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Cloud Computing in the Middle Market Experiences, Advantages and Challenges

A survey of the experiences of mid-sized companies with IT in the cloud

Cloud Computing in the Middle Market Experiences, Advantages and Challenges

A survey of the experiences of mid-sized companies with IT in the cloud

Cloud Computing in the Middle Market Experiences, Advantages and Challenges Published by PricewaterhouseCoopers AG Wirtschaftsprfungsgesellschaft Written by Markus Vehlow and Cordula Golkowsky With thanks to Christina Mller, Johannes Beichel, Stefan Knecht and Eiko Alexander Ermold Overall design, coordination and evaluation of the telephone survey: denkstelle hamburg Independent market research institute for the telephone survey: teleResearch GmbH June 2011, 36 pages, 17 figures All rights reserved. Reproduction, microfilming, storing or processing in electronic media is not allowed without the permission of the publishers. The results of this survey and the contributions from our experts are meant to serve as a general reference for our clients. For advice on individual cases, please refer to the sources cited in this study or consult one of the PwC contacts listed at the end of the publication.

June 2011 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprfungsgesellschaft. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprfungsgesellschaft, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Preface

Preface
Once the stuff of IT dreams, cloud computing has become a reality. There is hardly an IT event that doesnt address IT in the cloud; the media report on cloud computing almost daily; and more and more, companies, IT vendors, analysts and industry associations are discussing the opportunities and challenges of this technology. This high level of attention is well-founded because cloud computing has many advantages: IT resources can be deployed flexibly, efficiently and virtually without limits via the internet. The pay-per-use model provides companies with cost reduction potential and higher cost transparency through usage-based billing. In addition, investment in hardware and software can be reduced by the purchase of cloud services, as these structures are supplied by the cloud provider. There are also other advantages that allow for faster, more flexible IT processes and that can serve mid-sized companies, as well. Yet so far, only relatively few mid-sized companies use cloud computing. Why are so many companies hesitating? And what experiences have companies in the middle market had with cloud computing until now? Will the situation change? The present survey answers these questions and provides insight into the current mood toward cloud computing in the middle market. It also offers family and mid-sized companies approaches and ideas on how to benefit from this trend and on what they should take into account to ensure successful use of cloud services. We hope you enjoy reading!

Dr. Peter Bartels

Markus Vehlow

Cordula Golkowsky

Cloud Computing in the Middle Market 5

Table of contents

Table of contents
Preface ............................................................................................................................5 Table of figures ...............................................................................................................7 What is cloud computing and what can it do?..................................................................8

A Summary.................................................................................................................. 10 B Survey methodology and participants ......................................................................12 C 1 2 3 Awareness and prevalence of cloud computing.........................................................15 Conceptual understanding ......................................................................................15 Current use .............................................................................................................. 16 Comparison of users and non-users ..........................................................................18

D Behaviour patterns among users ..............................................................................21 1 Forms of cloud use ....................................................................................................21 2 Cloud user experiences .............................................................................................22 E 1 2 3 Behaviour of non-users .............................................................................................25 Potential ...................................................................................................................25 Reasons in favour of the cloud ..................................................................................26 Reasons against the cloud ........................................................................................28

F Outlook ....................................................................................................................30

Tips for the successful use of cloud computing ..............................................................32 Contacts ........................................................................................................................34

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Table of figures

Table of figures
Fig. 1 Fig. 2 Fig. 3 Fig. 4 Fig. 5 Fig. 6 Proportion of respondents by number of employees in Germany ....................12 Proportion of respondents by annual net revenue last year .............................13 Proportion of respondents by industry............................................................ 14 Respondents definition of cloud computing .................................................. 16 Current cloud computing usage among the surveyed companies .................... 17 Comparison of users and non-users, broken down by number of employees in Germany.....................................................................................................18 Comparison of users and non-users, broken down by previous years net revenue...........................................................................................................19 Industry affiliation of users and non-users .....................................................20 Cloud applications used in the surveyed companies .......................................22 Satisfaction of cloud users with the services used ..........................................22 Disadvantages associated with the use of cloud computing ............................23 Respondents knowledge of the location of the processing centres where their data is stored ..........................................................................................24 Location of the data processing centres used by respondents ..........................24 Future use of cloud computing by respondents who currently do not use cloud computing ......................................................................................................26 Reasons for future use of cloud computing among respondents who currently do not use cloud services ................................................................................27 Types of future cloud services respondents who currently do not use cloud services plan on using .....................................................................................28 Reasons cited by non-users for not employing cloud computing .....................29

Fig. 7

Fig. 8 Fig. 9 Fig. 10 Fig. 11 Fig. 12

Fig. 13 Fig. 14

Fig. 15

Fig. 16

Fig. 17

Cloud Computing in the Middle Market 7

What is cloud computing and what can it do?

What is cloud computing and what can it do?

Cloud computing lets companies draw on IT resources via the internet flexibly, efficiently and virtually without limits with usage-based pricing. Computer capacity, data storage and applications must not, or not entirely, be maintained and operated by the company. IT-on-demand? Just as flexible and easy to use as TV-on-demand? That would have been hard to imagine a few years ago, but now its a reality through cloud computing. The use of cloud computing can save costs because the underlying pay-per-use model reduces companies expenditures for the purchase, operation and updating of IT structures. It also provides greater cost transparency. Costly investments in hardware and software can be avoided, as memory space, development platforms and applications are used and paid for as needed. The cloud service provider assumes installation, operation and maintenance costs and includes these in the monthly fee. Fixed costs become variable costs. But cost reduction is not the only advantage of cloud services: Because IT resources must only be available as needed and can be scaled easily, a more efficient allocation of resources is possible. Cloud computing also promotes innovation in the IT and other departments, as it allows new services or business models to be quickly and flexibly deployed in conjunction with business developments (business agility). IT-based processes can more quickly be brought to market due to the shorter duration of IT projects (time to market). Whats more, product and service offerings can be dynamically expanded (portfolio agility) and adjusted according to capacity needs and customer demand (business scalability). Cloud users also benefit from the up-to-date hardware and software provided by the cloud vendor as part of its cloud solutions. This could be of particular use to mid-sized companies that have a limited IT budget and often cannot or do not want to invest in current and high-quality IT infrastructure. Another advantage for dynamically growing mid-sized companies is the ability to centrally operate and manage IT resources leaving more time for core business activities.

Cloud computing promotes innovation

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What is cloud computing and what can it do?

Because IT resources must only be available as needed and can be scaled easily, a more efficient allocation of resources is possible.

Despite these advantages, mid-sized companies especially continue to have concerns about moving their IT to the internet. This may be due to questions that remain with regard to practical implementation, such as: How can the benefits of cloud computing be identified for my company? What business processes are best suited to be outsourced to the cloud? What legal, regulatory and internal requirements must be satisfied in order to use the cloud? What technical requirements are necessary? What tax issues should be considered? What performance and management indicators can help measure the expected benefits of cloud computing? All of these questions can and will be answered. In the last chapter, we provide some starting tips for the successful use of cloud services.

Cloud Computing in the Middle Market 9

Summary

A Summary
Key findings 1. Awareness and prevalence of cloud computing in the middle market 58% of the respondents know what cloud computing is all about and could explain it correctly. 12% gave a wrong answer. Just under one in ten definitions (9%) could not be clearly assigned. 21% of respondents do not know what cloud computing is. 12% of respondents already use cloud computing, primarily as: Software as a Service or SaaS (66%), Infrastructure as a Service or IaaS (42%) and Platform as a Service or PaaS (37%). It turns out that cloud services are used more in (often larger) logistics companies and service centres. On the other hand, (smaller) retailers and manufacturers of capital goods are underrepresented. 54% of respondents who do not use cloud services have not yet looked into the advantages and disadvantages of cloud computing. 2. Experiences of cloud users in the middle market Almost all respondents who use cloud services say their expectations have been completely (46%) or at least partially (47%) met. Only 7% are dissatisfied. Two out of three respondents (66%) know where their data is stored.

58%
12%

know what cloud computing is all about

93%

of cloud users say their expectations have been completely or at least partially met

of respondents who currently do not use cloud services are planning to

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Summary

A good half of the companies view cloud computing as a way to focus on core business while outsourcing IT.

3. Potential of cloud computing in the middle market 12% of respondents who currently do not use cloud services are planning to do so in the foreseeable future. Respondents cited the following as the main reasons behind their planned introduction of cloud computing: cost savings (83%), low investment costs (78%), pay-per-use (78%), location-independent access (78%) and rapid implementation of innovations (67%). A good half of the companies (56%) view cloud computing as a way to focus on core business while outsourcing IT. The short time to market (42%) and the elasticity and scalability of cloud computing capacities (42%) are also key factors. 4. Challenges of cloud computing in the middle market Respondents who do not use cloud services say they dont because of a lack of advantages (73%) and security concerns (70%). A little over half (54%) have not yet dealt with the subject and 46% are concerned about problems with system integration. 43% of respondents cite compliance violations as a disadvantage of the cloud. Another 42% consider the market too complicated at present to be able to make a decision. The companies surveyed that use cloud services also perceived some disadvantages, although in their view within limits: 44% mention reliance on outside companies, along with the transfer of data sovereignty to the outside company and a lack of data security (34%). 20% consider increased administrative costs and costs for staff education and training as downsides.

Cloud Computing in the Middle Market 11

Survey methodology and participants

B Survey methodology and participants

This survey will shed light on how extensively mid-sized companies in Germany use cloud computing, what advantages and disadvantages they expect and what risks they associate with it. In addition, the survey will show how the middle market can benefit from cloud computing. PwC commissioned an independent market research institute to conduct the survey of 351 executives of mid-sized companies active in Germany. It was done from February 14th22nd 2011 using computer-assisted telephone interviews. The respondents were divided into the following size categories: Mid-sized companies: those with a staff of 50499 (244 interviews) Larger companies: those with a staff of 5002,000 (107 interviews) This categorisation was chosen to identify whether there are differences in the behaviour of mid-sized companies (50499 employees) and larger companies (5002,000 employees).
Fig. 1 Proportion of respondents by number of employees in Germany

Total sample 500999 17% 1,0002,000 13%

250499 22%

50249 48%

The companies surveyed were also categorised on the basis of annual net revenue: 5% of respondents earned 500 million or more in net revenue in Germany in the previous year. 14% of respondents generated annual net revenue of between 100 million and 500 million. Consequently, nearly a fifth earns at least 100 million.

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Survey methodology and participants

At 54% of the surveyed companies, net revenue in Germany last year totalled less than 100 million.
Fig. 2 Proportion of respondents by annual net revenue last year

Total sample Do not know/ no answer 27% 500 million 5% 100499,999 million 14% Mid-sized companies Do not know/ no answer 27% 100499,999 million 6% 2099,999 million 35% Larger companies < 20 million 3% 2099,999 million 22% < 20 million 23%

2099,999 million 31%

< 20 million 32%

Do not know/ no answer 29%

500 million 14%

100499,999 million 32%

What industries do the participants come from? Half of the companies are active in the manufacturing sector. Trade and services account for 13% and 11%, respectively, of the companies; finance and the transport and logistics industry each account for nearly a tenth of the respondents.

Cloud Computing in the Middle Market 13

Survey methodology and participants

Fig. 3

Proportion of respondents by industry

Total sample Other, such as construction and mining 8% Services 11% Banks, financial institutions and insurance companies 9% Trade 13%

Manufacturers of consumer goods 15%

Manufacturers of capital goods 35% Transport and logistics 9%

Mid-sized companies Other, such as construction and mining 8% Services 12% Banks, financial institutions and insurance companies 9% Trade 14%

Manufacturers of consumer goods 13%

Manufacturers of capital goods 37% Transport and logistics 7%

Larger companies Other, such as construction and mining 6% Services 9% Banken, Finanzinstitute und Versicherungen 11% Trade 13% Manufacturers of consumer goods 20%

Manufacturers of capital goods 29% Transport and logistics 12%

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Awareness and prevalence of cloud computing

C Awareness and prevalence of cloud computing

1 Conceptual understanding
As I see it

Cloud services offer middle market users the chance to increase their competitiveness on a global scale while also reducing costs. Many companies are just beginning to use cloud services. They will use cloud computing more widely when their high demands for data protection, information security and integration capability with existing IT systems are met. These are issues that cloud providers continue to work hard on. Mathias Weber, Head of IT Services, BITKOM (Federal Association for Information Technology, Telecommunications and New Media)

Cloud computing is not new: the possibility of moving IT to the cloud was already being discussed at the CeBit trade show several years ago. Access to data in the cloud has long been established in the private sphere. The services range from e-mail to pictures to social networks and video. And now, cloud computing has found its way to business customers. In an open question, executives were asked to explain what they understood the term cloud computing to mean. 58% of respondents demonstrated a mostly correct understanding of the term; 12% gave a mostly wrong answer. Just under one in ten responses (9%) was incomplete (not really wrong, but also not right). Every fifth respondent gave no answer (21%). Even among companies that already use cloud computing, only three out of four executives answered correctly. Notably, IT managers from the mid-sized companies defined the term correctly more often than their counterparts at the larger companies (61% to 49%). This shows that mid-sized companies are attuned to this issue. Further results, however, show that especially when it comes to value proposition, there is still significant need for clarification.

Cloud Computing in the Middle Market 15

Awareness and prevalence of cloud computing

Fig. 4

Respondents definition of cloud computing 5% 21% 12% 9% 23% 12% 9% 12% 10% 12% 4% 23%

17% 14% 20%

73% 58% 56%

61%

49%

Total sample Mostly correct Mostly wrong

Non-users of cloud computing Unclear

Users of cloud computing

Mid-sized companies

Larger companies

Do not know/no answer

Current use

Cost savings, more flexibility, increased potential for innovation and faster time to market: all these advantages would suggest that cloud computing is well-received among mid-sized companies. However, most respondents remain cautious about moving their IT to the cloud. Among larger companies the user rate is 18%, twice as high as among mid-sized companies (9%). But cloud services are still far from qualifying as a mass market. Usage among all companies is currently only at 12%.

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Awareness and prevalence of cloud computing

Fig. 5

Current cloud computing usage among the surveyed companies

Total sample Yes 12% Do not know 1%

No 87%

Mid-sized companies Yes 9% Do not know 1%

No 90%

Larger companies Do not know 1%

Yes 18%

No 81%

Cloud Computing in the Middle Market 17

Awareness and prevalence of cloud computing

Comparison of users and non-users

A comparison of the 41 cloud users with the 310 non-users confirms that it is the larger firms who tend to use cloud services. This seems to be true with regard to both staff size and annual net revenue: the larger the company, the more likely it is to use cloud services.
Fig. 6 Comparison of users and non-users, broken down by number of employees in Germany

Total non-users 500999 Employees 15% 250499 Employees 23% 1,0002,000 Employees 13%

50249 Employees 49%

Total users 500999 Employees 29% 1,0002,000 Employees 17%

250499 Employees 17%

50249 Employees 37%

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Awareness and prevalence of cloud computing

Fig. 7

Comparison of users and non-users, broken down by previous years net revenue

Total non-users Do not know/ no answer 28% 500 million 4% 100499,999 million 12% < 20 million 24%

2099,999 million 32%

Total users Do not know/ no answer 25% 500 million 7% 100499,999 million 24% < 20 million 20%

2099,999 million 24%

What is also clear is that cloud services are more likely to be used in (often larger) logistics companies and service companies. (Smaller) retailers and capital goods manufacturers are, on the other hand, underrepresented. This may be mainly because the processes of logistics companies are closely tied to IT solutions a fact also confirmed by a 2009/2010 market study by the Fraunhofer Institute which looked at the acceptance of Software as a Service (SaaS) and cloud computing in the logistics industry.1 In that study, 60% of the surveyed decision-makers would be open to using logistics IT services from the cloud. As such, this industry seems to already have a fairly high level of acceptance for cloud services, while acceptance among smaller retailers and capital goods manufacturers is rather low. The result is surprising as retailers could profit from the flexible scalability of cloud services especially in light of the intense competition and price pressure in the sector, as well as the need for scalable services in order to counteract possible seasonal variations.

Cf. Fraunhofer Institute for Software and System Engineering (ed.): Cloud Computing fr den Mittelstand am Beispiel der Logistikbranche. 2010.

Cloud Computing in the Middle Market 19

Awareness and prevalence of cloud computing

Fig. 8

Industry affiliation of users and non-users

Total non-users Other, such as construction and mining 8% Services 10% Banks, financial institutions and insurance companies 10% Trade 14%

Manufacturers of consumer goods 15% Manufacturers of capital goods 35% Transport and logistics 8%

Total users Other, such as construction and mining 7% Services 20% Banks, financial institutions and insurance companies 7% Trade 7%

Manufacturers of consumer goods 15% Manufacturers of capital goods 27% Transport and logistics 17%

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Behaviour patterns among users

D Behaviour patterns among users

1 Forms of cloud use

As I see it

The cloud services I use have met my expectations. And every day I use them, I discover new ways to optimise work processes in future. Taking that into account, Ive got to say: my expectations of cloud computing and the benefits that come with it continue to grow. Kay Lied, Cooperation Manager Logistics & Mobility, German Association for Small and Medium-sized Businesses (BVMW)

Moving IT resources to the cloud or to external server farms can be done in different ways. Depending on the type of service, one could use storage space and computing power over the internet. This is known as Infrastructure as a Service (IaaS). With Platform as a Service (PaaS), in addition to the hardware and operating system that comes with IaaS, application infrastructure is provided over the internet in the form of databases and development tools. And with Software as a Service (SaaS), companies buy software applications over the internet. SaaS is the most common and currently most widespread form of cloud computing and is found, for example, in the use of webbased e-mail services. Business Process as a Service (BPaaS) offers the opportunity to outsource entire business functions and processes, such as in human resources or payroll. In this form, the cloud provider combines software and process services. The surveyed companies primarily use SaaS offerings (two out of three users). IaaS and PaaS are also relatively common application forms (42% and 37%, respectively). Almost a third use consulting services related to cloud computing. However, respondents use BPaaS offerings comparatively rarely.

Cloud Computing in the Middle Market 21

Behaviour patterns among users

Fig. 9

Cloud applications used in the surveyed companies 66% 42% 37% 29% 24% 2%

Software as a Service (SaaS) Infrastructure as a Service (IaaS) Platform as a Service (PaaS) Consulting services related to cloud computing Business Process as a Service (BPaaS) No answer

The most commonly used SaaS services are e-mail, web conferencing, collaboration (such as the joint editing of documents) and security applications like anti-virus or anti-spam programs. In addition, services relating to content management, supply chain management, personnel management, enterprise resource planning and financial accounting, customer relationship management, and credit card payments are used, as is office software such as word processing.

Cloud user experiences

The reluctance towards cloud services seems given the experiences reported by cloud users unfounded: almost all of the cloud users surveyed said their expectations had been realised. Only 3 of the 41 users said their expectations had not been met.
Fig. 10 No 7% Satisfaction of cloud users with the services used

Yes, partially 47%

Yes, fully 46%

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Behaviour patterns among users

In response to the (open) question What advantages does cloud computing give companies that use cloud services?, the 41 managers responded most often with cost savings through the pay-per-use model. About a third of users cite simple, centralised management as an advantage, and one in five say its the flexibility of use. Other advantages mentioned include the rapid availability of resources/services, the reduced need for hardware and processors, and energy/resource savings. Of lesser importance are better protection against external attacks; the use of the latest technology; temporary, short-term use; high-availability; or location-independent access. Among the major disadvantages cited by the companies were lack of control over data, along with dependence on outside companies (44%) and lack of data security (34%). Other challenges include increased administrative costs and staff training/education, and data privacy issues. The loss of core competences and know-how, costs for additional necessary security technologies, or potential system failures are also considered disadvantageous by some users.
Fig. 11 Disadvantages associated with the use of cloud computing

Loss of control over the data (to an outside party), dependence on outside companies Loss of data (security) Increased administrative costs; staff training/education, expenses 34%

44%

20%

Whats interesting in terms of data privacy and security: Two out of three users know the country of the data processing centre where the exported data is stored. No users have knowingly made use of cloud offerings where customer data is stored in data centres or servers in countries outside Germany, the EU or the US.

Cloud Computing in the Middle Market 23

Behaviour patterns among users

Fig. 12

Respondents knowledge of the location of the processing centres where their data is stored

No 34%

Yes 66%

Fig. 13

Location of the data processing centres used by respondents 89% 11% 15%

In Germany Within the EU In the USA

How many current users plan to eventually fully transfer their IT to the cloud and no longer retain their own IT resources within the company? 2% of surveyed users have already fully migrated their IT to the cloud. At least, nearly every second company that currently uses cloud services can imagine fully migrating to cloud computing in the future. The majority, however, have no current plans to do so (51%).

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Behaviour of non-users

E Behaviour of non-users
1 Potential

As I see it

Our core business is soccer. We need to make optimum use of resources in managing the club. Therefore, it is important to simplify structures and work processes. We dont want to close ourselves off to new approaches, but instead be open to innovative solutions. We are implementing an ERP cloud service to deal with sponsors and members and would opt for the cloud again. Roy Stapfelfeld, Managing Director FC Carl Zeiss Jena

How is the growth of cloud computing fairing in the middle market? How many companies are planning to move their IT to the cloud? What services are attractive, and what are the concerns? Companies that currently do not use cloud services remain hesitant about using them in future. Larger companies tend to be more open, even though there are very few differences in their reasoning. The more critical attitude of mid-sized companies may be largely due to the fact that they have not really engaged with cloud computing, and that there is thus probably no transparency about available offerings and their possible benefits. The survey results suggest as much: more than half of the companies surveyed have not yet delved into the issue. Although this is more true for mid-sized companies (55%), 52% of the larger companies also state that they have not yet dealt intensively with the possibilities of cloud computing. Overall, 12% of the companies surveyed that have not yet used IT cloud services plan to do so. A slight difference can be seen between mid-sized companies (11%) and larger enterprises (14%). In addition, more international companies (13%) than companies active exclusively in Germany (9%) are planning to use cloud services.

Cloud Computing in the Middle Market 25

Behaviour of non-users

Fig. 14

Future use of cloud computing by respondents who currently do not use cloud computing 1% 1% 2% 2% 1%

87%

88%

84%

85%

90%

12% Total

11% Mid-sized companies Yes

14% Larger companies No

13% International

9% Active only in Germany

Do not know/no answer

Reasons in favour of the cloud

Non-users who are planning to introduce cloud services expect cost savings above all else (83%). Three out of four companies appreciate the low investments costs associated with introducing cloud computing. The pay-per-use model and the possibilities for mobile access are also viewed as positive (78% each). For more than two of three companies, the rapid implementation of IT innovations through cloud computing is a decisive advantage (67%). Every second company (56%) sees cloud computing as an opportunity to focus on core business while outsourcing IT. The shorter time to market (42%) and the elasticity and scalability of cloud computing capacities (42%) also play a role. Mid-sized companies in particular cite the focus on core business as an advantage of cloud computing. This is not surprising, given that smaller companies typically have only limited resources to deal with IT. The expected low upfront investment and the prospect of implementing innovation processes in IT more quickly using cloud services also (still) weigh more heavily for mid-sized companies than for larger enterprises. The cost arguments (pay-per-use model and general cost-savings expectations) seem to be equally important to both classes of companies.

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Behaviour of non-users

Fig. 15

Reasons for future use of cloud computing among respondents who currently do not use cloud services 83%

We expect cost savings from cloud computing.

Cloud computing does not require high upfront investment in expensive infrastructure.

78%

Cloud computing enables worldwide access to data, even from mobile devices.

78%

We pay only for what we use (pay-per-use model). Cloud computing lets us implement innovations faster and better. For example, we can quickly draw on new cloud services in response to changes in business models and processes. IT is not a core competency of our company and cloud computing is an efficient and cost-effective alternative for outsourcing IT. Peak loads or seasonal and cyclical business developments can be mitigated through cloud services. Better time to market: the shorter duration of IT projects. 56%

78%

67%

42%

42%

Executives of larger companies also gave the following reasons for introducing cloud services: optimal level of service; special software can be used; additional resources can be used; and you gain the flexibility to quickly respond to new needs. Answers to the question of what cloud services companies may want to employ in the future mirror the current usage patterns of those companies already using cloud services. In particular, mid-sized companies have identified SaaS as the primary field of application, while larger companies see possibilities for the outsourcing of development platforms (PaaS) or a need for processing and storage capacity (IaaS) in addition to SaaS. Two out of three companies plan to use PaaS (64%). Similarly, 64% of nonusers planning to introduce cloud computing will turn to SaaS offerings. Only 19% of current non-users but 33% of larger companies would like to use BPaaS (complete outsourcing of business processes) in future. A good third plan to procure consulting services related to cloud computing (42% of larger companies, 33% of mid-sized companies).

Cloud Computing in the Middle Market 27

Behaviour of non-users

Fig. 16

Types of future cloud services respondents who currently do not use cloud services plan on using 42%

Software as a Service (SaaS) 64% 58% Platform as a Service (PaaS) 58% 42% 47% 42% 33% 36% 33% 13% 19% 8% 4% 6% Larger companies Mid-sized companies Total 67% 64%

75%

Infrastructure as a Service (IaaS) Consulting services related to cloud computing Business Process as a Service (BPaaS)

Not specified

Reasons against the cloud

While the benefits of cloud computing are constantly highlighted and discussed in the media, mid-sized companies, in particular, still seem to be holding back. What are reasons against the use of cloud computing from the perspective of the companies surveyed? Three out of four respondents dont think cloud computing will offer any advantages to them. This may be largely because inspired by recent incidents the opportunities and potential of cloud computing are being far less discussed, at present, than issues like data security, privacy and compliance. In fact, about 70% of companies surveyed (68% of larger companies and 71% of mid-sized companies) fear that the security of their business data cannot be adequately guaranteed in the cloud. This perception is consistent with that of the cloud users. Surprisingly, more than half of the companies (54%) have not really engaged with the issue. This is more so the case among mid-sized companies with 55%. But 52% of larger companies have also not yet concerned themselves with cloud computing. Almost 50% of larger companies fear that they will have problems with system integration through the use of cloud services. At 40%, compliance considerations play a not surprisingly lesser role for mid-sized companies than for larger companies (51%).

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Behaviour of non-users

Other reasons to not use cloud services include cost uncertainty, technical considerations (are technically well equipped; internal or external technical reasons; inflexible cloud offerings, only standardised solutions that are not suitable) and internal management issues (decision from management; corporate decision; dependence on corporate structure; want to avoid dependence on external providers).
Fig. 17 Reasons cited by non-users for not employing cloud computing

Why doesnt cloud computing currently play a role in your company? We see no advantages to our company through the use of cloud computing. The security of our business data cannot be adequately guaranteed in the cloud. We have not yet looked at the issue of cloud computing for our company. 52% 55% 54% 48% 45% 46% 51% 40% 43% 47% 40% 42% Larger companies Mid-sized companies Total 75% 72% 73% 68% 71% 70%

Integrating cloud services in our IT landscape is too costly. We are concerned with violating rules and regulations (ie, compliance infractions) through the use of cloud services. The market is currently too complicated to be able to make a decision.

These results alone reveal little difference between the views of mid-sized and larger companies on the subject of cloud computing. But in the course of the survey, it became clear that more of the larger companies have engaged with the issue of cloud computing some even extensively. Their answers to certain concrete questions were more pointed than those of the mid-sized companies. In total, the mid-sized companies responded to the six different prompts with Do not know/no answer 45% of the time; among the larger companies it was just 34%. That may be because we reached more specialised (IT) executives in the larger companies than in the mid-sized companies.

Cloud Computing in the Middle Market 29

Outlook

Outlook
The survey results show that users have had good experiences with cloud services and that they have reaped measurable benefits.

The survey results show that the hesitation of mid-sized companies in particular stems from uncertainty over information security, data protection and compliance, and that many companies despite the attention the topic has received in the (trade) press and the IT industry in general do not clearly see the benefits of outsourcing their IT to the internet. But despite all the hesitation: the survey results also show that users have had good experiences with cloud services and that they have reaped measurable benefits. What remains is to overcome any lingering scepticism among non-users especially since more than half the companies surveyed had not yet engaged with the subject. As I see it

The results of PwCs survey of the middle market highlight what still has to be done: if some 80% are still sceptical about using cloud computing, then we have to shed more light on and raise awareness about cloud computing among smaller companies. We also have to address the biggest concerns mid-sized companies have about cloud computing, namely privacy and data security. Hans-Joachim Otto, Member of German Parliament, Parliamentary State Secretary at the Federal Ministry of Economics and Technology

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Outlook

But how? First off, providers have to present transparent concepts that clearly articulate the benefits of cloud computing and alleviate uncertainties and, in particular, concerns. Solutions are necessary in terms of information security, data privacy and compliance, all of which were cited by the mid-sized companies surveyed as the biggest obstacles to cloud computing. Providers have received support from policymakers who have themselves recognised the potential of cloud computing and who are working on pragmatic solutions for its successful application. As such, the Federal Ministry of Economics and Technology has announced a technical competition around cloud computing: Trusted Cloud aims to promote research and development activities that will generate efficient and innovative cloud structures and innovative cloud-based services. The project focuses in particular on aspects like data security, trust and reliability. Pilot projects chosen as part of the competition will receive financial support totalling about 50 million. But satisfied users, too, can help to alleviate the current concerns: through progress reports and the sharing of best practices. No argument carries more weight and is better suited than the opinion of a satisfied user when it comes to raising awareness among companies about the benefits, challenges and solutions surrounding cloud services.

with which selected pilot projects will be supported

50 million

Cloud Computing in the Middle Market 31

Tips for the successful use of cloud computing

Tips for the successful use of cloud computing

As I see it

From the perspective of the EU, cloud computing means that we have huge potential, and that as part of the digital agenda we must set standards for its use. Because we do not yet have such standards in the EU. This will be addressed by the Commission in the weeks and months ahead. Matthias Groote, Member of European Parliament

We would like to end by providing mid-sized companies with some tips for succeeding in the cloud. Here we address the main concerns of the middle market. Concerns about cloud computing and its disadvantages stem in part from the fact that there are no binding standards or best practices that could provide guidance on how to use cloud technology in everyday business. Users report, however, that cloud services can already be used profitably. Good preparation is the most important foundation for a successful experience. Ahead of outsourcing their IT, companies should consider the following: Define your goal in using cloud computing and develop an appropriate strategy. Decide what business processes and services are suitable for being outsourced to the cloud. Set clear and quantifiable goals for example in terms of cost savings, increased innovation potential and optimised use of resources. Confirm these goals in-house. Involve all relevant people and competencies in your cloud project, because: important competencies dont only reside in IT, they also lie in the different departments as well as in the areas of information security, data privacy, compliance, purchasing, finance and contracts. Establish important frameworks (including with regard to information security, data privacy, compliance, technology, contracts) and formulate guidelines. On this basis, develop a filter for evaluating and selecting cloud providers. Take stock of your situation and identify the areas where some adjustments are necessary and what costs are associated with them. Determine the costs and benefits of your cloud project in the form of a feasibility study. When drawing up a contract, it is imperative to detail services and obligations between cloud providers and cloud users in order to protect against later surprises. It should also be determined whether software licences are adequate (for example in terms of transferability). Data privacy should also be addressed. The contract parties also need to decide whether subcontractors can handle the data. This is especially important when

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Tips for the successful use of cloud computing

data is transferred across borders between different servers and processing centres. Other important components of a robust contract include guaranteed service availability and the return of data post-cloud. Thats because at the end of the contract, upon sale of the provider to a third party or in the event of insolvency the data must be returned safely and its entirety. A transfer of data to a third country should only be considered if there is a level of data protection equivalent to that in the EU. These preparatory steps quickly pay off and ensure companies will reap maximum benefit from cloud services. To alleviate companies concerns about information security, data protection and compliance requirements, many cloud providers are currently working on viable solutions. PwCs 2010 study Cloud Computing Navigation in the Cloud also showed this. However, there is still work to do, as evidenced by the results of our survey. Providers should therefore take advantage of all available certifications from independent third parties to do what is obviously missing: build trust.

Users report that cloud services can already be used profitably. Good preparation is the most important foundation for a successful experience.

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Contacts

Contacts
Markus Vehlow Olof-Palme-Strae 35 60439 Frankfurt am Main Tel.: +49 69 9585-2293 E-Mail: markus.vehlow@de.pwc.com Dr. Peter Bartels New-York-Ring 13 22297 Hamburg Tel.: +49 40 6378-2170 E-Mail: peter.bartels@de.pwc.com Cordula Golkowsky Friedrich-Ebert-Anlage 3537 60327 Frankfurt am Main Tel.: +49 69 9585-5022 E-Mail: cordula.golkowsky@de.pwc.com Dr. Christina Mller Olof-Palme-Strae 35 60439 Frankfurt am Main Tel.: +49 69 9585-1714 E-Mail: christina.mueller@de.pwc.com

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