Tag Archives: Cloud

In The Press

In cloud computing moves, money isn’t everything
Gigaom.com, March 26, 2012
While saving money is a common reason cited for moving IT to the cloud, it is really not the overriding driver at all for most companies, according to new research.
What’s more important than cost savings for companies — at least in the U.S. and Asia-Pacific regions — is the ability to standardize their software and business processes across the company, according to a new survey of 600 large companies by Tata Consultancy Services, the $8 billion IT service provider. Read more


Emerging markets lead the way in cloud application adoption
Business Standard, March 27, 2012
Large companies in Latin America and Asia Pacific are the most aggressive adopters of the cloud computing paradigm, while their European and US counterparts remain conservative about shifting applications to the cloud. The average Latin American company has almost two fifths (39%) of its total applications in the cloud. Asia Pacific follows closely behind with over a quarter (28%). Read more


Corporate cloud apps will rise 18% by 2014: TCS study

The Hindu Business Line, March 27, 2012
Despite the hype, cloud applications do not rule the large corporation though cloud usage is expected to increase significantly, said a TCS global study.Many companies are still reluctant to put applications with sensitive data in the cloud.The survey said corporate cloud applications will increase by an average 18 per cent by 2014. Read more


US Lags Much of World in Cloud Computing Adoption: Study
Forbes.com, March 29, 2012
From Tata Consultancy Services (TCS) comes a new study with an eye-opening finding: that the United States and Europe lag behind the rest of the world in cloud computing adoption. This is surprising because many of the companies that have been driving and leading the cloud computing phenomenon are US-based, such as Amazon Web Services, Google, IBM, RackSpace, Microsoft, Apple, and Oracle — not to mention the countless vendors offering Software-as-a-Service options. Read more

The CEO Point of View

The No-Longer-Hypothetical Case for Jumping on the Cloud
By N. Chandrasekaran, CEO and Managing Director, Tata Consultancy Services


Tata Consultancy Services has watched with great interest the ongoing development of cloud computing. We have advocated the opportunities in multiple Innovation Forums and through different media since 2004. We have sought out the best practices in using this new technology by bringing our clients, venture capital firms, startup companies, professors, industry analysts and other technology companies together to talk about the implications of this on major business and technology issues of the day.

We see cloud computing as an ecosystem play – an opportunity that requires us to work deeply with a range of entities from academia and start-ups to corporations, and technology providers –to bring world-class solutions to market. Cloud has become a key focus of our Co-Innovation Network (or COIN), which is our mechanism for collaborating with these entities.

We have invested in building capabilities of our engineers to create a suite of cloud-based solutions to help our clients capitalize on the cloud. We have been redesigning their business processes and shifting on-premises applications to the cloud; developing, testing and maintaining whole new applications for the cloud; and in some cases hosting and supporting their cloud applications.

We have developed new business models using the cloud paradigm. One year ago TCS launched iON, a cloud-based holistic IT offering for small and medium-sized businesses in India – services that can give the country’s 35 million SMBs enterprise-quality IT services on a pay-as-you-grow model. This requires no capital investments in technology and eliminates technology redundancy, thereby addressing two key concerns for capital-constrained SMBs.

We have used the cloud platform to drive financial inclusion in India and aided the expansion of rural banking services by offering the latest core banking solution engines that run on the cloud. And we have created special cloud offerings for insurance companies and banks, as well as offerings that provide certain business processes from the cloud.

There is no question that we are excited about its potential to be all over the cloud. But last fall, the question for us about the cloud was this: Does the world of large enterprises view cloud computing the same way? Are they as bullish on the cloud as we are? Are they making big bets on the cloud too?

As a result, we decided to conduct a major study to understand the expectations and the potential of this new paradigm in computing. We fielded an extensive survey that was completed by 606 companies around the world in 16 industries (most organizations came from a corporate group had more than $1 billion in annual revenue). We also engaged in in-depth interviews with six enterprises to dive well below the surface of these issues. Executives at a large bank in Australia, a leading educational assessment testing company, a large technology manufacturer, an online media company, a $5 billion consumer products company, and a major telco talked to us about their cloud activities.

We wanted to shed light on the extent to which large enterprises had adopted cloud applications and their cloud plans in the next two years. Has enterprise adoption of cloud reached an inflection point? What business applications have companies shifted from on-premises technology to the cloud? And what new opportunities is cloud opening up for IT functions that may view their role as “keeping the lights on” – of running data centers? Do they see opportunities from the cloud to create new value to their organizations?

 

What We Thought We’d Find

Going into the study, TCS viewed cloud computing as critical piece of a big, emerging puzzle: how companies can use it as a platform in combination with other technologies to create great experiences for customers who increasingly do their shopping on the mobile devices they carry in their pockets, backpacks and purses.  We saw cloud computing as a key building block for bringing the “digital consumer” to life – as important as social media, mobile technology (and apps) and “big data.”  We believe cloud makes it possible for companies to experiment with high-potential new online marketing, sales, customer service and other business processes, as well as promising new online products – all without having to make huge, fixed-cost technology investments. But were companies around the world viewing cloud applications the same way – as a tool to dramatically scale up their operations at variable costs, especially in emerging markets that had yet to prove out?

So what did we learn from our research? Our key takeaway is that as lofty as our vision may be for the long-term impact of cloud computing, we have, in fact, underestimated its potential. The research is moving us to believe that by 2020, when executives at large global companies reflect back on the major trends that shaped their businesses this decade, they will see cloud computing as one of the biggest.

The net of our findings is this: Cloud applications are an already-substantial piece of the large corporate IT infrastructure, one that is having significant impacts and is viewed to be even more important going forward. The views and activities of the companies that we surveyed and interviewed suggest there is no turning back from the cloud. The early benefits achieved are too substantial to revert to days of yore, when companies hosted all their application software on computers in their data centers and on their employees’ digital devices.

 

The Findings: We’ve Reached an Inflection Point with Cloud Applications

Every calculus lover knows that the inflection point on a curve is the place at which the curvature changes. The term “strategic inflection point” connotes a major change in the market – a point on which companies must change their offerings and/or the way they do business in order to keep up with the market.  So is cloud computing at an inflection point – the moment in which companies have embraced it as a critical technology strategy? Our study tells us the answer is a strong yes.

We asked IT executives what percent of their total applications were cloud applications. The answer: an average 12% in European firms, 19% in U.S. firms, 28% in Asia-Pacific firms and a surprising 39% in Latin American firms. In light of that, saying cloud applications have gained a toehold in large enterprises would be a gross understatement. (See Exhibit 1.)

What’s more, these same companies projected those percentages to grow significantly by 2014. For example, in European companies cloud applications are projected to double to becoming 24% of all applications. U.S. firms see cloud applications being about a third (34%) of total applications by then, when Asia-Pacific companies project them to be a full half of all their applications and Latin American companies see them becoming 56% of total applications. That’s quite a change from the last 30 years, when the vast majority of companies ran their applications from computers located on their premises.


Why Companies are Rushing to the Cloud, and the Returns They’re Getting

Why are companies embracing the cloud? Among U.S. and Asia-Pacific companies, the most important driver is not the one that many think it would be (to reduce technology costs). To be sure, cutting IT costs is a big driver. But more important was the need to standardize applications and the business operations those applications support – a critical need in an increasing number of global companies that want to establish common policies and procedures in the ways they hire people, take orders, serve customers, manage the books, and conduct other critical business activities. A major telco that we spoke to said standard cloud applications are helping business units cut IT costs and reduce its data center footprint.

Another big driver of cloud applications (especially in the U.S. and Asia-Pacific) was increasing the flexibility of applications – the ability to ramp up or down applications quickly. Online media firms are using the cloud to respond to huge variations in the demand for online services by online customers. One online media firm last year implemented its first private cloud in a new data center. It can get a new server running in minutes vs. the 6-12 weeks it took a decade ago. That’s critical when in a business where online viewers can increase in the millions from day to day or week to week.

The need to process “big data” – huge volumes of transactional and other digitized data – is also a big driver of cloud applications. About two-thirds of the U.S. companies surveyed said improving the way they gathered and analyzed data was a key factor in shifting to cloud applications.

Perhaps the most important piece of evidence that companies will embrace cloud applications in a big way is the value they have achieved to date from such applications. By shifting on-premises applications to the cloud, the companies we surveyed reduced their IT costs an average 31% in U.S. firms and 28% in European companies. (See Exhibit 2.) To us, this is not surprising. Such savings come from such sources as the ability to purchase network capacity and storage far less expensively, locate data centers in areas with lower post costs, and institute more highly automated data centers. By using public clouds (Internet services provided from data centers that host many companies’ applications), companies are able to tap into powerful application software that would have been cost-prohibitive for many.

But cost reduction is by no means the only benefit companies had generated from cloud applications.  Those that launched whole new applications in the cloud — applications that might have been economically infeasible had they required costly new computer hardware — reported 13% (U.S.) to 32% (Latin America) average revenue gains from their new, cloud-based products and services. Whether they are replacing on-premises applications or representing whole new applications, the cloud is generating substantial business value in many companies.

To examine the impact of cloud applications up close, we interviewed executives at six companies who shared their cloud experiences. As an example of the cost-reduction potential of cloud, the previously mentioned telecommunications firm moved all HR applications to the cloud last year, standardizing on enterprise software packages. The company believes cloud applications hosted in its own data centers (so-called “private clouds,” which would eventually house 80% of its applications) could cut IT costs by $100 million to $200 million annually and its number of data centers 80%. Another example is a large financial institution based in Sydney, which reduced its cost of computer storage 40% by putting applications in the cloud.

But those stories just speak to the cost benefits of cloud applications. The companies we surveyed and interviewed said the business process improvement and revenue benefits were even more important. After beginning to shift on-premises applications to the cloud in 2007, the previously mentioned bank in Australia has been using the cost savings from the cloud to develop new banking services  – apps that present offers on financial products to customers in real time – particularly on mobile devices, for instance.

Another example of a company that sees cloud applications to be critical to developing new products is one of the three largest U.S. suppliers of school assessment tests. The company has been shifting assessment testing of U.S. K-12 students from paper to online. Because many states are expected to require online assessment tests this decade, the company is experimenting with cloud-based solutions. It envisions having to deliver and score more than 40 million tests in a two-week period by 2014. The cost of building the technology infrastructure for such a short time would be enormous. That’s why the company is all over the cloud.

Companies have big plans to shift many more applications across all their business functions to the cloud over the next two years, particularly in customer-facing business processes of marketing, sales and customer service.  Firms like the technology manufacturer that we interviewed are using cloud systems aggressively in their marketing campaigns, starting with online games (so-called gamification applications) that appeal to customers.


Certain Industries are in the Lead

Our survey found four industries have been much more aggressive in adopting cloud applications (in public or private clouds) than other industries. We asked companies to tell us how many cloud applications they were using in 10 core business functions: marketing, sales, R&D, manufacturing/operations, HR, finance, customer service, legal, distribution and procurement. At the top of the list were the computer/electronics, financial services, industrial manufacturing and telecom services industries (averaging with more than six cloud applications per function). At the bottom were healthcare services and chemicals companies, averaging less than four cloud applications per business function. (See Exhibit 3.)

Yet despite the strong embrace of the cloud in many industries, most companies have remained somewhat conservative about what systems and data they put in public clouds – in the data centers of third parties that host many companies’ applications and IT infrastructure. While our survey found that the majority of U.S., Asia-Pacific and Latin American companies would consider putting their core applications in private clouds, only a minority today would put core applications in public clouds. The reason is fear of data security and privacy. The companies we surveyed in all four regions said their biggest challenge to leveraging the cloud is overcoming their concerns about IT security.

Thus the challenge for companies and cloud vendors like TCS is clear: to greatly reduce the fear that most large companies have about putting mission-critical information systems and sensitive data in public clouds. Large companies now want to shift many applications to the cloud, and they realize that if they are to get the greatest cost savings, it will have to be to public clouds (where cloud vendors can spread their costs across hundreds or thousands of customers). But customers will need to be sold on cloud vendors’ information security promises. That will require bringing industrial-strength practices to information security and maintaining systems availability. All this will separate the cloud-proficient vendors from the cloud pretenders.

Stories like these, and the responses of the 600+ companies that we surveyed, show that the cloud is beginning to have a profound impact on a number of industries. The benefits we’ve uncovered should remind business and IT executives that where there is smoke, there is fire. As an increasing number of companies publicly discuss the benefits of cloud computing, we expect many more enterprises will rush to adopt cloud applications in every facet of their business.

Now is the time for business and IT executives to look strongly at the cloud – both private clouds dedicated to the needs of one company or public clouds in which multiple companies can be served. Our research shows that companies have moved beyond the inflection point. The next few years will be ones in which market leaders are companies who quickly capitalized on the cloud.

What Companies Look for in Cloud Vendors

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 finished at the bottom of a list of nine factors in making the cloud application purchasing decision.


  • Most important capabilities that customers 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.

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.

 


TCS Cloud Study – 10 Key Findings
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Key Success Factors in Capitalizing on the Cloud

The keys to adopting and benefiting from cloud applications are overcoming fear of security risks and skepticism about ROI.


  • Comparing responses by region of world

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 US, 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.

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.)

 


TCS Cloud Study – 10 Key Findings
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Willingness of Companies to Use Public vs. Private Clouds

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.


  • Differences by region of world

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.

 


TCS Cloud Study – 10 Key Findings
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Differences in Cloud Benefits by Region of World

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.


  • Contrasting US, European, Asia-Pacific and Latin American companies in cloud benefits achieved to date

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 US 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.

 


TCS Cloud Study – 10 Key Findings
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Differences in Cloud Adoption Across Global Industries

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).


  • 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

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.

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.

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:

  • 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%)

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) 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)

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%)

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.

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.

 


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The Most and Least Popular Cloud Applications

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.


 

  • Cloud applications most frequently shifted from on-premises technology
  • Cloud applications least frequently shifted from on-premises technology
  • Case study: Dell Inc.

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).

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 buying preferences), customer/market research applications, E-commerce, and customer analytics — all of which can risk customer privacy and provide 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).

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.)

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.)

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.

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.”

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.

 


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Which Business Functions are Using the Most Cloud Applications

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.


 

  • How the cloud application budget is being divided (by regions of world)
  • How companies plan to allocate their cloud budgets in 2014

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.

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.

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.

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 applications 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.

 


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The Benefits That Companies Have Gained from Cloud Applications

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.


  • 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

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
  • 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.

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.

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)

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.[1] 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.1

 

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.1

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.1) 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.1 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.

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.

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,” says 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.

 


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