What is the hottest cloud-computing market in the Asia-Pacific region? This is the question on the top of the minds of many CIO, CFO, CTO and cloud vendors. It is often accompanied by the follow-up question: where is the most revenue being generated? Seemingly, the answer to the second question will satisfy the first.
At first glance, this assumption seems harmless and an acceptable method to determine where APAC’s cloud-computing market is taking off with the greatest confidence. However, this type of ‘revenue first’ analysis can be detrimental for anyone making decisions based on the experiences of the countries that lead our region’s cloud computing. This is because it largely ignores the critical activity within each country that will ultimately determine the cloud winners and losers.
When Cisco set out to examine the cloud market in the region at the beginning of the year, it enlisted The 451 Group, an independent research firm, to assist in not only identifying the key traits or factors for cloud-computing success, but quantifying them and establishing a framework to rank countries across the region on the basis of their relative standing on all these fronts. The study analysed 784 unique events and data points over six consecutive quarters in Australia, Hong Kong, India, Indonesia and Japan.
The results were very revealing and led to two key questions that need to be asked by our region’s cloud policy and business visionaries before they decide where their ‘cloud role models’ are :
Are the cloud foundations in place?
To understand the local perspective, we must first quantify the extent to the national or local government is investing in cloud. In Japan, for example cloud computing is viewed by the government as a means to enhance the country’s competitiveness at the global level. As part of the Digital Japan Creation Project, Japan’s Ministry of Internal Affairs and Communications (MIC) declared its bold move into the cloud arena and the telecom regulator has set its sights on building a massive cloud infrastructure, dubbed the Kasumigaseki Cloud, to support all of the government’s IT systems. The infrastructure project is one of the action points set forth by MIC to stimulate growth of the ICT industry in Japan, with the government-led cloud to be deployed in phases until 2015.
We also need to examine the state of the regulatory environment and whether this is being helped or hindered. Australia’s regulatory environment became restricted in early FY11 as a result of a number of outsourcing guidelines issued by the Australian Prudential Regulation Authority (APRA), the regulator that oversees local banks, credit unions, insurance companies and most members of the superannuation industry. And since early FY10, Hong Kong’s formation of an association to explore regulatory issues and plans announced for regulatory activity have helped drive Hong Kong’s cloud adoption.
By contrast in India, the regulatory environment often lags other markets and in Indonesia, the country’s reaction to Research in Motion’s data privacy issues and harsh commentary from the country’s information minister has hindered the regulatory environment.
Hong Kong also shines on the question of broadband infrastructure. Its ICT industry is well developed and its mobile market is highly mature, with broadband adoption growing fast. Coupled with its reputation as a financial hub, the city has a modern infrastructure and excellent connectivity. Similarly, in terms of broadband adoption, availability and the overall status of the telco/IT infrastructure, Japan is a clear leader in the markets Cisco researched during its analysis.
The last aspect of the foundations for cloud growth in APAC that merits consideration is the extent to which cloud ‘factories’ – data centres – are being built. The research revealed Hong Kong did not perform highly in availability of Tier3 data centres and Australia was perceived to have a middle-position in the region for the same.
However, data centre activity in India is moving at breakneck speeds even though activity is centred on the lower end of the data centre spectrum as supply catches up with demand. With an influx of lower tier data centres, India runs the risk of needing to convert/consolidate a large portion of its data centres if cloud demand accelerates as expected.
In a separate global study released November 2011 entitled: “Cisco Global Cloud Index:
Forecast and Methodology, 2010–2015”, annual global cloud IP traffic is predicted to reach 1.6 zettabytes by the end of 2015, or 133 exabytes per month and global cloud IP traffic will grow at a CAGR of 66 per cent from 2010 to 2015. Simply stated, government investment, a favourable regulatory environment and an effective broadband/IT infrastructure are critical. Weakness in any of these three factors will materially curtail cloud development in any given country.
Is the cloud supply chain building up?
The level of cloud vendor activity in each market needs to be examined as a leadership indicator alongside the level of partnership activity. For example, given Japan’s recent status as the region’s second largest economy (only surpassed by China), Japan has a broad and diverse pool of vendors to support its move to cloud computing. Since Q1-FY10, Cisco identified 59 total cloud partnerships in Japan with relationships forecast between firms across the IT spectrum and targeting every level of the cloud stack.
By contrast, Indonesia’s relatively small economy and relatively closed business environment means the vendor pool to pull from for cloud products and adoption is materially smaller than other countries in Cisco’s analysis. In addition, multinationals and other vendors looking to partner, invest and expand will likely be drawn to more business-friendly destinations.
Connected to this is the level of VC funding and M&A activity in each market, with Japan, Hong Kong and Australia all rising significantly and indicating a cloud leadership position. In India, deals in the SaaS market have dominated M&A activity.
By answering both these questions thoroughly, we can look ‘beyond revenue’. Cisco’s initial findings demonstrate a wide gap between Asia’s developed and developing nations and on a broader regional basis, it confirms the thesis that these countries are largely still in the ‘foundation’ phase. It is simply too early to use revenue as a realistic, stand-alone measure of the level of cloud activity, in order to highlight ‘best practice’.
The next two years are critical for government regulation, investment and support to help get these markets off the ground. A great deal of development continues to be necessary across the region to create viable, sustainable cloud markets. Companies and investors that continue to examine these markets solely on the basis of revenues generated, run the risk of ‘backing the wrong cloud’ unless they examine the true foundation activity crucial for long-term. To fully understand the cloud in APAC, let’s look ‘beyond revenue’. Let’s roll up our sleeves and dig a bit deeper.
Courtney Dodds is a data centre portfolio manager for Cisco Australia