shifting on-premises apps to the cloud and from launching entirely new apps in the cloud

The success factors to generating buy-in, adoption and benefits

Their future plans for cloud apps – specifically, what types of cloud apps their business functions planned to have by 2014

n

n

n

n

n

Executive Summary

001

I. Executive Summary

003

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. The first was quantitative research: an online survey of 600+ companies from four regions of the world. The survey was extensive and polled the experiences of both senior business functional managers and corporate IT executives.

The second stream of research was in-depth interviews with six companies on their attitudes and experiences with cloud applications. Their stories shed

further light on what’s driving companies to shi f t ex ist ing

applications or put new applications in the cloud, the benefits and competitive advantages those applications are generating, and the challenges to getting the organization to adopt cloud applications (both those in public and private clouds). These companies were:

We designed the study to explore five core issues:

The factors that are driving companies to put their applications software in the cloud – whether those cloud applications were shifted from computers on-premises or were entirely new applications that had no on-premises predecessors

Which cloud applications have been adopted by what business functions and why

The benefits they had generated to date from shifting on-premises apps to the cloud and from launching entirely new apps in the cloud

The success factors to generating buy-in, adoption and benefits

Their future plans for cloud apps – specifically, what types of cloud apps their business functions planned to have by 2014

n

n

n

n

n

Executive Summary

001

I. Executive Summary

Finding No. 3: The early returns on cloud applications are impressive. Companies using cloud applications are increasing the number of standard applications and business processes, reducing cycle times to ramp up IT resources, cutting IT costs, and launching a greater number of new products and processes. The story of a major telco shows the ambitions 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 the cloud application budget. Marketing, sales and service are capturing at least 40% of that budget in all four regions. The experiences of Dell’s enterprise sector online marketing function shows how one large company is trying to get closer to customers through cloud marketing applications. And a new private cloud at Web media company AOL Inc. explains how a technology-dependent company can make its technology more responsive and cost-effective. (See Page 28.)

Finding No. 5: Many companies are reluctant to put applications with sensitive data in the cloud. In the U.S. and Europe, the applications least frequently shifted from on-premises computers to the cloud were those that compiled data on employees (e.g., payroll), legal issues (legal management systems), product (pricing and product testing), and certain customer information (e.g., customer loyalty and e-commerce transactions). Still, some companies had shifted applications with customer data to the cloud, especially in customer service, and many planned to shift a number of customer-related applications to the cloud by 2014. (See Page 32.)

Finding No. 6: The heaviest users of cloud applications are the companies that manufacture the technology hardware that enables cloud computing (computers/electronics/telecom equipment), while healthcare services providers are the 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 apps to 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 to respond 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 public clouds. Less than 20% of U.S. and European companies would consider or seriously consider putting their most critical applications in public clouds. But 66% of U.S. and 48% 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 are overcoming fear of security risks and skepticism about ROI. (See Page 62.)

Finding No. 10: Companies evaluate cloud vendors most on their security and reliability/uptime capabilities – and far less on their price. This was the case in all four regions. In fact, price typically finished at the bottom of a list of nine factors in making the cloud application purchasing decision. (See Page 68.)

In the following pages, we dive deeply into these and other statistics and stories.

005

Executive Summary

004

n

n

n

n

n

n

CTB/McGraw 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 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. – 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 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.

Large consumer products company – How cloud computing has helped the $5 billion 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 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.)

Finding No. 3: The early returns on cloud applications are impressive. Companies using cloud applications are increasing the number of standard applications and business processes, reducing cycle times to ramp up IT resources, cutting IT costs, and launching a greater number of new products and processes. The story of a major telco shows the ambitions 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 the cloud application budget. Marketing, sales and service are capturing at least 40% of that budget in all four regions. The experiences of Dell’s enterprise sector online marketing function shows how one large company is trying to get closer to customers through cloud marketing applications. And a new private cloud at Web media company AOL Inc. explains how a technology-dependent company can make its technology more responsive and cost-effective. (See Page 28.)

Finding No. 5: Many companies are reluctant to put applications with sensitive data in the cloud. In the U.S. and Europe, the applications least frequently shifted from on-premises computers to the cloud were those that compiled data on employees (e.g., payroll), legal issues (legal management systems), product (pricing and product testing), and certain customer information (e.g., customer loyalty and e-commerce transactions). Still, some companies had shifted applications with customer data to the cloud, especially in customer service, and many planned to shift a number of customer-related applications to the cloud by 2014. (See Page 32.)

Finding No. 6: The heaviest users of cloud applications are the companies that manufacture the technology hardware that enables cloud computing (computers/electronics/telecom equipment), while healthcare services providers are the 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 apps to 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 to respond 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 public clouds. Less than 20% of U.S. and European companies would consider or seriously consider putting their most critical applications in public clouds. But 66% of U.S. and 48% 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 are overcoming fear of security risks and skepticism about ROI. (See Page 62.)

Finding No. 10: Companies evaluate cloud vendors most on their security and reliability/uptime capabilities – and far less on their price. This was the case in all four regions. In fact, price typically finished at the bottom of a list of nine factors in making the cloud application purchasing decision. (See Page 68.)

In the following pages, we dive deeply into these and other statistics and stories.

005

Executive Summary

004

n

n

n

n

n

n

CTB/McGraw 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 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. – 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 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.

Large consumer products company – How cloud computing has helped the $5 billion 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 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.)

007

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.

56%

50%

24%

34%

39%

28%

12%

19%

0% 10% 20% 30% 40% 50% 60%

Latin America

Asia-Pacific

Europe

United States

2011: # of Cloud Apps as % of Total Apps (Average Per Company)

2014: # of Cloud Apps as % of Total Apps (Projected) (Average Per Company)

Exhibit II-1Cloud Applications as % of Total Corporate Applications -- 2011 and 2014 (Projected)

The State of Adoption of Cloud Applications

005005

II. The State of Adoption of Cloud Applications

007

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.

56%

50%

24%

34%

39%

28%

12%

19%

0% 10% 20% 30% 40% 50% 60%

Latin America

Asia-Pacific

Europe

United States

2011: # of Cloud Apps as % of Total Apps (Average Per Company)

2014: # of Cloud Apps as % of Total Apps (Projected) (Average Per Company)

Exhibit II-1Cloud Applications as % of Total Corporate Applications -- 2011 and 2014 (Projected)

The State of Adoption of Cloud Applications

005005

II. The State of Adoption of Cloud Applications

In each region, we looked at cloud apps as a percent of total apps by company size and saw some interesting patterns. One was that in American companies the “mid-sized” large firms ($1 billion to $10 billion in revenue) were the heaviest users of cloud applications. In these companies, cloud applications represented 27% - 28% of total applications. And by 2014, U.S. companies with revenue of between $1B-$5B said they expected cloud applications 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.)

008 009

Exhibit II-3

U.S.: Number of cloud applications as a % of all applications

All companies (>$500M)

Companies $500M-$1B

Companies $1B-$5B

Companies $5B-$10B

Companies $10B-$20B

Companies $20B-$50B

Companies > $50B

2011

19%

16%

27%

28%

17%

17%

14%

2014

34%

44%

52%

31%

35%

30%

23%

The State of Adoption of Cloud Applications

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.

54%

52%

25%

33%

42%

29%

12%

19%

0% 20% 40% 60%

Latin America

Asia - Pacific

Europe

United States

2011

2014

Exhibit II-2Cloud Applications as % of Total Corporate

Applications -- 2011 and 2014 (Projected) ($1B+ Companies)

In the U.S., $1B-$10B Companies Have the Greatest Percentage of Cloud Apps

In each region, we looked at cloud apps as a percent of total apps by company size and saw some interesting patterns. One was that in American companies the “mid-sized” large firms ($1 billion to $10 billion in revenue) were the heaviest users of cloud applications. In these companies, cloud applications represented 27% - 28% of total applications. And by 2014, U.S. companies with revenue of between $1B-$5B said they expected cloud applications 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.)

008 009

Exhibit II-3

U.S.: Number of cloud applications as a % of all applications

All companies (>$500M)

Companies $500M-$1B

Companies $1B-$5B

Companies $5B-$10B

Companies $10B-$20B

Companies $20B-$50B

Companies > $50B

2011

19%

16%

27%

28%

17%

17%

14%

2014

34%

44%

52%

31%

35%

30%

23%

The State of Adoption of Cloud Applications

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.

54%

52%

25%

33%

42%

29%

12%

19%

0% 20% 40% 60%

Latin America

Asia - Pacific

Europe

United States

2011

2014

Exhibit II-2Cloud Applications as % of Total Corporate

Applications -- 2011 and 2014 (Projected) ($1B+ Companies)

In the U.S., $1B-$10B Companies Have the Greatest Percentage of Cloud Apps

Cloud Adoption: Reaching Critical Mass

The numbers showing future cloud usage by 2014 are striking – ranging from one-quarter of all corporate applications being in the cloud in Europe, to one-third in U.S. companies to about half in Asia-Pacific and Latin American companies. Yet even though these numbers are projections of future adoption trends, we nonetheless believe that large corporations have passed the inflection point, or critical mass, in adopting cloud applications – at the very 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 are cloud-based (mostly private cloud-based systems that it runs in its own data centers). In the 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 HR applications 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 its private clouds. The company has also launched many new cloud applications that had no on-premises predecessors. A good number of these were cloud-based financial applications – specifically, general ledger and fixed asset applications that are helping the company track its sizable capital investments in both its wire-line and wireless networks.

The telecommunications services company’s aggressive of adoption of cloud computing was far from unusual, even outside the U.S. Consider the Commonwealth Bank of Australia. The bank began shifting applications to the cloud in 2008. Today, the bank has dozens of cloud applications serving its sales, customer service, HR, operations and IT functions. And the bank continues to identify which of its more than 3,500 applications that 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, said Dilan Rajasingham, executive advisor to the bank’s chief information officer. (See case

011

The State of Adoption of Cloud Applications

010

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-4Europe: Cloud Applications as Percentage of All Applications

(Average per Company)

33%

23%

23%

22%

24%

15%

24%

13%

11%

15%

10%

12%

9%

12%

0% 5% 10% 15% 20% 25% 30% 35%

$50 billion+

$20-50 billion

$10-20 billion

$5-10 billion

$1-5 billion

$500 million to $1 billion

All companies

2011 2014

Cloud Adoption: Reaching Critical Mass

The numbers showing future cloud usage by 2014 are striking – ranging from one-quarter of all corporate applications being in the cloud in Europe, to one-third in U.S. companies to about half in Asia-Pacific and Latin American companies. Yet even though these numbers are projections of future adoption trends, we nonetheless believe that large corporations have passed the inflection point, or critical mass, in adopting cloud applications – at the very 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 are cloud-based (mostly private cloud-based systems that it runs in its own data centers). In the 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 HR applications 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 its private clouds. The company has also launched many new cloud applications that had no on-premises predecessors. A good number of these were cloud-based financial applications – specifically, general ledger and fixed asset applications that are helping the company track its sizable capital investments in both its wire-line and wireless networks.

The telecommunications services company’s aggressive of adoption of cloud computing was far from unusual, even outside the U.S. Consider the Commonwealth Bank of Australia. The bank began shifting applications to the cloud in 2008. Today, the bank has dozens of cloud applications serving its sales, customer service, HR, operations and IT functions. And the bank continues to identify which of its more than 3,500 applications that 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, said Dilan Rajasingham, executive advisor to the bank’s chief information officer. (See case

011

The State of Adoption of Cloud Applications

010

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-4Europe: Cloud Applications as Percentage of All Applications

(Average per Company)

33%

23%

23%

22%

24%

15%

24%

13%

11%

15%

10%

12%

9%

12%

0% 5% 10% 15% 20% 25% 30% 35%

$50 billion+

$20-50 billion

$10-20 billion

$5-10 billion

$1-5 billion

$500 million to $1 billion

All companies

2011 2014

So how do you add up the benefits? Rajasingham categorizes them in three ways:

Cost reduction. 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.”

Faster development of computer systems. The bank refers to this benefit as 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’s 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 cloud computing is freeing up time and money for CBA to focus on providing new banking services (much of it online) that let customers do such things as get offers on financial products in real time. This is because more bank people can now focus on evaluating customers’ individual needs and pricing products and services based on their risk profile and loyalty. Cloud computing, he said, will let CBA shift from spending “half of our budget on maintaining lights-on [IT] infrastructure, and get 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 backend IT infrastructure and more in online banking services that customers have come to demand – applications to bank from their mobile phones, tablet computers and other digital devices.

Shifting technology spending from backroom to front office applications is necessary because banks are no longer competing just against other banks in exploding areas such as mobile payments, CBA’s CEO Ralph Norris said in a 2011 presentation to investors. “Our business is not going to be about competing against banks or other current payment players; it’s against phone companies, providers of technology themselves, and the new social media entities,” said Norris. “You have to bring to bear new features and functions that are going to resonate with customers using those sorts of facilities.”

n

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013

The State of Adoption of Cloud Applications

012

Commonwealth Bank of Australia: Using the Cloud toFund 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 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 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.

n

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So how do you add up the benefits? Rajasingham categorizes them in three ways:

Cost reduction. 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.”

Faster development of computer systems. The bank refers to this benefit as 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’s 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 cloud computing is freeing up time and money for CBA to focus on providing new banking services (much of it online) that let customers do such things as get offers on financial products in real time. This is because more bank people can now focus on evaluating customers’ individual needs and pricing products and services based on their risk profile and loyalty. Cloud computing, he said, will let CBA shift from spending “half of our budget on maintaining lights-on [IT] infrastructure, and get 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 backend IT infrastructure and more in online banking services that customers have come to demand – applications to bank from their mobile phones, tablet computers and other digital devices.

Shifting technology spending from backroom to front office applications is necessary because banks are no longer competing just against other banks in exploding areas such as mobile payments, CBA’s CEO Ralph Norris said in a 2011 presentation to investors. “Our business is not going to be about competing against banks or other current payment players; it’s against phone companies, providers of technology themselves, and the new social media entities,” said Norris. “You have to bring to bear new features and functions that are going to resonate with customers using those sorts of facilities.”

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013

The State of Adoption of Cloud Applications

012

Commonwealth Bank of Australia: Using the Cloud toFund 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 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 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.

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015

We asked companies to rate on a scale of importance (1 to 5) what had driven them to implement two kinds of cloud applications:

Cloud applications that had previously been installed on on-premises computers

Entirely new cloud-based applications for which there had been no on-premises versions before

How they rated a set of drivers that we offered provides insights into the motivations for adopting cloud applications. We’ll start with the factors that pushed companies to shift on-premises apps to the cloud.

Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’t the Leading Driver

Among 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 reduce technology costs (although that is a key driver). Ahead of that is something that is not as well understood by the press, analysts and others covering cloud trends: standardizing applications and the business operations that those applications support.

Numerous large companies – especially those with multiple business units/divisions – are saddled with huge duplications in technologies: commercial application software packages, hardware and data centers that are serve individual business units (and sometimes even just a single compute-intensive business function such as R&D or manufacturing in a division). By giving companies the ability to take such applications out of departmental or business unit data centers and put them in a centrally accessible location – a private or public data center that hosts the applications – cloud computing creates the prospect of standardizing applications across a big business.

The major telco that we spoke with said offering standardized cloud applications will help its business units reduce their IT costs and the need for so many data centers (which today are in the hundreds). Having dozens of financial, HR, customer management and other applications today – each devoted to a narrow slice of its business – has resulted in huge IT costs (software, hardware and data centers). In fact, the company believes that its shift to cloud applications will help it reduce its number of data centers by 80%, which would produce an estimated annual cost savings of $100 million to $200 million.

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Why Companies are Using Cloud Applications

III. Why Companies are Using Cloud Applications

015

We asked companies to rate on a scale of importance (1 to 5) what had driven them to implement two kinds of cloud applications:

Cloud applications that had previously been installed on on-premises computers

Entirely new cloud-based applications for which there had been no on-premises versions before

How they rated a set of drivers that we offered provides insights into the motivations for adopting cloud applications. We’ll start with the factors that pushed companies to shift on-premises apps to the cloud.

Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’t the Leading Driver

Among 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 reduce technology costs (although that is a key driver). Ahead of that is something that is not as well understood by the press, analysts and others covering cloud trends: standardizing applications and the business operations that those applications support.

Numerous large companies – especially those with multiple business units/divisions – are saddled with huge duplications in technologies: commercial application software packages, hardware and data centers that are serve individual business units (and sometimes even just a single compute-intensive business function such as R&D or manufacturing in a division). By giving companies the ability to take such applications out of departmental or business unit data centers and put them in a centrally accessible location – a private or public data center that hosts the applications – cloud computing creates the prospect of standardizing applications across a big business.

The major telco that we spoke with said offering standardized cloud applications will help its business units reduce their IT costs and the need for so many data centers (which today are in the hundreds). Having dozens of financial, HR, customer management and other applications today – each devoted to a narrow slice of its business – has resulted in huge IT costs (software, hardware and data centers). In fact, the company believes that its shift to cloud applications will help it reduce its number of data centers by 80%, which would produce an estimated annual cost savings of $100 million to $200 million.

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Why Companies are Using Cloud Applications

III. Why Companies are Using Cloud Applications

Big Data and the Push for Cloud

Our U.S. data shows that savvier uses of cloud applications are distinct in many ways – one of 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 from shifting 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 for trend identification was important or very important. But a much lower percentage of laggards (55%) said that was a key driver.

We found a similar set of drivers in the Asia-Pacific companies that we polled. The three most important drivers in this region – just like in the U.S. – were 1) standardizing applications and business processes, 2) reducing IT costs, and 3) increasing application flexibility.

The biggest factor driving Commonwealth Bank of Australia to shift on-premises applications to its private cloud was to use the savings in IT costs to providing more bank services through mobile applications and social media. “For us, cloud is not just about on-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that into delivering more value-added services.”

Why Companies are Using Cloud Applications

017

4.48%7.46%

32.84%

38.81%

16.42%

0.00%

5.97%

19.40%

44.78%

29.85%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Exhibit III-2U.S.: Cloud "Leaders" Place Much Greater

Importance on Using Cloud to Process and Analyze Data to Identify Trends

LeaderLaggard

Not at a

ll Im

portant

of Min

or Im

portance

Somewhat I

mporta

nt

Importa

ntVery

Importa

nt

016

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.

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.”)

43%

39%

46%

41%

45%

41%

46%

17%

25%

19%

24%

26%

30%

32%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

To improve applications maintenance

To reduce application downtime

To make faster applications enhancements

To improve data and trend analysis

To increase application flexibility (ability to launch or shut down applications quickly)

To reduce IT costs

To standardize applications and business processes

Exhibit III-1U.S.: Why Companies are Shifting On-Premises Applications to the Cloud

Very Important FactorImportant Factor

Big Data and the Push for Cloud

Our U.S. data shows that savvier uses of cloud applications are distinct in many ways – one of 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 from shifting 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 for trend identification was important or very important. But a much lower percentage of laggards (55%) said that was a key driver.

We found a similar set of drivers in the Asia-Pacific companies that we polled. The three most important drivers in this region – just like in the U.S. – were 1) standardizing applications and business processes, 2) reducing IT costs, and 3) increasing application flexibility.

The biggest factor driving Commonwealth Bank of Australia to shift on-premises applications to its private cloud was to use the savings in IT costs to providing more bank services through mobile applications and social media. “For us, cloud is not just about on-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that into delivering more value-added services.”

Why Companies are Using Cloud Applications

017

4.48%7.46%

32.84%

38.81%

16.42%

0.00%

5.97%

19.40%

44.78%

29.85%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Exhibit III-2U.S.: Cloud "Leaders" Place Much Greater

Importance on Using Cloud to Process and Analyze Data to Identify Trends

LeaderLaggard

Not at a

ll Im

portant

of Min

or Im

portance

Somewhat I

mporta

nt

Importa

ntVery

Importa

nt

016

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.

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.”)

43%

39%

46%

41%

45%

41%

46%

17%

25%

19%

24%

26%

30%

32%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

To improve applications maintenance

To reduce application downtime

To make faster applications enhancements

To improve data and trend analysis

To increase application flexibility (ability to launch or shut down applications quickly)

To reduce IT costs

To standardize applications and business processes

Exhibit III-1U.S.: Why Companies are Shifting On-Premises Applications to the Cloud

Very Important FactorImportant Factor

019

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.

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.

Why Companies are Using Cloud Applications

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

To reduce IT costs

To reduce systems downtime

To standardize applications andbusiness processes

To improve data and trend analysis

To make faster applications enhancements

To improve applications maintenance

Increasing applications flexibility (ability to launch or shut down applications quickly)

Exhibit III-5Latin America: Why Companies are Shifting On-Premises

Applications to the Cloud

Important Very Important

32%

46%

37%

40%

35%

47%

39%

37%

32%

42%

40%

47%

35%

44%

018

Exhibit III-4Europe: Why Companies are Shifting On-Premises

Applications to the Cloud

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.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Exhibit III-3Asia-Pacific: Why Companies are Shifting On-Premises Applications

to the Cloud

40%

34%

45%

44%

45%

46%

44%

26%

32%

24%

27%

29%

29%

33%

To make faster application enhancements

To improve data and trend analysis

To improve applications maintenance

To reduce application downtime

To increase application flexibiity (ability to launch of shut down applications quickly)

To reduce IT costs

To standardize applications and business processes

Important Very Important

0% 10% 20% 30% 40% 50% 60% 70%

To improve data and trend analysis

To make faster applications enhancements

To improve applications maintenance

To reduce application downtime

To standardize applications and business processes

To reduce IT costs

To increase applications flexibility (ability to launch or shut down applications quickly)

34%

37%

39%

37%

38%

34%

46%

13%

15%

13%

21%

24%

29%

20%

Important Very Important

019

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.

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.

Why Companies are Using Cloud Applications

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

To reduce IT costs

To reduce systems downtime

To standardize applications andbusiness processes

To improve data and trend analysis

To make faster applications enhancements

To improve applications maintenance

Increasing applications flexibility (ability to launch or shut down applications quickly)

Exhibit III-5Latin America: Why Companies are Shifting On-Premises

Applications to the Cloud

Important Very Important

32%

46%

37%

40%

35%

47%

39%

37%

32%

42%

40%

47%

35%

44%

018

Exhibit III-4Europe: Why Companies are Shifting On-Premises

Applications to the Cloud

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.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Exhibit III-3Asia-Pacific: Why Companies are Shifting On-Premises Applications

to the Cloud

40%

34%

45%

44%

45%

46%

44%

26%

32%

24%

27%

29%

29%

33%

To make faster application enhancements

To improve data and trend analysis

To improve applications maintenance

To reduce application downtime

To increase application flexibiity (ability to launch of shut down applications quickly)

To reduce IT costs

To standardize applications and business processes

Important Very Important

0% 10% 20% 30% 40% 50% 60% 70%

To improve data and trend analysis

To make faster applications enhancements

To improve applications maintenance

To reduce application downtime

To standardize applications and business processes

To reduce IT costs

To increase applications flexibility (ability to launch or shut down applications quickly)

34%

37%

39%

37%

38%

34%

46%

13%

15%

13%

21%

24%

29%

20%

Important Very Important

021

Why Companies are Using Cloud Applications

0% 10% 20% 30% 40% 50% 60% 70% 80%

To test new products/services

To test new business processes

To launch new products/services that generate revenue

To enter new markets faster

To launch new applications faster

To launch new business processes that increase revenue and customer loyalty

Exhibit III-7U.S.: Why Companies are Launching

Whole New Applications in the Cloud

39%

35%

34%

36%

47%

39%

14%

19%

23%

24%

22%

32%

Very Important FactorImportant Factor

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Exhibit III-8Latin America: Why Companies are Launching

Whole New Applications in the Cloud

Important Very Important

To launch new business processes that increase revenue and customer loyalty

To test new products/services

To launch new products/services that generate revenue

To launch new applications faster

To enter new markets faster

To test new business processes

40%

49%

37%

37%

37%

49%

25%

26%

39%

40%

42%

35%

020

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.

0% 10% 20% 30% 40% 50% 60% 70%

To launch new products/services that generate revenue

To test new business processes

To test new products/services

To enter new markets faster

To launch new business processes that increase revenue and customer loyalty

To launch new applications faster

Exhibit III-6Europe: Why Companies are Launching

Whole New Applications in the Cloud

32%

33%

32%

33%

37%

36%

17%

16%

18%

20%

22%

24%

Important Very Important

021

Why Companies are Using Cloud Applications

0% 10% 20% 30% 40% 50% 60% 70% 80%

To test new products/services

To test new business processes

To launch new products/services that generate revenue

To enter new markets faster

To launch new applications faster

To launch new business processes that increase revenue and customer loyalty

Exhibit III-7U.S.: Why Companies are Launching

Whole New Applications in the Cloud

39%

35%

34%

36%

47%

39%

14%

19%

23%

24%

22%

32%

Very Important FactorImportant Factor

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Exhibit III-8Latin America: Why Companies are Launching

Whole New Applications in the Cloud

Important Very Important

To launch new business processes that increase revenue and customer loyalty

To test new products/services

To launch new products/services that generate revenue

To launch new applications faster

To enter new markets faster

To test new business processes

40%

49%

37%

37%

37%

49%

25%

26%

39%

40%

42%

35%

020

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.

0% 10% 20% 30% 40% 50% 60% 70%

To launch new products/services that generate revenue

To test new business processes

To test new products/services

To enter new markets faster

To launch new business processes that increase revenue and customer loyalty

To launch new applications faster

Exhibit III-6Europe: Why Companies are Launching

Whole New Applications in the Cloud

32%

33%

32%

33%

37%

36%

17%

16%

18%

20%

22%

24%

Important Very Important

023

In 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 had to score 800,000 online tests concurrently. “This lends itself very much to the cloud because we can go up or down depending on the activity in our business.” In 2012, the numbers are expected to more than double, creating an increasing need for ramping up and down infrastructure resources. As a result, CTB is experimenting with cloud-based solutions.

Balachander predicts that about a million U.S. students will take their assessment tests online (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of their assessment testing to be online at some point, that would require CTB to have the computing resources to serve the online assessment needs of millions of American children 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 40 million tests in a short period of time. “It would be very difficult for us to do that without the cloud – to invest in the infrastructure from a capital expenditure standpoint, and then make the ongoing technology investments,” Balachander explains.

By this August, CTB intends to shift six to eight on-premises applications to the cloud, one of which is the online testing. The firm’s website and extranet are also being evaluated as potential candidates to put in the cloud.

Balachander believes all new CTB applications should be cloud applications. “With new applications, 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 handle our spikes in volume and scalability. The current set of cloud services and ongoing advances in technology in this area give us an ability to approach our infrastructure needs in a whole different way.”

Why Companies are Using Cloud Applications

022

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.”

Exhibit III-9Asia-Pacific: Why Companies are Launching

Whole New Applications in the Cloud

0% 10% 20% 30% 40% 50% 60% 70% 80%

To launch business processes

To test new products/services that generate revenue

To enter new markets faster

To launch new products/services that generate revenue

To launch new applications faster

To test new business processes

Important Very Important

43%

41%

32%

39%

44%

43%

20%

25%

34%

28%

26%

31%

023

In 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 had to score 800,000 online tests concurrently. “This lends itself very much to the cloud because we can go up or down depending on the activity in our business.” In 2012, the numbers are expected to more than double, creating an increasing need for ramping up and down infrastructure resources. As a result, CTB is experimenting with cloud-based solutions.

Balachander predicts that about a million U.S. students will take their assessment tests online (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of their assessment testing to be online at some point, that would require CTB to have the computing resources to serve the online assessment needs of millions of American children 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 40 million tests in a short period of time. “It would be very difficult for us to do that without the cloud – to invest in the infrastructure from a capital expenditure standpoint, and then make the ongoing technology investments,” Balachander explains.

By this August, CTB intends to shift six to eight on-premises applications to the cloud, one of which is the online testing. The firm’s website and extranet are also being evaluated as potential candidates to put in the cloud.

Balachander believes all new CTB applications should be cloud applications. “With new applications, 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 handle our spikes in volume and scalability. The current set of cloud services and ongoing advances in technology in this area give us an ability to approach our infrastructure needs in a whole different way.”

Why Companies are Using Cloud Applications

022

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.”

Exhibit III-9Asia-Pacific: Why Companies are Launching

Whole New Applications in the Cloud

0% 10% 20% 30% 40% 50% 60% 70% 80%

To launch business processes

To test new products/services that generate revenue

To enter new markets faster

To launch new products/services that generate revenue

To launch new applications faster

To test new business processes

Important Very Important

43%

41%

32%

39%

44%

43%

20%

25%

34%

28%

26%

31%

025

The Benefits That Companies Have Gained from Cloud Applications

We asked the companies we surveyed whether their use of cloud applications had generated benefits – both cloud applications that they shifted from on-premises computers, 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 cloud applications are generating significant improvements in operational and financial performance.

Benefits from Shifting Existing Apps to the Cloud

In all four regions of the world, the average benefits from cloud applications of this type were impressive, especially in Latin American and Asia-Pacific companies:

In IT costs, 28% (Europe) to 55% (Latin America) average reductions

In standard 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 unit

In cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductions

In systems downtime, 33% (Europe) to 59% (Latin America) reductions

In the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductions

Application fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patches

In analytic reports, from 34% (Europe) to 66% (Latin America) increases in the number of reports, which gives companies greater ability to mine and analyze volumes of data

The more aggressive adopters of cloud computing – Latin American and Asia-Pacific companies (which had higher percentages of cloud apps to total corporate apps) – also reported much greater benefits from their cloud apps. Why is this the case? Perhaps greater benefits is a function of experience; the more you use cloud applications, the more knowledge you gain about how to deploy and use them, and thus the greater likelihood to generate benefits. Or it could be that using a higher number of cloud applications simply brings more cumulative benefits.

n

n

n

n

n

n

n

021

IV. The Benefits That Companies Have Gained from Cloud Applications

025

The Benefits That Companies Have Gained from Cloud Applications

We asked the companies we surveyed whether their use of cloud applications had generated benefits – both cloud applications that they shifted from on-premises computers, 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 cloud applications are generating significant improvements in operational and financial performance.

Benefits from Shifting Existing Apps to the Cloud

In all four regions of the world, the average benefits from cloud applications of this type were impressive, especially in Latin American and Asia-Pacific companies:

In IT costs, 28% (Europe) to 55% (Latin America) average reductions

In standard 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 unit

In cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductions

In systems downtime, 33% (Europe) to 59% (Latin America) reductions

In the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductions

Application fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patches

In analytic reports, from 34% (Europe) to 66% (Latin America) increases in the number of reports, which gives companies greater ability to mine and analyze volumes of data

The more aggressive adopters of cloud computing – Latin American and Asia-Pacific companies (which had higher percentages of cloud apps to total corporate apps) – also reported much greater benefits from their cloud apps. Why is this the case? Perhaps greater benefits is a function of experience; the more you use cloud applications, the more knowledge you gain about how to deploy and use them, and thus the greater likelihood to generate benefits. Or it could be that using a higher number of cloud applications simply brings more cumulative benefits.

n

n

n

n

n

n

n

021

IV. The Benefits That Companies Have Gained from Cloud Applications

027

Companies Report Sizable Benefits from Launching Whole New Apps in the Cloud

We also asked survey respondents to report on benefits received to date from new applications that they launched in the cloud. Specifically, we had them indicate improvements in six areas:

Testing of new business processes that they would have considered too costly to test 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 instituted

The number of new products/services they tested

The number of new products/services they launched

The annual revenue increase from launching new products/services in markets that they already served

The average reduction in the time it took to enter new markets with new products/services

While the average percentage improvements in these areas were about half those that companies reported from shifting on-premises applications to the cloud, they were nonetheless noteworthy:

Increases 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%)

Increases 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 average 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 and services in existing markets (vs. an average 32% revenue increase reported by Latin American companies)

n

n

n

n

n

n

n

n

n

n

The Benefits That Companies Have Gained from Cloud Applications

026

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-1Comparing 4 Regions of the World on Benefits Achieved From

Shifting On-Premises Applications to the Cloud

0% 10% 20% 30% 40% 50% 60% 70%

% reduction in IT costs

% increase in standardized apps and business processes they support

% reduction in cycle time to ramp IT resources up or down

% reduction in systems downtime

% cycle-time reduction in making application enhancements

% reduction in number of application fixes

% increase in number of analytic reports (ability to mine and analyze data)

55%

60%

64%

59%

57%

64%

66%

37%

41%

41%

39%

42%

43%

42%

28%

34%

36%

33%

37%

36%

34%

31%

38%

35%

34%

37%

35%

40%

United States Europe Asia-Pacific Latin America

027

Companies Report Sizable Benefits from Launching Whole New Apps in the Cloud

We also asked survey respondents to report on benefits received to date from new applications that they launched in the cloud. Specifically, we had them indicate improvements in six areas:

Testing of new business processes that they would have considered too costly to test 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 instituted

The number of new products/services they tested

The number of new products/services they launched

The annual revenue increase from launching new products/services in markets that they already served

The average reduction in the time it took to enter new markets with new products/services

While the average percentage improvements in these areas were about half those that companies reported from shifting on-premises applications to the cloud, they were nonetheless noteworthy:

Increases 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%)

Increases 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 average 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 and services in existing markets (vs. an average 32% revenue increase reported by Latin American companies)

n

n

n

n

n

n

n

n

n

n

The Benefits That Companies Have Gained from Cloud Applications

026

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-1Comparing 4 Regions of the World on Benefits Achieved From

Shifting On-Premises Applications to the Cloud

0% 10% 20% 30% 40% 50% 60% 70%

% reduction in IT costs

% increase in standardized apps and business processes they support

% reduction in cycle time to ramp IT resources up or down

% reduction in systems downtime

% cycle-time reduction in making application enhancements

% reduction in number of application fixes

% increase in number of analytic reports (ability to mine and analyze data)

55%

60%

64%

59%

57%

64%

66%

37%

41%

41%

39%

42%

43%

42%

28%

34%

36%

33%

37%

36%

34%

31%

38%

35%

34%

37%

35%

40%

United States Europe Asia-Pacific Latin America

029

But because of its long history of providing online services such as email, instant messaging and Web media and entertainment content, AOL had accumulated a vast amount of computers, storage, other computing devices and software over that time, says Michael Manos, senior vice president of technologies at AOL. He has a playful name for this technology tangle: “cruft.” These legacy systems can weigh down companies that must continually adopt new web technologies while keeping IT infrastructure costs low. This is especially the case at AOL, whose strategy today requires focusing investments on online content and the people who produce it.

“Cruft adds tremendous complexity to a company’s technology operations and makes it 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 customer service. Manos estimated that 20% of the company’s business applications have moved to 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 the years. A decade ago, AOL had about 30 million subscribers. Today, the number is around 4 million. In 2011, the company reduced total expenses more than $500 million to make up for the decline in subscription revenue.

Adopting a Private Cloud at Light Speed

Manos joined AOL in January 2011 after 17 years of managing data centers for such media and technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid track record 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 new data center the company calls ATC. (AOL operates three other data centers in the U.S. – two in Virginia and one in Silicon Valley.) Since going live last Oct. 1, ATC and the private cloud have enabled AOL to shut down about 10,000 computer servers at its other computer facilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computing capacity on demand, without the need for additional manpower. Such “dynamic scalability” is essential in a business like AOL, where breaking news such as election results generates 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 of operation, it took only an hour to have nearly 100 virtual servers running. Manos says provisioning a new server now takes only about 5 minutes via the cloud, compared to the 8-12 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 substantial amount of agility within our business that we’ve never had before.” The cloud has also reduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced 3,000 old servers, paring AOL’s electricity bill by about $700,000 a year.

The Benefits That Companies Have Gained from Cloud Applications

028

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, Boo.com, Pets.com 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.

Exhibit IV-2Comparing 4 Regions of the World on Benefits Achieved From

Launching Whole New Applications in the Cloud

United States Europe Asia-Pacific Latin America

0% 5% 10% 15% 20% 25% 30% 35% 40%

% increase in number of new business processes tested

% increase in number of new business processes launched

% increase in number of new products/services tested

% increase in number of new products/services launched

% increase in revenue from new products/services in existing markets

% cycle-time reduction to enter new markets

22%

27%

31%

32%

32%

35%

19%

18%

19%

18%

18%

17%

16%

17%

17%

17%

14%

16%

15%

15%

15%

13%

13%

14%

029

But because of its long history of providing online services such as email, instant messaging and Web media and entertainment content, AOL had accumulated a vast amount of computers, storage, other computing devices and software over that time, says Michael Manos, senior vice president of technologies at AOL. He has a playful name for this technology tangle: “cruft.” These legacy systems can weigh down companies that must continually adopt new web technologies while keeping IT infrastructure costs low. This is especially the case at AOL, whose strategy today requires focusing investments on online content and the people who produce it.

“Cruft adds tremendous complexity to a company’s technology operations and makes it 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 customer service. Manos estimated that 20% of the company’s business applications have moved to 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 the years. A decade ago, AOL had about 30 million subscribers. Today, the number is around 4 million. In 2011, the company reduced total expenses more than $500 million to make up for the decline in subscription revenue.

Adopting a Private Cloud at Light Speed

Manos joined AOL in January 2011 after 17 years of managing data centers for such media and technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid track record 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 new data center the company calls ATC. (AOL operates three other data centers in the U.S. – two in Virginia and one in Silicon Valley.) Since going live last Oct. 1, ATC and the private cloud have enabled AOL to shut down about 10,000 computer servers at its other computer facilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computing capacity on demand, without the need for additional manpower. Such “dynamic scalability” is essential in a business like AOL, where breaking news such as election results generates 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 of operation, it took only an hour to have nearly 100 virtual servers running. Manos says provisioning a new server now takes only about 5 minutes via the cloud, compared to the 8-12 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 substantial amount of agility within our business that we’ve never had before.” The cloud has also reduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced 3,000 old servers, paring AOL’s electricity bill by about $700,000 a year.

The Benefits That Companies Have Gained from Cloud Applications

028

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, Boo.com, Pets.com 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.

Exhibit IV-2Comparing 4 Regions of the World on Benefits Achieved From

Launching Whole New Applications in the Cloud

United States Europe Asia-Pacific Latin America

0% 5% 10% 15% 20% 25% 30% 35% 40%

% increase in number of new business processes tested

% increase in number of new business processes launched

% increase in number of new products/services tested

% increase in number of new products/services launched

% increase in revenue from new products/services in existing markets

% cycle-time reduction to enter new markets

22%

27%

31%

32%

32%

35%

19%

18%

19%

18%

18%

17%

16%

17%

17%

17%

14%

16%

15%

15%

15%

13%

13%

14%

031

If 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 range of $100 million to $200 million.

What must the company do to reach such ambitious goals? The two biggest obstacles that we heard were “fear of the unknown” and “fear of losing control” – both coming especially from the IT functions within the company’s business units.

That said, the company believes the issue is no longer whether the company will broadly adopt cloud computing but rather how quickly it will do so. “We believe cloud is something that is going to be gaming-changing,” said one executive. “It’s going to become a 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, he believes, is whether cloud vendors can provide a highly secure service with nearly 100% uptime.

The Benefits That Companies Have Gained from Cloud Applications

030

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.

031

If 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 range of $100 million to $200 million.

What must the company do to reach such ambitious goals? The two biggest obstacles that we heard were “fear of the unknown” and “fear of losing control” – both coming especially from the IT functions within the company’s business units.

That said, the company believes the issue is no longer whether the company will broadly adopt cloud computing but rather how quickly it will do so. “We believe cloud is something that is going to be gaming-changing,” said one executive. “It’s going to become a 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, he believes, is whether cloud vendors can provide a highly secure service with nearly 100% uptime.

The Benefits That Companies Have Gained from Cloud Applications

030

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.

033

Which Business Functions are Using the Most Cloud Applications

With 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 become a fixture in large corporations. But we also wanted to know exactly how companies were allocating their cloud application budget, business function by business function.

So we asked our respondents to estimate how their companies had apportioned their spending on cloud applications across 10 core business functions: customer service, marketing, sales, manufacturing (or the equivalent of “production” or “operations” in service firms), research & development, human resources, distribution, purchasing, finance, and legal. Furthermore, we asked companies to estimate their budget allocations at present (for 2011) and their projections for 2014.

For 2011, spending on cloud applications is, for the most part, spread well across all 10 functions. Across all four regions of the world, not one business function had commanded more than 19% of the total cloud applications budget. In Latin America, customer service cloud applications were 19% of total cloud applications spending. And in Europe, the marketing 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 average share 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 collectively commanded 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’s customers on a daily basis. In contrast, three functions that don’t touch customers every day – legal, purchasing/procurement and HR – collectively accounted for only 19% of the total cloud applications budget.

029

V. Which Business Functions are Using the Most Cloud Applications

033

Which Business Functions are Using the Most Cloud Applications

With 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 become a fixture in large corporations. But we also wanted to know exactly how companies were allocating their cloud application budget, business function by business function.

So we asked our respondents to estimate how their companies had apportioned their spending on cloud applications across 10 core business functions: customer service, marketing, sales, manufacturing (or the equivalent of “production” or “operations” in service firms), research & development, human resources, distribution, purchasing, finance, and legal. Furthermore, we asked companies to estimate their budget allocations at present (for 2011) and their projections for 2014.

For 2011, spending on cloud applications is, for the most part, spread well across all 10 functions. Across all four regions of the world, not one business function had commanded more than 19% of the total cloud applications budget. In Latin America, customer service cloud applications were 19% of total cloud applications spending. And in Europe, the marketing 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 average share 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 collectively commanded 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’s customers on a daily basis. In contrast, three functions that don’t touch customers every day – legal, purchasing/procurement and HR – collectively accounted for only 19% of the total cloud applications budget.

029

V. Which Business Functions are Using the Most Cloud Applications

035

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-22014: How Companies Around the World Project How They'll Divide

Their Cloud Applications Budget(Functional Spending on Cloud Apps as % of Total Company Cloud Apps Spending)

United States Europe Asia-Pacific Latin America

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Mark

eting

SalesCusto

mer S

ervice

Manufactu

ring/P

roductio

nHum

an Resource

s

Finance

R&DDist

ributio

n

Purchasin

g

Legal

Other

15% 15%14%

7%

10%

6% 6%

4%

16%

19%

10% 9%9% 9%

4%5% 4%

11%

14%

7%

4%

11%

14%

19%

12%

7%8% 8%

6%

12%

10%

8%

12%

15%

8% 8%

6%

9%7% 7%

5%

1%1%

8%

034

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-12011: How Companies Around the World are Dividing Their Cloud

Applications Budgets(Functional Spending on Cloud Apps as % of Total Company Cloud

Apps Spending)

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.

United States Europe Asia-Pacific Latin America

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Mark

eting

SalesCusto

mer S

ervice

Manufactu

ring/P

roductio

nHum

an Resource

s

Finance

R&DDist

ributio

n

Purchasin

g

Legal

Other

13%

15% 15%

7%

9%

6%

10%

5%6%

5%

9%

18%

13%

9% 10%8%

5%

10%

4% 4%

5%

14%

16%

11%

17%

14%

8%

10% 10%

6%4%

4%

0%

10%

13%

19%

12%

9%

8% 8%

6% 6%7%

2%

035

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-22014: How Companies Around the World Project How They'll Divide

Their Cloud Applications Budget(Functional Spending on Cloud Apps as % of Total Company Cloud Apps Spending)

United States Europe Asia-Pacific Latin America

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Mark

eting

SalesCusto

mer S

ervice

Manufactu

ring/P

roductio

nHum

an Resource

s

Finance

R&DDist

ributio

n

Purchasin

g

Legal

Other

15% 15%14%

7%

10%

6% 6%

4%

16%

19%

10% 9%9% 9%

4%5% 4%

11%

14%

7%

4%

11%

14%

19%

12%

7%8% 8%

6%

12%

10%

8%

12%

15%

8% 8%

6%

9%7% 7%

5%

1%1%

8%

034

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-12011: How Companies Around the World are Dividing Their Cloud

Applications Budgets(Functional Spending on Cloud Apps as % of Total Company Cloud

Apps Spending)

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.

United States Europe Asia-Pacific Latin America

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Mark

eting

SalesCusto

mer S

ervice

Manufactu

ring/P

roductio

nHum

an Resource

s

Finance

R&DDist

ributio

n

Purchasin

g

Legal

Other

13%

15% 15%

7%

9%

6%

10%

5%6%

5%

9%

18%

13%

9% 10%8%

5%

10%

4% 4%

5%

14%

16%

11%

17%

14%

8%

10% 10%

6%4%

4%

0%

10%

13%

19%

12%

9%

8% 8%

6% 6%7%

2%

037

The Most and Least Popular Cloud Applications

In the previous section, we mentioned that across all four regions of the world, companies were in most cases putting the largest share of their cloud applications budgets in marketing, sales and service. Yet in spite of that, many companies appear to be staying clear 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 in the cloud in each of the 10 core business functions), we found that the applications that were most frequently shifted from on-premises computers to the cloud were those that typically do not have highly sensitive information on employees, customers, new-product plans, and other data that companies go to great lengths to protect (see Exhibit VI-1).

Exhibit VI-1US (2011): Applications Most Frequently Shifted from

On - Premises Technology to the Cloud (% of Companies)

0% 20% 40% 60% 80%

Production mgt (product ...

Vendor management

Enterprise resource planning ...

Sales analysis and reporting

Inventory management

Warehouse management

Recruitment/staffing

53%

54%

56%

58%

67%

67%

69%

033

VI. The Most and Least Popular Cloud Applications

037

The Most and Least Popular Cloud Applications

In the previous section, we mentioned that across all four regions of the world, companies were in most cases putting the largest share of their cloud applications budgets in marketing, sales and service. Yet in spite of that, many companies appear to be staying clear 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 in the cloud in each of the 10 core business functions), we found that the applications that were most frequently shifted from on-premises computers to the cloud were those that typically do not have highly sensitive information on employees, customers, new-product plans, and other data that companies go to great lengths to protect (see Exhibit VI-1).

Exhibit VI-1US (2011): Applications Most Frequently Shifted from

On - Premises Technology to the Cloud (% of Companies)

0% 20% 40% 60% 80%

Production mgt (product ...

Vendor management

Enterprise resource planning ...

Sales analysis and reporting

Inventory management

Warehouse management

Recruitment/staffing

53%

54%

56%

58%

67%

67%

69%

033

VI. The Most and Least Popular Cloud Applications

039

The Most and Least Popular Cloud Applications

Still, that doesn’t mean that all customer data is being kept out of the cloud. For U.S. companies’ customer service applications, 42% have shifted customer order-entry systems from on-premises technology to the cloud. And 37% have moved their archived customer records to the cloud. (See Exhibit VI-3.)

37%

42%

37%

37%

26%

63%

58%

53%

63%

37%

0% 10% 20% 30% 40% 50% 60% 70%

Archival of customer records/company content

Customer order entry

Post-sales service inquiries

Online customer communities

Customer product usage tracking

Exhibit VI-3US: Customer Service Applications Most Frequently

Shifted from On-Premises Technology to the Cloud (% of Companies)

2014: Expect to Shift Other On-Premises Customer Service Application(s) to Cloud by end of 2014

2011: Have Shifted an On-Premises Customer Service Application(s) to Cloud or Will Have Shifted by End of 2011

038

In the U.S., when we looked at the applications that were least frequently shifted to the cloud from on-premises computers, several of them were applications that often store highly sensitive data:

Legal-related – legal management solutions (which can contain the status of lawsuits against a company)

Employee-related – compensation planning (employee salaries) and payroll/time and attendance systems (which, of course, in the U.S. can have Social Security information)

Product-related – product testing systems (which often compile data on product efficacy and of course reveal a company’s product launches), and pricing and promotions systems (which, in competitors’ hands, can tip off pricing changes)

Customer-related - customer loyalty (which can reveal b u y i n g p r e f e r e n c e s ) , customer/market research applications, E-commerce, and customer analytics - all of which can risk customer p r i v a c y a n d p r o v i d e competitors with useful targeting information

Risk-related – risk assessment and monitoring systems, which compile data on a company’s most vulnerable activities

In all five areas, less than 20% of companies had shifted on-premises apps to the cloud (see Exhibit VI-2).

n

n

n

n

n

6%

11%

11%

12%

13%

15%

15%

16%

17%

17%

17%

17%

18%

0% 5% 10% 15% 20%

Customer/market research

Field service/repair

Customer loyalty programs

Risk assessment and monitoring

Product testing

Payroll/time and attendance

Compensation planning

Plant maintenance

Social media data collection and analysis

Customer analytics

Pricing and promotions

E-commerce

Legal management solutions

Exhibit VI-2US (2011): Applications Least Frequently Shifted from On

Premises Technology to the Cloud (% of Companies)-

039

The Most and Least Popular Cloud Applications

Still, that doesn’t mean that all customer data is being kept out of the cloud. For U.S. companies’ customer service applications, 42% have shifted customer order-entry systems from on-premises technology to the cloud. And 37% have moved their archived customer records to the cloud. (See Exhibit VI-3.)

37%

42%

37%

37%

26%

63%

58%

53%

63%

37%

0% 10% 20% 30% 40% 50% 60% 70%

Archival of customer records/company content

Customer order entry

Post-sales service inquiries

Online customer communities

Customer product usage tracking

Exhibit VI-3US: Customer Service Applications Most Frequently

Shifted from On-Premises Technology to the Cloud (% of Companies)

2014: Expect to Shift Other On-Premises Customer Service Application(s) to Cloud by end of 2014

2011: Have Shifted an On-Premises Customer Service Application(s) to Cloud or Will Have Shifted by End of 2011

038

In the U.S., when we looked at the applications that were least frequently shifted to the cloud from on-premises computers, several of them were applications that often store highly sensitive data:

Legal-related – legal management solutions (which can contain the status of lawsuits against a company)

Employee-related – compensation planning (employee salaries) and payroll/time and attendance systems (which, of course, in the U.S. can have Social Security information)

Product-related – product testing systems (which often compile data on product efficacy and of course reveal a company’s product launches), and pricing and promotions systems (which, in competitors’ hands, can tip off pricing changes)

Customer-related - customer loyalty (which can reveal b u y i n g p r e f e r e n c e s ) , customer/market research applications, E-commerce, and customer analytics - all of which can risk customer p r i v a c y a n d p r o v i d e competitors with useful targeting information

Risk-related – risk assessment and monitoring systems, which compile data on a company’s most vulnerable activities

In all five areas, less than 20% of companies had shifted on-premises apps to the cloud (see Exhibit VI-2).

n

n

n

n

n

6%

11%

11%

12%

13%

15%

15%

16%

17%

17%

17%

17%

18%

0% 5% 10% 15% 20%

Customer/market research

Field service/repair

Customer loyalty programs

Risk assessment and monitoring

Product testing

Payroll/time and attendance

Compensation planning

Plant maintenance

Social media data collection and analysis

Customer analytics

Pricing and promotions

E-commerce

Legal management solutions

Exhibit VI-2US (2011): Applications Least Frequently Shifted from On

Premises Technology to the Cloud (% of Companies)-

041

Dell: Riding a Tsunami of New Cloud-Based Marketing Tools

As the computer company that became known worldwide for its direct model, Dell Inc. has had to master the Web, email and other online marketing tools to get customers in the fold and keep them there. Of course, the company has much to boast about, growing from a concept in the University of Texas dorm room of founder Michael Dell to a multibillion-dollar juggernaut of the global technology industry in less than 30 years.

But now comes the cloud. It ushers in a whole new set of online tools that serious online marketers such as Dell must experiment with. In fact, Dell has adopted a marketing strategy for public and large enterprises that puts cloud applications at the center of its channels to customers. “The cloud is very appealing to us,” says Rishi Dave, executive director of online marketing for Dell’s large corporate, public and government enterprise division. “I live in constant paranoia of innovation overtaking us in the online space. So we constantly are reviewing, evaluating, and testing new offerings from cloud providers to see who is at the leading edge so that we are using the latest, greatest marketing tools.”

Online marketing has become a blood sport, especially in the computer industry. Competition in the IT market has become so fierce that products are quickly commoditized and margins rapidly squeezed. Hundreds of millions of dollars ride every week on whether a technology company can troll the vast World Wide Web looking for enterprise customers ready to change vendors. A snarky comment in a LinkedIn or Facebook group, a complaint Tweeted for all to see, and other digital droppings can lead a company like Dell to identify a ripe prospect – or a customer ready to defect.

Before the advent of social media, the ways companies like Dell used software to track what was being said about them on the Web, in calls with customer reps, and in emails. But the world of marketing applications has changed dramatically. Dell uses Salesforce.com to manage its CRM efforts. And now the Round Rock, Texas-based IT giant is also using other cloud vendors’ marketing-related applications. “This means we can innovate more quickly,” says Dave.

He is experimenting with cloud-based gamification - as Wikipedia defines it, “the use of game design techniques and mechanics to solve problems and engage audiences” - to both entertain and enlighten current and prospective customers. The company sees gamification as important for getting rapid feedback on new products and marketing collateral.

The Most and Least Popular Cloud Applications

040

In addition, the numbers in the chart above indicate that many companies’ fears about putting customer records in the cloud are likely to subside. When asked what customer service applications they expected to be in the cloud by 2014, the majority expected to shift their customer order entry, archives of past customer records, post-sales inquiries and online customer communities from on-premises to cloud-based applications.

In looking at marketing applications, we found such hesitation to put customer data in the cloud looks like it will decline by 2014. At least half of U.S. companies plan to shift customer research, e-commerce, customer analytics and social media data to the cloud by then. And even 39% of companies say they’ll shift customer loyalty systems to the cloud by 2014. (See Exhibit VI-4.)

6%

11%

17%

17%

17%

17%

22%

22%

28%

28%

56%

39%

56%

56%

50%

50%

56%

39%

44%

39%

0% 10% 20% 30% 40% 50% 60%

Customer/market research

Customer loyalty program/customer database marketing

Pricing and promotions

E-commerce (product sales from website)

Social media data collection and analysis

Customer analytics

Marketing campaign management

Advertising

Website hosting

External publications

Exhibit VI-4US: Marketing Applications Most Frequently Shifted from On-Premises

Technology to the Cloud (% of Companies)

2014 2011

041

Dell: Riding a Tsunami of New Cloud-Based Marketing Tools

As the computer company that became known worldwide for its direct model, Dell Inc. has had to master the Web, email and other online marketing tools to get customers in the fold and keep them there. Of course, the company has much to boast about, growing from a concept in the University of Texas dorm room of founder Michael Dell to a multibillion-dollar juggernaut of the global technology industry in less than 30 years.

But now comes the cloud. It ushers in a whole new set of online tools that serious online marketers such as Dell must experiment with. In fact, Dell has adopted a marketing strategy for public and large enterprises that puts cloud applications at the center of its channels to customers. “The cloud is very appealing to us,” says Rishi Dave, executive director of online marketing for Dell’s large corporate, public and government enterprise division. “I live in constant paranoia of innovation overtaking us in the online space. So we constantly are reviewing, evaluating, and testing new offerings from cloud providers to see who is at the leading edge so that we are using the latest, greatest marketing tools.”

Online marketing has become a blood sport, especially in the computer industry. Competition in the IT market has become so fierce that products are quickly commoditized and margins rapidly squeezed. Hundreds of millions of dollars ride every week on whether a technology company can troll the vast World Wide Web looking for enterprise customers ready to change vendors. A snarky comment in a LinkedIn or Facebook group, a complaint Tweeted for all to see, and other digital droppings can lead a company like Dell to identify a ripe prospect – or a customer ready to defect.

Before the advent of social media, the ways companies like Dell used software to track what was being said about them on the Web, in calls with customer reps, and in emails. But the world of marketing applications has changed dramatically. Dell uses Salesforce.com to manage its CRM efforts. And now the Round Rock, Texas-based IT giant is also using other cloud vendors’ marketing-related applications. “This means we can innovate more quickly,” says Dave.

He is experimenting with cloud-based gamification - as Wikipedia defines it, “the use of game design techniques and mechanics to solve problems and engage audiences” - to both entertain and enlighten current and prospective customers. The company sees gamification as important for getting rapid feedback on new products and marketing collateral.

The Most and Least Popular Cloud Applications

040

In addition, the numbers in the chart above indicate that many companies’ fears about putting customer records in the cloud are likely to subside. When asked what customer service applications they expected to be in the cloud by 2014, the majority expected to shift their customer order entry, archives of past customer records, post-sales inquiries and online customer communities from on-premises to cloud-based applications.

In looking at marketing applications, we found such hesitation to put customer data in the cloud looks like it will decline by 2014. At least half of U.S. companies plan to shift customer research, e-commerce, customer analytics and social media data to the cloud by then. And even 39% of companies say they’ll shift customer loyalty systems to the cloud by 2014. (See Exhibit VI-4.)

6%

11%

17%

17%

17%

17%

22%

22%

28%

28%

56%

39%

56%

56%

50%

50%

56%

39%

44%

39%

0% 10% 20% 30% 40% 50% 60%

Customer/market research

Customer loyalty program/customer database marketing

Pricing and promotions

E-commerce (product sales from website)

Social media data collection and analysis

Customer analytics

Marketing campaign management

Advertising

Website hosting

External publications

Exhibit VI-4US: Marketing Applications Most Frequently Shifted from On-Premises

Technology to the Cloud (% of Companies)

2014 2011

043

Of course, one of the big attractions of cloud marketing applications to Dell (and many, many other companies) is turning a fixed cost (licensing marketing applications software and the purchase of servers to run it) into a variable cost. If the company doesn’t like a particular cloud application that it has been using to sort out sentiments aired about the firm through social media, it simply stops using the service. Dell doesn’t have to remove the software from servers in its data center – and most of all, it doesn’t have to buy the extra servers need to run the software in the first place. Those applications run on a cloud vendor’s software.

All in all, Dell sees cloud-based marketing tools as critical to effective marketing in the present and future. Online marketing chief Dave believes that cloud vendors selling applications for mobile phones, tablet computers and other highly portable digital devices will be especially important to Dell given that its large-company customers do a large and increasing share of their daily tasks through such devices.

“We constantly trial cloud providers to see who is developing the latest tools,” Dave says. “Our use of such tools will absolutely grow. And as we ramp up our mobile strategy, cloud becomes critical.” As a case in point, he and his team are already thinking about creating games for the next Dell World conference that can be played on any digital interface – smartphones, tablets and PCs.

The Most and Least Popular Cloud Applications

042

Gamification Delivered in the Cloud: The New Dell Marketing Tool

A great example of how Dell drove results fast with cloud-based marketing applications came at its first annual conference for global customers, Dell World, held last October in Austin. Four months prior to the conference, Dave and other online marketers at Dell decided they needed a novel way of interacting with attendees, one that would engage them more deeply and give Dell a deeper understanding of what solutions customers cared about. Working with a cloud-based gamification vendor, Dell used mobile gamification to reward attendees for downloading Dell content at the event, sharing it with their peers, and letting others know about it through sending out Tweets, visiting physical locations at the conference, and exchanging contact information.

A big advantage of working with a cloud vendor for the game application was that Dell’s online marketing group didn’t have to request a system that would touch the company’s internal IT infrastructure.

The Biggest Barriers to Adopting Whole New Cloud Applications: Giving Up Control and Changing the Way Dell Markets

In working with vendors of cloud-based marketing applications, Dell has had to learn how to deal with a new set of business partners – many of which are small startup companies that need to handle a large, global firm. “When you no longer own the technology, you have to be much better at managing cloud vendors and developing partnerships,” explains Dave, who says the firm evaluates as many as a dozen cloud marketing application vendors at any one time. “You have to have a process to identify the right partners, and you have to learn to relinquish total control.” In contrast to marketing applications built internally (over which Dell can determine every feature, function and interface aspect of the software), using cloud vendors’ marketing applications means Dell must give up control of product features, look and feel.

This, in turn, means Dave and his team must carefully evaluate whether Dell can change its marketing processes to take advantage of a promising new cloud-based marketing application. “It is relatively easy to identify new tools but a big challenge lies in absorbing them,” he says. “This requires looking at it from an internal business process perspective.” Cloud applications that require too many internal changes – or vast amounts of training to master it – have a much higher barrier to adoption. “A limiting factor is how much training, additional resources, and process changes are needed. Also, providers must eventually be able to scale their capabilities as their organizations grow.”

043

Of course, one of the big attractions of cloud marketing applications to Dell (and many, many other companies) is turning a fixed cost (licensing marketing applications software and the purchase of servers to run it) into a variable cost. If the company doesn’t like a particular cloud application that it has been using to sort out sentiments aired about the firm through social media, it simply stops using the service. Dell doesn’t have to remove the software from servers in its data center – and most of all, it doesn’t have to buy the extra servers need to run the software in the first place. Those applications run on a cloud vendor’s software.

All in all, Dell sees cloud-based marketing tools as critical to effective marketing in the present and future. Online marketing chief Dave believes that cloud vendors selling applications for mobile phones, tablet computers and other highly portable digital devices will be especially important to Dell given that its large-company customers do a large and increasing share of their daily tasks through such devices.

“We constantly trial cloud providers to see who is developing the latest tools,” Dave says. “Our use of such tools will absolutely grow. And as we ramp up our mobile strategy, cloud becomes critical.” As a case in point, he and his team are already thinking about creating games for the next Dell World conference that can be played on any digital interface – smartphones, tablets and PCs.

The Most and Least Popular Cloud Applications

042

Gamification Delivered in the Cloud: The New Dell Marketing Tool

A great example of how Dell drove results fast with cloud-based marketing applications came at its first annual conference for global customers, Dell World, held last October in Austin. Four months prior to the conference, Dave and other online marketers at Dell decided they needed a novel way of interacting with attendees, one that would engage them more deeply and give Dell a deeper understanding of what solutions customers cared about. Working with a cloud-based gamification vendor, Dell used mobile gamification to reward attendees for downloading Dell content at the event, sharing it with their peers, and letting others know about it through sending out Tweets, visiting physical locations at the conference, and exchanging contact information.

A big advantage of working with a cloud vendor for the game application was that Dell’s online marketing group didn’t have to request a system that would touch the company’s internal IT infrastructure.

The Biggest Barriers to Adopting Whole New Cloud Applications: Giving Up Control and Changing the Way Dell Markets

In working with vendors of cloud-based marketing applications, Dell has had to learn how to deal with a new set of business partners – many of which are small startup companies that need to handle a large, global firm. “When you no longer own the technology, you have to be much better at managing cloud vendors and developing partnerships,” explains Dave, who says the firm evaluates as many as a dozen cloud marketing application vendors at any one time. “You have to have a process to identify the right partners, and you have to learn to relinquish total control.” In contrast to marketing applications built internally (over which Dell can determine every feature, function and interface aspect of the software), using cloud vendors’ marketing applications means Dell must give up control of product features, look and feel.

This, in turn, means Dave and his team must carefully evaluate whether Dell can change its marketing processes to take advantage of a promising new cloud-based marketing application. “It is relatively easy to identify new tools but a big challenge lies in absorbing them,” he says. “This requires looking at it from an internal business process perspective.” Cloud applications that require too many internal changes – or vast amounts of training to master it – have a much higher barrier to adoption. “A limiting factor is how much training, additional resources, and process changes are needed. Also, providers must eventually be able to scale their capabilities as their organizations grow.”

045

Differences in Cloud Adoption Across Global Industries

We asked our survey respondents (who worked in a variety of business functions in addition to IT) to indicate the average number of cloud applications that their function had been using in 2011. We then looked at their answers by industry in all four regions combined (in order to get larger industry samples). We had large enough industry samples to report on 16 major sectors.

Exhibit VII-1Comparing Global Industries by Average Number of Cloud

Applications Per Company/Industry (2011)

3.39

3.6

4.45

4.43

4.83

5.1

5.25

5.48

5.65

5.7

5.74

5.83

6.18

6.37

6.81

8.54

0 1 2 3 4 5 6 7 8 9

Healthcare services

Chemicals

Energy & utilities

Metals & Mining

Media/entertainment/sports

Pharmaceuticals

Computer software

Retail

Transport/logistics

Consumer products manufacturing

Aerospace & Defense

Automotive

Telecom services

Industrial manufacturing

Financial services/banking/insurance

Computer/electronics/telecom equipment mfg

Average # of Cloud Apps per Business Function (2011)

041

VII. Differences in Cloud Adoption Across Global Industries

045

Differences in Cloud Adoption Across Global Industries

We asked our survey respondents (who worked in a variety of business functions in addition to IT) to indicate the average number of cloud applications that their function had been using in 2011. We then looked at their answers by industry in all four regions combined (in order to get larger industry samples). We had large enough industry samples to report on 16 major sectors.

Exhibit VII-1Comparing Global Industries by Average Number of Cloud

Applications Per Company/Industry (2011)

3.39

3.6

4.45

4.43

4.83

5.1

5.25

5.48

5.65

5.7

5.74

5.83

6.18

6.37

6.81

8.54

0 1 2 3 4 5 6 7 8 9

Healthcare services

Chemicals

Energy & utilities

Metals & Mining

Media/entertainment/sports

Pharmaceuticals

Computer software

Retail

Transport/logistics

Consumer products manufacturing

Aerospace & Defense

Automotive

Telecom services

Industrial manufacturing

Financial services/banking/insurance

Computer/electronics/telecom equipment mfg

Average # of Cloud Apps per Business Function (2011)

041

VII. Differences in Cloud Adoption Across Global Industries

9.25

9.73

10.78

10.87

12.36

13.16

13.23

13.25

13.33

13.35

13.55

14.33

15.24

17.56

17.96

19.42

0 5 10 15 20 25

Media/entertainment/sports

Chemicals

Healthcare services

Energy & utilities

Metals & Mining

Automotive

Consumer products manufacturing

Pharmaceuticals

Computer software

Aerospace & Defense

Retail

Transport/logistics

Industrial manufacturing

Financial services/banking/insurance

Telecom services

Computer/electronics/telecom equipment mfg

Exhibit VII-2Comparing Global Industries by Average Number of Cloud

Applications Per Company/Industry (2014 Projected)

Industry Leaders in Cloud Apps/Function (2014) Total Cloud Apps per Function

047

Differences in Cloud Adoption Across Global Industries

046

The industries’ usage of cloud applications per function ranged from 8.54 at the high end (in computer/electronics/telecommunications equipment manufacturing) to 3.39 at the low end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries with the greatest number of cloud applications per business function were:

Computer/electronics/telecom manufacturing (by far the largest number of cloud apps per function)

Financial services/banking/insurance

Industrial manufacturing

Telecommunications services (carriers)

Industries with the fewest number of cloud apps per function were healthcare services, chemicals, energy and utilities, metals and mining, and media/entertainment/sports. The media industry’s relatively low adoption of cloud computing may reflect its reluctance to put its intellectual property in the cloud – particularly, public clouds – for fear of digital theft.

We also asked the survey respondents to project how many additional cloud applications they expected their business function to have by 2014 – applications not including those today. We thus were able to calculate their projections on the total number of cloud applications that they expected to see in their functional area. The range of those applications/function went from 9.25 to 19.4 – effectively a doubling of apps/function at the high end and a nearly tripling of apps/function at the low end.

Once again the industries expecting the largest number of cloud apps/function were the same four: computer/electronics/telecom equipment manufacturing, telecom services, financial services and industrial manufacturing.

However, the projections of the retail and transportation/logistics survey respondents would have them vaulting higher in the list by 2014 – over automotive, aerospace/defense and consumer products manufacturers.

n

n

n

n

9.25

9.73

10.78

10.87

12.36

13.16

13.23

13.25

13.33

13.35

13.55

14.33

15.24

17.56

17.96

19.42

0 5 10 15 20 25

Media/entertainment/sports

Chemicals

Healthcare services

Energy & utilities

Metals & Mining

Automotive

Consumer products manufacturing

Pharmaceuticals

Computer software

Aerospace & Defense

Retail

Transport/logistics

Industrial manufacturing

Financial services/banking/insurance

Telecom services

Computer/electronics/telecom equipment mfg

Exhibit VII-2Comparing Global Industries by Average Number of Cloud

Applications Per Company/Industry (2014 Projected)

Industry Leaders in Cloud Apps/Function (2014) Total Cloud Apps per Function

047

Differences in Cloud Adoption Across Global Industries

046

The industries’ usage of cloud applications per function ranged from 8.54 at the high end (in computer/electronics/telecommunications equipment manufacturing) to 3.39 at the low end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries with the greatest number of cloud applications per business function were:

Computer/electronics/telecom manufacturing (by far the largest number of cloud apps per function)

Financial services/banking/insurance

Industrial manufacturing

Telecommunications services (carriers)

Industries with the fewest number of cloud apps per function were healthcare services, chemicals, energy and utilities, metals and mining, and media/entertainment/sports. The media industry’s relatively low adoption of cloud computing may reflect its reluctance to put its intellectual property in the cloud – particularly, public clouds – for fear of digital theft.

We also asked the survey respondents to project how many additional cloud applications they expected their business function to have by 2014 – applications not including those today. We thus were able to calculate their projections on the total number of cloud applications that they expected to see in their functional area. The range of those applications/function went from 9.25 to 19.4 – effectively a doubling of apps/function at the high end and a nearly tripling of apps/function at the low end.

Once again the industries expecting the largest number of cloud apps/function were the same four: computer/electronics/telecom equipment manufacturing, telecom services, financial services and industrial manufacturing.

However, the projections of the retail and transportation/logistics survey respondents would have them vaulting higher in the list by 2014 – over automotive, aerospace/defense and consumer products manufacturers.

n

n

n

n

Exhibit VII-3Global Industry Leaders and Laggards (in % of Companies with Upperand Lower Quartile Results) from Shifting On-Premises Applications

to the Cloud

Differential (% + or -) % of industry sector that are leaders

% of industry sector that are laggards

-30% -20% -10% 0% 10% 20% 30% 40% 50%

40%

33%

33%

25%

32%

27%

22%21%

33%

27%

22%

21%

19%

19%

19%

17%

15%

17%

21%

17%

24%

20%

18%

21%

33%

33%

29%

29%

29%

29%

31%

29%…

Pharmaceuticals

Media/entertainment/sports

Energy & Utilities

Computer software

Transportation/logistics

Chemicals

Telecommunications services

Metals & Mining

Healthcare services

Consumer products manufacturing

Industrial manufacturers

Retailers

Banking/Financial Services/Insurance

Aerospace & Defense

Automotive

Computer hardware/electronics/telecom

049

Differences in Cloud Adoption Across Global Industries

048

Heavier Users of Cloud Applications Get Bigger Benefits

In addition to wanting to know which industries were heavier users of cloud applications than were other industries, we wanted to know which sectors were better users of the cloud. It turned out that the industries with higher numbers of cloud apps per function in 2011 were industries that were enjoying greater benefits from cloud applications – both those that were shifted from on-premises computers and those that were entirely new applications made possible by the cloud.

To better understand which industries were generating the most value from cloud applications, we analyzed our data by first rolling up the responses across all four regions of the world and then categorizing them by industry. That left us with 16 industry segments with at least 12 respondents per industry. We then sorted these respondents out by understanding which ones finished in the upper or bottom quartile of results to date from cloud applications. That left us with “leaders” and “laggards” in each industry sector based on who had generated the greatest benefits from: sector based on who had generated the greatest benefits from:

Cloud apps they have shifted from on-premises computers. The “leaders” here were companies that had generated the greatest improvements in such metrics as IT cost reductions, increases in standard apps and business processes, cycle-time reductions in ramping IT resources up or down and in application enhancements, reductions in system downtimes and application fixes, and increases in analytics reports.

Entirely new cloud apps for which they had no on-premises predecessors. These “leaders” finished in the upper quartile of aggregate benefits in percent increase in new business processes tested and launched, percentage increases in new products/services tested and launched, annual revenue increases from new offerings in existing markets, and cycle-time reductions to enter new markets.

Industry by industry, in each of the two areas above, we looked at which ones had a larger percentage of “leaders” than “laggards.” The findings revealed several surprises.

Industry Leaders and Laggards in Shifting On-Premises Apps to the Cloud

The industries with a much higher percentage of “leaders” than “laggards” were:

Automotive (31% of whom were “leaders” and 19% were laggards)

Computer/electronics/telecom equipment (29% vs. 17%)

Aerospace & defense (29% vs. 19%), and

Banking/financial services/insurance (29% vs. 19%).

In contrast, the industries with much higher percentages of laggards than leaders were:

Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)

Media/entertainment/sports (17% to 33%), and

Energy & utilities (21% to 33%)

n

n

n

n

n

n

n

n

n

Exhibit VII-3Global Industry Leaders and Laggards (in % of Companies with Upperand Lower Quartile Results) from Shifting On-Premises Applications

to the Cloud

Differential (% + or -) % of industry sector that are leaders

% of industry sector that are laggards

-30% -20% -10% 0% 10% 20% 30% 40% 50%

40%

33%

33%

25%

32%

27%

22%21%

33%

27%

22%

21%

19%

19%

19%

17%

15%

17%

21%

17%

24%

20%

18%

21%

33%

33%

29%

29%

29%

29%

31%

29%…

Pharmaceuticals

Media/entertainment/sports

Energy & Utilities

Computer software

Transportation/logistics

Chemicals

Telecommunications services

Metals & Mining

Healthcare services

Consumer products manufacturing

Industrial manufacturers

Retailers

Banking/Financial Services/Insurance

Aerospace & Defense

Automotive

Computer hardware/electronics/telecom

049

Differences in Cloud Adoption Across Global Industries

048

Heavier Users of Cloud Applications Get Bigger Benefits

In addition to wanting to know which industries were heavier users of cloud applications than were other industries, we wanted to know which sectors were better users of the cloud. It turned out that the industries with higher numbers of cloud apps per function in 2011 were industries that were enjoying greater benefits from cloud applications – both those that were shifted from on-premises computers and those that were entirely new applications made possible by the cloud.

To better understand which industries were generating the most value from cloud applications, we analyzed our data by first rolling up the responses across all four regions of the world and then categorizing them by industry. That left us with 16 industry segments with at least 12 respondents per industry. We then sorted these respondents out by understanding which ones finished in the upper or bottom quartile of results to date from cloud applications. That left us with “leaders” and “laggards” in each industry sector based on who had generated the greatest benefits from: sector based on who had generated the greatest benefits from:

Cloud apps they have shifted from on-premises computers. The “leaders” here were companies that had generated the greatest improvements in such metrics as IT cost reductions, increases in standard apps and business processes, cycle-time reductions in ramping IT resources up or down and in application enhancements, reductions in system downtimes and application fixes, and increases in analytics reports.

Entirely new cloud apps for which they had no on-premises predecessors. These “leaders” finished in the upper quartile of aggregate benefits in percent increase in new business processes tested and launched, percentage increases in new products/services tested and launched, annual revenue increases from new offerings in existing markets, and cycle-time reductions to enter new markets.

Industry by industry, in each of the two areas above, we looked at which ones had a larger percentage of “leaders” than “laggards.” The findings revealed several surprises.

Industry Leaders and Laggards in Shifting On-Premises Apps to the Cloud

The industries with a much higher percentage of “leaders” than “laggards” were:

Automotive (31% of whom were “leaders” and 19% were laggards)

Computer/electronics/telecom equipment (29% vs. 17%)

Aerospace & defense (29% vs. 19%), and

Banking/financial services/insurance (29% vs. 19%).

In contrast, the industries with much higher percentages of laggards than leaders were:

Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)

Media/entertainment/sports (17% to 33%), and

Energy & utilities (21% to 33%)

n

n

n

n

n

n

n

n

n

55%

50%

33%

39%

38%

39%

30%

31%

29%

36%

23%

21%

26%

24%

33%

33%

25%

22%

8%

19%

20%

24%

23%

26%

32%

40%

28%

29%

35%

33%

42%

46%

Exhibit VII-4Global Industry Leaders and Laggards (in % of Companies with Upper and Lower Quartile

Results) from Launching Whole New Applications in the Cloud

Pharmaceuticals

Healthcare services

Computer software

Automotive

Chemicals

Energy & Utilities

Consumer products manufacturing

Industrial manufacturers

Aerospace & Defense

Retailers

Banking/Financial Services/Insurance

Metals & Mining

Transportation/logistics

Telecommunications services

Media/entertainment/sports

Computer hardware/electronics/telecom equipment

% of industry sector that are laggards% of industry sector that are leadersDifferential

-40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

051

Differences in Cloud Adoption Across Global Industries

050

Industries Leaders and Laggards in Putting New Applications in the Cloud

We did a similar analysis of leaders and laggards by industry around the data on benefits achieved to date from launching entirely new applications in the cloud. A different set of industries emerged as leaders and laggards here – including leaders that had been laggards in benefits from shifting existing apps to the cloud, and laggards that had been leaders.

The industries on this metric with the highest ratios of leaders to laggards were:

Computer hardware/electronics/telecom equipment (46% were leaders and 33% were laggards)

Media/entertainment/sports (42% to 33%)

Telecommunications services (33% to 24%)

Transportation/logistics (35% to 26%)

Technology-enabled innovations in products and services are critical to all four of the above industries, and perhaps that’s why they have more leaders than laggards in launching new cloud applications. In the computer industry, Dell Inc. is one of a number of companies that are tapping cloud services to market products and services to both enterprise and consumer customers. (See case study on Dell on p. 41.) In the media industry, educational publishing and testing companies like CTB/McGraw-Hill have become highly dependent on scalable technologies that enable them to shift the delivery of their content from print to online. CTB/McGraw-Hill is looking at cloud-based models as a highly cost-effective way to host its public and private school student assessment exams. (See case study on CTB/McGraw-Hill, p. 22.)

In contrast, five industries had a much greater number of laggards than leaders in generating benefits from entirely new applications they put in the cloud:

Pharmaceuticals (25% were leaders vs. 55% that were laggards)

Healthcare services (22% vs. 50%)

Computer software (8% vs. 33%)

Automotive (19% vs. 39%)

Chemicals (20% vs. 38%)

n

n

n

n

n

n

n

n

n

55%

50%

33%

39%

38%

39%

30%

31%

29%

36%

23%

21%

26%

24%

33%

33%

25%

22%

8%

19%

20%

24%

23%

26%

32%

40%

28%

29%

35%

33%

42%

46%

Exhibit VII-4Global Industry Leaders and Laggards (in % of Companies with Upper and Lower Quartile

Results) from Launching Whole New Applications in the Cloud

Pharmaceuticals

Healthcare services

Computer software

Automotive

Chemicals

Energy & Utilities

Consumer products manufacturing

Industrial manufacturers

Aerospace & Defense

Retailers

Banking/Financial Services/Insurance

Metals & Mining

Transportation/logistics

Telecommunications services

Media/entertainment/sports

Computer hardware/electronics/telecom equipment

% of industry sector that are laggards% of industry sector that are leadersDifferential

-40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

051

Differences in Cloud Adoption Across Global Industries

050

Industries Leaders and Laggards in Putting New Applications in the Cloud

We did a similar analysis of leaders and laggards by industry around the data on benefits achieved to date from launching entirely new applications in the cloud. A different set of industries emerged as leaders and laggards here – including leaders that had been laggards in benefits from shifting existing apps to the cloud, and laggards that had been leaders.

The industries on this metric with the highest ratios of leaders to laggards were:

Computer hardware/electronics/telecom equipment (46% were leaders and 33% were laggards)

Media/entertainment/sports (42% to 33%)

Telecommunications services (33% to 24%)

Transportation/logistics (35% to 26%)

Technology-enabled innovations in products and services are critical to all four of the above industries, and perhaps that’s why they have more leaders than laggards in launching new cloud applications. In the computer industry, Dell Inc. is one of a number of companies that are tapping cloud services to market products and services to both enterprise and consumer customers. (See case study on Dell on p. 41.) In the media industry, educational publishing and testing companies like CTB/McGraw-Hill have become highly dependent on scalable technologies that enable them to shift the delivery of their content from print to online. CTB/McGraw-Hill is looking at cloud-based models as a highly cost-effective way to host its public and private school student assessment exams. (See case study on CTB/McGraw-Hill, p. 22.)

In contrast, five industries had a much greater number of laggards than leaders in generating benefits from entirely new applications they put in the cloud:

Pharmaceuticals (25% were leaders vs. 55% that were laggards)

Healthcare services (22% vs. 50%)

Computer software (8% vs. 33%)

Automotive (19% vs. 39%)

Chemicals (20% vs. 38%)

n

n

n

n

n

n

n

n

n

053

Staying Technologically Advanced Without All the Costs

Along with providing deeper knowledge about consumers, the cloud has also dramatically increased efficiency. The IT director told us the firm can now use applications far less expensively and launch them far more quickly than they could in the past. “We’re not in the IT business, or the server farm business, or the application business,” the IT director says. “There are people out there that do that better than us.”

Using cloud technology also freed up money previously spent on corporate IT, helping the firm focus its investments on new products (through acquisitions and launches), and manufacturing and marketing them. Part of the company’s expansion strategy has been to keep a tight grip on costs, including IT. The company’s IT budget is less than half its industry average.

The company uses cloud applications hosted at a third-party data center (which has multiple tenants, and thus is a public cloud). And although the IT director says that a public cloud can limit how a company configures an application (since other companies may share it), the cloud vendor customized it for the company.

Security in a Public Cloud Seen as a Red Herring

The IT director hears many IT executives outside the firm worrying about the security of public cloud services providers. However, he says such concerns are unfounded. “It continues to surprise me that security is a big issue with cloud. I can guarantee that security of certain cloud vendors is better than what you can do in-house. Some of these cloud vendors do a better job security-wise than we do, because they do it for so many people, and they know that they’re going to get hit on that.”

He says the bigger issue is about the legal and regulatory implications of where data is housed. Nonetheless, these concerns haven’t stopped the company from aggressively adopting public cloud applications in its business.

Differences in Cloud Adoption Across Global Industries

052

How the Cloud Has Helped a Consumer Products Company Scale Up Consumer Interactions Cost-Efficiently

A $5 billion privately held consumer products company has found a cloud-based application to be critical in handling tens of thousands of contacts from consumers annually. “It is a completely [software as a service]-based model for consumer affairs,” says an IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handle huge growth in consumer contacts. It’s established cloud an acceptable option that works, not a technology fad that will go away.”

The company’s three biggest applications of cloud have been in consumer affairs (responding to the consumers who purchase its products at retailers), human resources, and travel & entertainment. “Cloud enables us to bring in a new application without needing the $10 million and 18 months to build it,” says the IT director. “And while it doesn’t solve all of our problems, it’s still a viable option.”

The company has long sold its product through retailers, which usually have the first and most personal interactions with consumers. But the cloud has given the company a highly cost-effective way to get to know its customers better. “Consumer affairs is one of those areas that most companies don’t fully appreciate,” says the IT director we spoke with. “The first thing you learn in a marketing class is that getting a new customer is five times more expensive than keeping an existing one. The amount of information you can gather from your consumers from their interactions with you is truly astounding.”

Today the cloud is helping the company understand far more about what’s on the consumer’s mind – before, during and after the time of purchase – a 360-degree view of the consumer.” The company’s head of consumer affairs is a big proponent of cloud applications as well. The cloud application lets a customer service agent review consumers’ comments and determine what teams within the company should be notified: what country unit and what business function (e.g., packaging issues go to operations, product complaints go to R&D, etc.). At the same time the agent can choose a predesigned response letter, customize it, and automatically correct it for spelling mistakes. The agent can then easily notify the relevant employee of a problem that needs to be resolved.

“The agent can use the same customer record to send what we call a ‘task’ to another one of our users,” explains the consumer affairs executive. “For example, we might alert someone in a factory’s quality assurance department to a consumer who called with [a product problem]. The agent creates a task to the quality director in charge of investigations for that product. With the use of special coding, the task will also send an email to the quality control person announcing [a replacement product] is coming in the mail.”

The head of consumer affairs uses the cloud system to send monthly reports on consumer complaints to company’s marketing, packaging, quality and other departments. The system lets the director’s team send out quick online surveys to consumers who have used the contact system.

“It’s all about building credibility in the brand,” says the consumer affairs executive. With a cloud-based system, the team has the tools to do it on a global basis.

053

Staying Technologically Advanced Without All the Costs

Along with providing deeper knowledge about consumers, the cloud has also dramatically increased efficiency. The IT director told us the firm can now use applications far less expensively and launch them far more quickly than they could in the past. “We’re not in the IT business, or the server farm business, or the application business,” the IT director says. “There are people out there that do that better than us.”

Using cloud technology also freed up money previously spent on corporate IT, helping the firm focus its investments on new products (through acquisitions and launches), and manufacturing and marketing them. Part of the company’s expansion strategy has been to keep a tight grip on costs, including IT. The company’s IT budget is less than half its industry average.

The company uses cloud applications hosted at a third-party data center (which has multiple tenants, and thus is a public cloud). And although the IT director says that a public cloud can limit how a company configures an application (since other companies may share it), the cloud vendor customized it for the company.

Security in a Public Cloud Seen as a Red Herring

The IT director hears many IT executives outside the firm worrying about the security of public cloud services providers. However, he says such concerns are unfounded. “It continues to surprise me that security is a big issue with cloud. I can guarantee that security of certain cloud vendors is better than what you can do in-house. Some of these cloud vendors do a better job security-wise than we do, because they do it for so many people, and they know that they’re going to get hit on that.”

He says the bigger issue is about the legal and regulatory implications of where data is housed. Nonetheless, these concerns haven’t stopped the company from aggressively adopting public cloud applications in its business.

Differences in Cloud Adoption Across Global Industries

052

How the Cloud Has Helped a Consumer Products Company Scale Up Consumer Interactions Cost-Efficiently

A $5 billion privately held consumer products company has found a cloud-based application to be critical in handling tens of thousands of contacts from consumers annually. “It is a completely [software as a service]-based model for consumer affairs,” says an IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handle huge growth in consumer contacts. It’s established cloud an acceptable option that works, not a technology fad that will go away.”

The company’s three biggest applications of cloud have been in consumer affairs (responding to the consumers who purchase its products at retailers), human resources, and travel & entertainment. “Cloud enables us to bring in a new application without needing the $10 million and 18 months to build it,” says the IT director. “And while it doesn’t solve all of our problems, it’s still a viable option.”

The company has long sold its product through retailers, which usually have the first and most personal interactions with consumers. But the cloud has given the company a highly cost-effective way to get to know its customers better. “Consumer affairs is one of those areas that most companies don’t fully appreciate,” says the IT director we spoke with. “The first thing you learn in a marketing class is that getting a new customer is five times more expensive than keeping an existing one. The amount of information you can gather from your consumers from their interactions with you is truly astounding.”

Today the cloud is helping the company understand far more about what’s on the consumer’s mind – before, during and after the time of purchase – a 360-degree view of the consumer.” The company’s head of consumer affairs is a big proponent of cloud applications as well. The cloud application lets a customer service agent review consumers’ comments and determine what teams within the company should be notified: what country unit and what business function (e.g., packaging issues go to operations, product complaints go to R&D, etc.). At the same time the agent can choose a predesigned response letter, customize it, and automatically correct it for spelling mistakes. The agent can then easily notify the relevant employee of a problem that needs to be resolved.

“The agent can use the same customer record to send what we call a ‘task’ to another one of our users,” explains the consumer affairs executive. “For example, we might alert someone in a factory’s quality assurance department to a consumer who called with [a product problem]. The agent creates a task to the quality director in charge of investigations for that product. With the use of special coding, the task will also send an email to the quality control person announcing [a replacement product] is coming in the mail.”

The head of consumer affairs uses the cloud system to send monthly reports on consumer complaints to company’s marketing, packaging, quality and other departments. The system lets the director’s team send out quick online surveys to consumers who have used the contact system.

“It’s all about building credibility in the brand,” says the consumer affairs executive. With a cloud-based system, the team has the tools to do it on a global basis.

055

Differences in Cloud Benefits by Region of World

Many articles have been published over the last decade about how emerging economies in Eastern Europe, Latin America and Asia-Pacific have leapt ahead of the advanced economies in their telecommunications networks. By establishing cellular networks rather than continuing to invest in traditional wire-and-telephone-pole landline networks, these emerging economies have built telecommunications systems that offer higher-speed networks for mobile phones. That, in turn, means their mobile phones can do a lot more bandwidth-intensive tasks than the telecommunications networks of advanced economies: television on demand, payments through mobile phones, and the like. Cellular networks have, in effect, enabled many emerging economies to leap ahead of their more advanced counterparts.

The findings of this study suggest that a similar phenomenon may be happening with cloud technology. The companies we surveyed in Latin America and Asia-Pacific were much more aggressive adopters of cloud (as measured by the percentage of total applications that were cloud applications) than were U.S. and European companies.

Are smaller Latin American companies leading the way on cloud? On the contrary: In companies of less than $1B in revenue, 36% of their total applications software is in the cloud. At companies of greater than $1B in revenue, 42% of their applications are cloud applications. Large Latin American companies appear to be leading the way in the cloud.

Greater Usage of Cloud Means Greater Benefits

The companies we surveyed in Latin America and Asia Pacific were also bigger beneficiaries of cloud – they reported generating much larger average benefits. This was true for both applications they shifted from on-premises computers to the cloud, as well as for entirely new applications they placed in the cloud. Latin American companies in particular reported much larger benefits from shifting on-premises applications to the cloud in the seven metrics that we used – improvements that were in the range of 50%-60% vs. the largely 30% range of improvements for U.S. and European companies.

For the six metrics that we tracked in benefits from launching entirely new cloud applications, Latin American companies, too, far exceeded their peers in the U.S. and Europe. Latin American companies reported improvements in the 20%-30% range vs. in the teens for U.S. and European companies.

Perhaps Latin American and Asia-Pacific companies see the cloud as a way to technologically leap ahead of their counterparts in the U.S. and Europe, many of which are saddled with aging IT infrastructures that are not so easily or quickly moved to the cloud.

041

VIII. Differences in Cloud Benefits by Region of World

055

Differences in Cloud Benefits by Region of World

Many articles have been published over the last decade about how emerging economies in Eastern Europe, Latin America and Asia-Pacific have leapt ahead of the advanced economies in their telecommunications networks. By establishing cellular networks rather than continuing to invest in traditional wire-and-telephone-pole landline networks, these emerging economies have built telecommunications systems that offer higher-speed networks for mobile phones. That, in turn, means their mobile phones can do a lot more bandwidth-intensive tasks than the telecommunications networks of advanced economies: television on demand, payments through mobile phones, and the like. Cellular networks have, in effect, enabled many emerging economies to leap ahead of their more advanced counterparts.

The findings of this study suggest that a similar phenomenon may be happening with cloud technology. The companies we surveyed in Latin America and Asia-Pacific were much more aggressive adopters of cloud (as measured by the percentage of total applications that were cloud applications) than were U.S. and European companies.

Are smaller Latin American companies leading the way on cloud? On the contrary: In companies of less than $1B in revenue, 36% of their total applications software is in the cloud. At companies of greater than $1B in revenue, 42% of their applications are cloud applications. Large Latin American companies appear to be leading the way in the cloud.

Greater Usage of Cloud Means Greater Benefits

The companies we surveyed in Latin America and Asia Pacific were also bigger beneficiaries of cloud – they reported generating much larger average benefits. This was true for both applications they shifted from on-premises computers to the cloud, as well as for entirely new applications they placed in the cloud. Latin American companies in particular reported much larger benefits from shifting on-premises applications to the cloud in the seven metrics that we used – improvements that were in the range of 50%-60% vs. the largely 30% range of improvements for U.S. and European companies.

For the six metrics that we tracked in benefits from launching entirely new cloud applications, Latin American companies, too, far exceeded their peers in the U.S. and Europe. Latin American companies reported improvements in the 20%-30% range vs. in the teens for U.S. and European companies.

Perhaps Latin American and Asia-Pacific companies see the cloud as a way to technologically leap ahead of their counterparts in the U.S. and Europe, many of which are saddled with aging IT infrastructures that are not so easily or quickly moved to the cloud.

041

VIII. Differences in Cloud Benefits by Region of World

057

Differences in Cloud Benefits by Region of World

United States

Europe

Asia-Pacific

Latin America

22%

27%

31%

32%

32%

35%

19%

18%

19%

18%

18%

17%

16%

17%

17%

17%

14%

16%

15%

15%

15%

13%

13%

14%

0% 5% 10% 15% 20% 25% 30% 35% 40%

% increase in number of new business processes tested

% increase in number of new business processes launched

% increase in number of new products/services tested

% increase in number of new products/services launched

% increase in revenue from new products/services in existing markets

% cycle-time reduction to enter new markets

Exhibit VIII-2Comparing Regions of the World in Benefits to Date

From Launching Whole New Applications in the Cloud

056

55%

60%

64%

59%

57%

64%

66%

37%

41%

41%

39%

42%

43%

42%

28%

34%

36%

33%

37%

36%

34%

31%

38%

35%

34%

37%

35%

40%

0% 10% 20% 30% 40% 50% 60% 70%

% reduction in IT costs

% increase in standardized apps and business processes they support

% reduction in cycle time to ramp IT resources up or down

% reduction in systems downtime

% cycle-application enhancements

time reduction in making

% reduction in number of application fixes

% increase in number of analytic reports (ability to mine and analyze

data)

Exhibit VIII-1Comparing Regions of the World in Benefits to Date

From Shifting On - Premises Applications to the Cloud

United States

Europe

Asia-Pacific

Latin America

057

Differences in Cloud Benefits by Region of World

United States

Europe

Asia-Pacific

Latin America

22%

27%

31%

32%

32%

35%

19%

18%

19%

18%

18%

17%

16%

17%

17%

17%

14%

16%

15%

15%

15%

13%

13%

14%

0% 5% 10% 15% 20% 25% 30% 35% 40%

% increase in number of new business processes tested

% increase in number of new business processes launched

% increase in number of new products/services tested

% increase in number of new products/services launched

% increase in revenue from new products/services in existing markets

% cycle-time reduction to enter new markets

Exhibit VIII-2Comparing Regions of the World in Benefits to Date

From Launching Whole New Applications in the Cloud

056

55%

60%

64%

59%

57%

64%

66%

37%

41%

41%

39%

42%

43%

42%

28%

34%

36%

33%

37%

36%

34%

31%

38%

35%

34%

37%

35%

40%

0% 10% 20% 30% 40% 50% 60% 70%

% reduction in IT costs

% increase in standardized apps and business processes they support

% reduction in cycle time to ramp IT resources up or down

% reduction in systems downtime

% cycle-application enhancements

time reduction in making

% reduction in number of application fixes

% increase in number of analytic reports (ability to mine and analyze

data)

Exhibit VIII-1Comparing Regions of the World in Benefits to Date

From Shifting On - Premises Applications to the Cloud

United States

Europe

Asia-Pacific

Latin America

059

Willingness of Companies to Use Public vs. Private Clouds

With cloud applications having made more than a foothold in large companies around the world, it might appear that senior executives are putting aside their fears about the security of data and systems in the cloud. But that would be a wrong presumption.

Business and IT executives appear to largely endorse the use of applications hosted in “private” clouds – data center(s) devoted to the computing needs of a one company (whether or not that data center is owned by the company or a third party). But they are not so trustful of applications running in “public” clouds – data centers that third parties run for numerous customers.

That is what we found from the answers to a series of questions in our survey to gauge interest in using public and private clouds for two types of applications software: “core” (strategic applications that provide competitive advantage) and “non-core” (applications that are necessary for doing business but which don’t deliver a competitive edge).

In the U.S., for example, only 18% said they would consider or highly consider putting core applications in public clouds; in contrast, a slight majority (51%) said they would not consider it at all or only slightly consider it. Nonetheless, two-thirds (66%) said they would consider or highly consider putting core applications in private clouds. Only 3% said they would reject the idea out of hand, vs. 30% who would reject putting core apps in public clouds.

Putting non-core applications in the cloud was an entirely different matter. Some 42% of our U.S. respondents said they would consider or highly consider putting non-core apps in public clouds – more than said they would not consider it at all or would only slightly consider it (30%). And nearly three-quarters (72%) said they would consider or highly consider putting non-core apps in private clouds, a concept rejected by only 3%.

European Companies are Even More Conservative About the Cloud; Latin American and Asia-Pacific Companies are Less Conservative

Relative to their counterparts in Asia-Pacific and Latin America, U.S. and European companies were far less likely to put core applications in public clouds. But they and their counterparts in Asia-Pacific and Latin America were far more likely to put core apps in private clouds dedicated to their organizations. Still, European companies were very conservative on this measure, with less than half (48%) saying they were willing to put core apps in private clouds (vs. 79% of the Latin American companies that we surveyed).

The relatively high percentage of Latin American (30%) and Asia-Pacific (41%) companies that are willing to consider putting strategic applications in public clouds signifies that they have a higher risk tolerance than their colleagues in Europe (especially) and the U.S. Thus, it appears that private clouds are far more acceptable to most large companies today than public clouds – even though private clouds can’t deliver the cost savings of public clouds, which share costs among many clients.

041

IX. Willingness of Companies to Use Public vs. Private Clouds

059

Willingness of Companies to Use Public vs. Private Clouds

With cloud applications having made more than a foothold in large companies around the world, it might appear that senior executives are putting aside their fears about the security of data and systems in the cloud. But that would be a wrong presumption.

Business and IT executives appear to largely endorse the use of applications hosted in “private” clouds – data center(s) devoted to the computing needs of a one company (whether or not that data center is owned by the company or a third party). But they are not so trustful of applications running in “public” clouds – data centers that third parties run for numerous customers.

That is what we found from the answers to a series of questions in our survey to gauge interest in using public and private clouds for two types of applications software: “core” (strategic applications that provide competitive advantage) and “non-core” (applications that are necessary for doing business but which don’t deliver a competitive edge).

In the U.S., for example, only 18% said they would consider or highly consider putting core applications in public clouds; in contrast, a slight majority (51%) said they would not consider it at all or only slightly consider it. Nonetheless, two-thirds (66%) said they would consider or highly consider putting core applications in private clouds. Only 3% said they would reject the idea out of hand, vs. 30% who would reject putting core apps in public clouds.

Putting non-core applications in the cloud was an entirely different matter. Some 42% of our U.S. respondents said they would consider or highly consider putting non-core apps in public clouds – more than said they would not consider it at all or would only slightly consider it (30%). And nearly three-quarters (72%) said they would consider or highly consider putting non-core apps in private clouds, a concept rejected by only 3%.

European Companies are Even More Conservative About the Cloud; Latin American and Asia-Pacific Companies are Less Conservative

Relative to their counterparts in Asia-Pacific and Latin America, U.S. and European companies were far less likely to put core applications in public clouds. But they and their counterparts in Asia-Pacific and Latin America were far more likely to put core apps in private clouds dedicated to their organizations. Still, European companies were very conservative on this measure, with less than half (48%) saying they were willing to put core apps in private clouds (vs. 79% of the Latin American companies that we surveyed).

The relatively high percentage of Latin American (30%) and Asia-Pacific (41%) companies that are willing to consider putting strategic applications in public clouds signifies that they have a higher risk tolerance than their colleagues in Europe (especially) and the U.S. Thus, it appears that private clouds are far more acceptable to most large companies today than public clouds – even though private clouds can’t deliver the cost savings of public clouds, which share costs among many clients.

041

IX. Willingness of Companies to Use Public vs. Private Clouds

060

Willingness of Companies to Use Public vs. Private Clouds

066

Demographics and Research Process

060

Exhibit IX-1

How Willing are Companies in 4 Regions to Put Applications in the Cloud?

Would consider or highly consider putting core apps in public clouds

Would consider or highly consider putting core apps in private clouds

Would consider or highly consider putting non-core apps in public clouds

Would consider or highly consider putting non-core apps in private clouds

% of companies in each region that would consider or highly consider putting applications in the cloud

U.S. Europe Asia-Pacific

Latin America

18% 17% 41% 30%

66% 48% 60% 79%

42% 35% 51% 44%

72% 61% 63% 76%

060

Willingness of Companies to Use Public vs. Private Clouds

066

Demographics and Research Process

060

Exhibit IX-1

How Willing are Companies in 4 Regions to Put Applications in the Cloud?

Would consider or highly consider putting core apps in public clouds

Would consider or highly consider putting core apps in private clouds

Would consider or highly consider putting non-core apps in public clouds

Would consider or highly consider putting non-core apps in private clouds

% of companies in each region that would consider or highly consider putting applications in the cloud

U.S. Europe Asia-Pacific

Latin America

18% 17% 41% 30%

66% 48% 60% 79%

42% 35% 51% 44%

72% 61% 63% 76%

063

Key Success Factors in Capitalizing on the Cloud

Any technology that is as hyped as much as the cloud (remember adulation over artificial intelligence, client-server computing, and the Web in its early years?) generates an almost equal amount of skepticism from those who have seen numerous tech evangelists over time. Cloud computing, too, has drawn its fair share of unabashed advocates and hard-bitten skeptics.

And so when we asked our 606 survey respondents around the world to rate the key success factors in generating benefits from the cloud from a list we provided, the most highly rated success factors were overcoming two fundamental fears about cloud computing (see Exhibit X-1):

That cloud is a highly risky technology from a data security standpoint. Overcoming this fear was rated the most important factor in generating benefits from cloud in every region. In other words, they seem to be indicating to us, the benefits are there – one just has to make sure that the pursuit of those benefits is a safe pursuit.

That the benefits of cloud are a mirage. The second most important success factor in U.S., Asia-Pacific and Latin American companies was demonstrating returns on cloud investments earlier in the process. For European companies, the third most important success factor was quantifying the potential benefits of cloud upfront. (It was tied for first in importance in Latin America.) Both issues point to the skepticism over whether cloud computing can deliver on the benefits that have been bandied about everywhere – saving big technology costs, standardizing the ways a company does business around the world, and much, much more.

n

n

041

X. Key Success Factors in Capitalizing on the Cloud

063

Key Success Factors in Capitalizing on the Cloud

Any technology that is as hyped as much as the cloud (remember adulation over artificial intelligence, client-server computing, and the Web in its early years?) generates an almost equal amount of skepticism from those who have seen numerous tech evangelists over time. Cloud computing, too, has drawn its fair share of unabashed advocates and hard-bitten skeptics.

And so when we asked our 606 survey respondents around the world to rate the key success factors in generating benefits from the cloud from a list we provided, the most highly rated success factors were overcoming two fundamental fears about cloud computing (see Exhibit X-1):

That cloud is a highly risky technology from a data security standpoint. Overcoming this fear was rated the most important factor in generating benefits from cloud in every region. In other words, they seem to be indicating to us, the benefits are there – one just has to make sure that the pursuit of those benefits is a safe pursuit.

That the benefits of cloud are a mirage. The second most important success factor in U.S., Asia-Pacific and Latin American companies was demonstrating returns on cloud investments earlier in the process. For European companies, the third most important success factor was quantifying the potential benefits of cloud upfront. (It was tied for first in importance in Latin America.) Both issues point to the skepticism over whether cloud computing can deliver on the benefits that have been bandied about everywhere – saving big technology costs, standardizing the ways a company does business around the world, and much, much more.

n

n

041

X. Key Success Factors in Capitalizing on the Cloud

In the U.S., near the bottom of the list of success factors were two that we thought would carry more weight before we fielded the survey: getting the CEO or head of a business function to drive a cloud initiative rather than the IT organization, and overcoming the IT function’s fear of a diminished organizational role from the adoption of public clouds – i.e., from shifting in-house applications to a cloud vendor’s data center. (See Exhibit X-2 below.)

065

What Companies Look for in Cloud Vendors

Important Very Important

20%

27%

27%

32%

25%

34%

38%

27%

41%

42%

38%

37%

42%

27%

9%

10%

11%

9%

16%

14%

12%

26%

13%

15%

19%

21%

18%

39%

0% 10% 20% 30% 40% 50% 60% 70%

Having many cloud applications rather than …

Overcoming business unit resistance to …

Overcoming the IT function's fear of a …

Overcoming business functions' fear of …

Having the CEO or business function head …

Centralizing cloud applications across …

Scoping out legal, regulatory and auditing …

Determining and securing the right expertise

Demonstrating strong financial benefits early …

Strong project management and execution skills

Identifying and quantifying cloud's potential …

Determining which on-premises apps should …

Overcoming concerns about IT security (e.g., …

Exhibit X-2Europe: Key Success Factors in Generating Benefits from Cloud

Applications

064

Exhibit X-1

Key Factors in Generating Benefits from Cloud Applications: Differences by Region of World

U.S. Europe Asia-Pacific Latin America

1st most important factor

Overcoming IT security concerns

Overcoming IT security concerns

Overcoming IT security concerns Quantifying potential benefitsupfront (tied)

Overcoming IT security concerns

2nd most important factor

Demonstrating strong ROI early

Determining which on-premisesapps should be cloud apps

Demonstrating strong ROI early

Demonstrating strong ROI early

3rd most important factor

Quantifying potential benefits upfront

Quantifying cloud's potential benefits upfront

Scoping out legal, regulatory and auditing requirements

Strong project management skills

4th most important factor

Strong project management skills Determining and securing the right expertise (tied)

Strong project management skills and Demonstrating strong financial benefits early (tied)

Strong project management skills Quantifying potential benefits upfront (tied) Determining which on-premises apps should be cloud apps (tied) Designing an enterprise IT architecture for cloud services (tied)

Scoping out legal, regulatory and auditing requirements Designing an enterprise IT architecture for cloud services (tied)

In the U.S., near the bottom of the list of success factors were two that we thought would carry more weight before we fielded the survey: getting the CEO or head of a business function to drive a cloud initiative rather than the IT organization, and overcoming the IT function’s fear of a diminished organizational role from the adoption of public clouds – i.e., from shifting in-house applications to a cloud vendor’s data center. (See Exhibit X-2 below.)

065

What Companies Look for in Cloud Vendors

Important Very Important

20%

27%

27%

32%

25%

34%

38%

27%

41%

42%

38%

37%

42%

27%

9%

10%

11%

9%

16%

14%

12%

26%

13%

15%

19%

21%

18%

39%

0% 10% 20% 30% 40% 50% 60% 70%

Having many cloud applications rather than …

Overcoming business unit resistance to …

Overcoming the IT function's fear of a …

Overcoming business functions' fear of …

Having the CEO or business function head …

Centralizing cloud applications across …

Scoping out legal, regulatory and auditing …

Determining and securing the right expertise

Demonstrating strong financial benefits early …

Strong project management and execution skills

Identifying and quantifying cloud's potential …

Determining which on-premises apps should …

Overcoming concerns about IT security (e.g., …

Exhibit X-2Europe: Key Success Factors in Generating Benefits from Cloud

Applications

064

Exhibit X-1

Key Factors in Generating Benefits from Cloud Applications: Differences by Region of World

U.S. Europe Asia-Pacific Latin America

1st most important factor

Overcoming IT security concerns

Overcoming IT security concerns

Overcoming IT security concerns Quantifying potential benefitsupfront (tied)

Overcoming IT security concerns

2nd most important factor

Demonstrating strong ROI early

Determining which on-premisesapps should be cloud apps

Demonstrating strong ROI early

Demonstrating strong ROI early

3rd most important factor

Quantifying potential benefits upfront

Quantifying cloud's potential benefits upfront

Scoping out legal, regulatory and auditing requirements

Strong project management skills

4th most important factor

Strong project management skills Determining and securing the right expertise (tied)

Strong project management skills and Demonstrating strong financial benefits early (tied)

Strong project management skills Quantifying potential benefits upfront (tied) Determining which on-premises apps should be cloud apps (tied) Designing an enterprise IT architecture for cloud services (tied)

Scoping out legal, regulatory and auditing requirements Designing an enterprise IT architecture for cloud services (tied)

066

Demographics and Research Process

Important Factor Very Important Factor

31%

31%

31%

34%

42%

40%

40%

42%

39%

43%

41%

47%

40%

33%

9%

14%

14%

14%

9%

13%

16%

17%

20%

21%

23%

18%

29%

41%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Having many cloud applications rather than …

Overcoming IT function's fear of a diminished …

Having the CEO or functional head driving the …

Overcoming business unit resistance to …

Overcoming business functions' fear of …

Designing an enterprise IT architecture for …

Determining which on-premises applications …

Centralizing cloud apps across business units …

Scoping out the legal, regulatory and auditing …

Determining and securing the right expertise

Strong project management and execution skills

Identifying and quantifying cloud's potential …

Demonstrating strong financial benefits early …

Overcoming concerns about IT security (e.g., …

Exhibit X-3U.S.: Key Success Factors in Generating Benefits From Cloud

Applications

066

066

Demographics and Research Process

Important Factor Very Important Factor

31%

31%

31%

34%

42%

40%

40%

42%

39%

43%

41%

47%

40%

33%

9%

14%

14%

14%

9%

13%

16%

17%

20%

21%

23%

18%

29%

41%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Having many cloud applications rather than …

Overcoming IT function's fear of a diminished …

Having the CEO or functional head driving the …

Overcoming business unit resistance to …

Overcoming business functions' fear of …

Designing an enterprise IT architecture for …

Determining which on-premises applications …

Centralizing cloud apps across business units …

Scoping out the legal, regulatory and auditing …

Determining and securing the right expertise

Strong project management and execution skills

Identifying and quantifying cloud's potential …

Demonstrating strong financial benefits early …

Overcoming concerns about IT security (e.g., …

Exhibit X-3U.S.: Key Success Factors in Generating Benefits From Cloud

Applications

066

069

What Companies Look for in Cloud Vendors

In determining how potential customers evaluate companies that sell cloud application services, it would be quite natural to conclude that price is at or near the top of the list of criteria. Isn’t one of the biggest benefits of cloud computing the ability to save immense IT costs from not having to fund the often enormous computing hardware costs required to run compute-intensive applications? Isn’t cloud about enabling companies to experiment with promising new applications without having to make investments in millions (or tens of millions) of dollars in servers and costly data center space?

Cloud is about that, for sure. Most companies said that the ability of a cloud vendor to reduce their IT costs was important. Yet the ability of a cloud vendor to offer rock-bottom prices doesn’t top most large companies’ list of buying criteria. In fact, we found “lowest price” the least important of nine factors that we asked executives to rate in two regions: the U.S. and Asia-Pacific. In Europe and Latin America, the ability to deliver the lowest-price services ranked eighth out of nine factors.

Rated far more highly were two criteria (among several): reliability (defined as the ability to keep applications up and running and available to users) and data security/privacy. They finished first or second in all four regions.

Exhibit XI-1

Most Important Capabilities of Cloud Application Vendors

1st most important capability

2nd most important capability

3rd most important capability

4th most important capability

Asia-Pacific

Data security/privacy

Reliability/uptime

Adherence to cloud technical standards

Ability to support a global application

U.S.

Reliability/uptime

Data security/privacy

Cloud legal and regulatory expertise

Adherence to cloud technical standards (tied)

Contract provisions on service levels, data privacy protections, etc.

Europe

Data security/privacy

Reliability/uptime

Contract provisions on service levels, data privacy protections, etc.

Cloud legal and regulatory expertise

Latin America

Reliability/uptime

Data security/privacy

Contractprovisions on service levels, data privacy protections, etc.

Cloud legal and regulatory expertise

041041

XI. What Companies Look for in Cloud Vendors

069

What Companies Look for in Cloud Vendors

In determining how potential customers evaluate companies that sell cloud application services, it would be quite natural to conclude that price is at or near the top of the list of criteria. Isn’t one of the biggest benefits of cloud computing the ability to save immense IT costs from not having to fund the often enormous computing hardware costs required to run compute-intensive applications? Isn’t cloud about enabling companies to experiment with promising new applications without having to make investments in millions (or tens of millions) of dollars in servers and costly data center space?

Cloud is about that, for sure. Most companies said that the ability of a cloud vendor to reduce their IT costs was important. Yet the ability of a cloud vendor to offer rock-bottom prices doesn’t top most large companies’ list of buying criteria. In fact, we found “lowest price” the least important of nine factors that we asked executives to rate in two regions: the U.S. and Asia-Pacific. In Europe and Latin America, the ability to deliver the lowest-price services ranked eighth out of nine factors.

Rated far more highly were two criteria (among several): reliability (defined as the ability to keep applications up and running and available to users) and data security/privacy. They finished first or second in all four regions.

Exhibit XI-1

Most Important Capabilities of Cloud Application Vendors

1st most important capability

2nd most important capability

3rd most important capability

4th most important capability

Asia-Pacific

Data security/privacy

Reliability/uptime

Adherence to cloud technical standards

Ability to support a global application

U.S.

Reliability/uptime

Data security/privacy

Cloud legal and regulatory expertise

Adherence to cloud technical standards (tied)

Contract provisions on service levels, data privacy protections, etc.

Europe

Data security/privacy

Reliability/uptime

Contract provisions on service levels, data privacy protections, etc.

Cloud legal and regulatory expertise

Latin America

Reliability/uptime

Data security/privacy

Contractprovisions on service levels, data privacy protections, etc.

Cloud legal and regulatory expertise

041041

XI. What Companies Look for in Cloud Vendors

070

What Companies Look for in Cloud Vendors

070

Other factors that finished high in importance included:

Possessing expertise in the legal and regulatory aspects of cloud. Large companies in the U.S. rated this third in importance (knowledge of such issues as country data privacy laws); European and Latin American firms rated it fourth.

Being willing to provide contract provisions on service levels, data privacy protections and other key performance expectations. This finished third in Latin America (rated important or very important by 84%) and third in Europe (71%). And it was fourth in the U.S. (68% said it was important or very important).

Adhering to the increasing number of technical standards for cloud computing. Some 68% of U.S., 66% of European, 78% of Latin American, and 74% of Asia-Pacific companies said this was important or very important. Such technical standards make it easier for customers to shift cloud applications from one public cloud vendor’s data center to another, as well as make it easier to share applications across a large company’s private cloud technology infrastructure.

This tells us that price isn’t unimportant to companies contemplating using applications in public or private cloud settings – but that other considerations matter much, much more. Making sure their applications are available for use and not at greater risk of being hacked top the list of companies in all four regions.

n

n

n

070

What Companies Look for in Cloud Vendors

070

Other factors that finished high in importance included:

Possessing expertise in the legal and regulatory aspects of cloud. Large companies in the U.S. rated this third in importance (knowledge of such issues as country data privacy laws); European and Latin American firms rated it fourth.

Being willing to provide contract provisions on service levels, data privacy protections and other key performance expectations. This finished third in Latin America (rated important or very important by 84%) and third in Europe (71%). And it was fourth in the U.S. (68% said it was important or very important).

Adhering to the increasing number of technical standards for cloud computing. Some 68% of U.S., 66% of European, 78% of Latin American, and 74% of Asia-Pacific companies said this was important or very important. Such technical standards make it easier for customers to shift cloud applications from one public cloud vendor’s data center to another, as well as make it easier to share applications across a large company’s private cloud technology infrastructure.

This tells us that price isn’t unimportant to companies contemplating using applications in public or private cloud settings – but that other considerations matter much, much more. Making sure their applications are available for use and not at greater risk of being hacked top the list of companies in all four regions.

n

n

n

073

Demographics and Research Approach

TCS conducted the study between August and December 2011 in four regions of the world: the U.S., Europe, Asia-Pacific and Latin America. We focused solely on cloud applications (which excluded such issues as cloud infrastructure such as hardware and middleware) – in order to shed deeper light than other studies had on those applications.

Various definitions of cloud exist in the marketplace, which can make research on this topic challenging. In the survey and our interviews, we defined cloud computing applications as the business applications software used by a company’s business functions (such as R&D, manufacturing, HR and finance) to accomplish their work – BUT only those software applications that reside on a remote data center and are accessed via the Internet (that is, “the cloud”). We told the research participants that by cloud applications, we were not including the business applications software that companies have operated for many years on the computers located on their premises (or “on-premises” applications, for short).

In addition, we provided definitions for the following terms in order to clarify what we were asking them about in their organizations:

Cloud applications software – We defined this as the business applications used by business functions such as R&D, manufacturing, HR and finance to accomplish their work (a cloud-based sales force management application, a cloud-based payroll system, etc.). We told participants that we were not referring to the generic cloud-based corporate email/communication tools that are used across an entire company (such as Google Docs and Microsoft Office 365) and not by one or two functions.

Public vs. private clouds We defined public cloud applications as those that reside in a remote data center that is owned by a third party. We defined private cloud applications as those that reside in a remote data center that was owned by their company.

Our inquiry centered on mostly large companies (defined as greater than $1 billion in revenue). In the U.S. and Europe (largely companies in Germany, UK, France), 88% of the respondents were companies with parent organizations of more than $1 billion. In Asia-Pacific, 75% of the companies were over $1 billion, while 49% of the 57 Latin American companies were more than $1 billion.

We wanted to understand not only the extent to which companies were using cloud applications, but where they were using them in their businesses: which business functions, and which activities within those functions. Thus we designed an extensive, 16-question survey that was taken by senior business function and IT managers. In all 606 managers completed every question in the survey.

The largest proportion of respondents (71%) was from the U.S. and Europe. After we designed the survey questionnaire, it was fielded by ResearchNow, a survey firm with a panel of more than 6 million business professionals in 37 countries. ResearchNow drove responses to the survey in September and October.

n

n –

041041

XII. Demographics and Research Approach

073

Demographics and Research Approach

TCS conducted the study between August and December 2011 in four regions of the world: the U.S., Europe, Asia-Pacific and Latin America. We focused solely on cloud applications (which excluded such issues as cloud infrastructure such as hardware and middleware) – in order to shed deeper light than other studies had on those applications.

Various definitions of cloud exist in the marketplace, which can make research on this topic challenging. In the survey and our interviews, we defined cloud computing applications as the business applications software used by a company’s business functions (such as R&D, manufacturing, HR and finance) to accomplish their work – BUT only those software applications that reside on a remote data center and are accessed via the Internet (that is, “the cloud”). We told the research participants that by cloud applications, we were not including the business applications software that companies have operated for many years on the computers located on their premises (or “on-premises” applications, for short).

In addition, we provided definitions for the following terms in order to clarify what we were asking them about in their organizations:

Cloud applications software – We defined this as the business applications used by business functions such as R&D, manufacturing, HR and finance to accomplish their work (a cloud-based sales force management application, a cloud-based payroll system, etc.). We told participants that we were not referring to the generic cloud-based corporate email/communication tools that are used across an entire company (such as Google Docs and Microsoft Office 365) and not by one or two functions.

Public vs. private clouds We defined public cloud applications as those that reside in a remote data center that is owned by a third party. We defined private cloud applications as those that reside in a remote data center that was owned by their company.

Our inquiry centered on mostly large companies (defined as greater than $1 billion in revenue). In the U.S. and Europe (largely companies in Germany, UK, France), 88% of the respondents were companies with parent organizations of more than $1 billion. In Asia-Pacific, 75% of the companies were over $1 billion, while 49% of the 57 Latin American companies were more than $1 billion.

We wanted to understand not only the extent to which companies were using cloud applications, but where they were using them in their businesses: which business functions, and which activities within those functions. Thus we designed an extensive, 16-question survey that was taken by senior business function and IT managers. In all 606 managers completed every question in the survey.

The largest proportion of respondents (71%) was from the U.S. and Europe. After we designed the survey questionnaire, it was fielded by ResearchNow, a survey firm with a panel of more than 6 million business professionals in 37 countries. ResearchNow drove responses to the survey in September and October.

n

n –

041041

XII. Demographics and Research Approach

075

The Benefits That Companies Have Gained from Cloud Applications

Exhibit XII-2U.S.: Survey Respondents by Parent

Company Revenue

12%

23%

14%

15%

19%

19%

0% 5% 10% 15% 20% 25%

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

2%

10%

22%

9%

19%

17%

20%

0% 10% 20% 30%

$100M-500M

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

Exhibit XII-3Europe: Size of Survey

Respondents (Revenue)

074

We also conducted in-depth qualitative research at six companies around the world: CTB/McGraw-Hill, Commonwealth Bank of Australia, Dell, AOL Inc., a $5 billion consumer products company and a large telecommunications firm (which requested anonymity). Those interviews were conducted by telephone and lasted from 45 minutes to an hour or more.

We conducted extensive secondary research at the outset to determine the “white space” on the topic, where we found an absence of studies that went deep on how large companies across the world were using cloud applications. We wanted to identify companies that might share their cloud stories with us in our case study interviews. We also reviewed the findings with TCS’s experts on cloud computing to get their analysis on the data.

We analyzed the extensive data set from October to December 2011, comparing results from the four regions. To better understand what differentiated the companies that reported greater benefits to date from their cloud applications, we compared those that finished in the top quartile of benefits with those in the bottom quartile. We found a number of big differences, which helped to drive what questions we asked in the case study interviews.

Exhibit XII-1Survey Respondents from Regions of World

0

50

100

150

200

250

300

U.S.

Europe

Asia-P

acific

Latin A

meric

a

270

158

121

57

Number of Respondents

075

The Benefits That Companies Have Gained from Cloud Applications

Exhibit XII-2U.S.: Survey Respondents by Parent

Company Revenue

12%

23%

14%

15%

19%

19%

0% 5% 10% 15% 20% 25%

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

2%

10%

22%

9%

19%

17%

20%

0% 10% 20% 30%

$100M-500M

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

Exhibit XII-3Europe: Size of Survey

Respondents (Revenue)

074

We also conducted in-depth qualitative research at six companies around the world: CTB/McGraw-Hill, Commonwealth Bank of Australia, Dell, AOL Inc., a $5 billion consumer products company and a large telecommunications firm (which requested anonymity). Those interviews were conducted by telephone and lasted from 45 minutes to an hour or more.

We conducted extensive secondary research at the outset to determine the “white space” on the topic, where we found an absence of studies that went deep on how large companies across the world were using cloud applications. We wanted to identify companies that might share their cloud stories with us in our case study interviews. We also reviewed the findings with TCS’s experts on cloud computing to get their analysis on the data.

We analyzed the extensive data set from October to December 2011, comparing results from the four regions. To better understand what differentiated the companies that reported greater benefits to date from their cloud applications, we compared those that finished in the top quartile of benefits with those in the bottom quartile. We found a number of big differences, which helped to drive what questions we asked in the case study interviews.

Exhibit XII-1Survey Respondents from Regions of World

0

50

100

150

200

250

300

U.S.

Europe

Asia-P

acific

Latin A

meric

a

270

158

121

57

Number of Respondents

0% 10% 20% 30%

$50M -100M

$100M -500M

$500M -$1B

$1B -5B

$5B -10B

$10B -20B

$50B+

Exhibit XII-7Latin America Respondents by

Parent Company Annual Revenue

The Benefits That Companies Have Gained from Cloud Applications

Exhibit XII-6Asia-Pacific Respondents by Country

China

Japan

Australia

Other

34%

33%

32%

1%

077076

5%

20%

26%

13%

16%

7%

12%

0% 10% 20% 30%

$100M -500M

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

Exhibit XII-5Asia-Pacific Respondents by Parent

Company Revenue

Exhibit XII-4European Respondents by Country

32%

32%

31%

5%

Germany

UK

France

Other European country

0% 10% 20% 30%

$50M -100M

$100M -500M

$500M -$1B

$1B -5B

$5B -10B

$10B -20B

$50B+

Exhibit XII-7Latin America Respondents by

Parent Company Annual Revenue

The Benefits That Companies Have Gained from Cloud Applications

Exhibit XII-6Asia-Pacific Respondents by Country

China

Japan

Australia

Other

34%

33%

32%

1%

077076

5%

20%

26%

13%

16%

7%

12%

0% 10% 20% 30%

$100M -500M

$500M-$1B

$1B-5B

$5B-10B

$10B-20B

$20B-50B

$50B+

Exhibit XII-5Asia-Pacific Respondents by Parent

Company Revenue

Exhibit XII-4European Respondents by Country

32%

32%

31%

5%

Germany

UK

France

Other European country

About Tata Consultancy Services Ltd (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network

TMDelivery Model , recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India.

For more information, visit us at www.tcs.com

Brazil

Mexico

Argentina

33%

33%

33%

Exhibit XII-8Latin American Respondents by Country

18%

18%

16%

11%

5%

28%

5%

0% 10% 20% 30%

$50M -100M

$100M -500M

$500M -$1B

$1B -5B

$5B -10B

$10B -20B

$50B+

Exhibit XII-9Latin America:

Respondents by Company Size

078

About Tata Consultancy Services Ltd (TCS)Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network

TMDelivery Model , recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India.

For more information, visit us at www.tcs.com

Brazil

Mexico

Argentina

33%

33%

33%

Exhibit XII-8Latin American Respondents by Country

18%

18%

16%

11%

5%

28%

5%

0% 10% 20% 30%

$50M -100M

$100M -500M

$500M -$1B

$1B -5B

$5B -10B

$10B -20B

$50B+

Exhibit XII-9Latin America:

Respondents by Company Size

078

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