D3 Analysis of the demand of cloud computing services in Europe and barriers to uptake

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F Quantitative Estimates of the Demand for Cloud Computing in Europe and the Likely Barriers to Take-up SMART 2011/0045 D3 Analysis of the demand of cloud computing services in Europe and barriers to uptake May 23, 2012 The opinions expressed in this study are those of the authors and do not necessarily reflect the views of the European Commission 1

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3 Author(s) Deliverable Giuliana Folco, Nina Bonagura, Giacomo Laurini, Marianne Kolding D3 Analysis of Barriers Date of delivery May 23, 2012 Version 1.0 Addressee officers Annalisa Bogliolo European Commission - DG Information Society D3 - Software & Service Architectures and Infrastructures Unit B-1049 Brussels, Belgium Office: BU25 3/125 Phone : Fax : annalisa.bogliolo@ec.europa.eu Contract ref. Contract Nr 30-CE /

4 Table of Contents 1 Executive summary Introduction and Background Summary of Key Findings Analysis of Cloud Barriers "No Intervention" Cloud Scenario to Actions to Increase Cloud Adoption "Policy driven" Cloud Scenario to analysis of cloud barriers Introduction Identification of Cloud Barriers First Assessment of Barriers' Relevance Barriers' Relevance for SMEs versus Large Companies Barriers' Relevance in the EU Public and Private Sectors Evolution of Barriers' Relevance First Conclusions on Cloud Barriers' Relevance Public cloud scenario forecast: "No Intervention" Introduction Forecast: "No Intervention" Scenario Vertical Outlook: "No Intervention" Scenario Company Size Outlook: "No Intervention" Scenario actions to overcome cloud barriers Introduction Actions to Overcome Cloud Barriers Impact on Cloud Adoption of Interventions Impact on Cloud Adoption in SMEs and Large Companies Impact on Cloud Adoption in the Public and Private Sectors Public cloud scenario forecast: "Policy driven" Introduction Forecast: "Policy Driven" Scenario Vertical Outlook: "Policy Driven" Scenario Company Size Outlook: "Policy Driven" Scenario concluding remarks and next steps Concluding Remarks Next Steps

5 Figures Figure 1 Legal jurisdiction barrier Figure 2 Data access and portability barrier Figure 3 Cloud Barriers Figure 4 Cloud Barriers: SMEs versus large companies Figure 5 Evolution of barriers' relevance Figure 6 Strengthening of barriers by cloud user group Figure 7 Strengthening of barriers for companies for which the barrier is already strong versus companies for which is low to moderate Figure 8 Strengthening of barriers by company size Figure 9 Public cloud "no intervention" 2020 scenario Figure 10 Public cloud "no intervention" 2020 scenario CAGRS by vertical Figure 11 Public cloud spending by vertical, Figure 12 Public cloud "no intervention" scenario spending by vertical, Figure 13 Public Cloud on total IT spending by vertical, and 2020 "no Intervention" Figure 14 Public Cloud CAGRS to 2020, "no Intervention scenario" by company size Figure 15 Public Cloud Spending, "no Intervention scenario" by company size Figure 16 Public Cloud on Total IT Spending, "no Intervention scenario" by company size Figure 17 Key actions to increase cloud adoption Figure 18 Key actions to increase cloud adoption: SMEs Figure 19 Key actions to increase cloud adoption: large companies Figure 20 Key actions to increase cloud adoption: private sector Figure 21 Key actions to increase cloud adoption: public sector Figure 22 Key actions to increase cloud adoption versus cloud barriers Figure 23 Impact of actions on cloud investments by solution area Figure 24 Impact of actions on cloud investments by cloud user group Figure 25 Impact of actions on cloud intensity Figure 26 Impact on SMEs' investments by solution area Figure 27 Impact on SMEs' investments by user group Figure 28 Impact on SMEs' cloud intensity

6 Figure 29 Impact on large companies' cloud adoption by solution area Figure 30 Impact on large companies' cloud adoption by user group Figure 31 Impact on large companies' cloud intensity Figure 32 Impact of cloud adoption by solution area in the private sector Figure 33 Impact on cloud adoption by user group in the private sector Figure 34 Impact on cloud intensity in the private sector Figure 35 Impact on cloud adoption by solution area in the public sector Figure 36 Impact on cloud adoption by cloud user group in the public sector Figure 37 Impact on cloud intensity in the public sector Figure 38 Public cloud "policy driven" 2020 scenario Figure 39 Public cloud "policy driven" 2020 scenario CAGRS by vertical Figure 40 Public cloud "policy driven" scenario spending by vertical, Figure 41 Public Cloud on total IT spending by vertical, and 2020 "policy driven" Figure 42 Public Cloud CAGRS to 2020, "policy driven scenario" by company size Figure 43 Public Cloud Spending, "policy driven scenario" by company size Figure 44 Public Cloud on Total IT Spending,"policy driven scenario" by company size Tables TABLE 1 Analysis of barriers' correlation TABLE 2 Cloud barriers by vertical TABLE 3 Barriers' impact indicators TABLE 4 Barriers' analisys: reality check TABLE 5 Final barriers' relevance TABLE 6 Barriers' impact indicators: SMES TABLE 7 Barriers' impact indicators: large companies TABLE 8 Barriers' analisys: reality check for SMES TABLE 9 Barriers' analisys: reality check for large companies TABLE 10 Barriers' impact indicators: public sector TABLE 11 Barriers' impact indicators: private sector

7 TABLE 12 Barriers' analisys: reality check for the public sector TABLE 13 Barriers' analisys: reality check for the private sector TABLE 14 Strengthening of barriers by vertical market (% of respondents) TABLE 15 Short-term final barriers' relevance TABLE 16 Long-term final barriers' relevance

8 1 E X E C U T I V E S U M M A R Y 1.1 Introduction and Background More than 60% of EU businesses already use some kind of public cloud services, but adoption is still limited to basic solutions ( for example) and spending in the public cloud accounts for just 1.6% of total IT in the EU business segment. This report presents an in-depth analysis of cloud barriers, based on a set of impact indicators on cloud adoption and plans of adoption, and suggests actions to address current and future barriers. Results include: The quali-quantitative analysis of barriers' relevance and impact on cloud adoption; The quali-quantitative analysis of actions needed to overcome cloud barriers; The quali-quantitative analysis of two main alternative scenarios: a no intervention scenario (implying that no specific strategy or policy is implemented) and a policy-driven scenario (where policy measures remove the barriers) According to IDC's definition used in this report, cloud computing services are consumer and business IT products, services, and solutions delivered and consumed in real time over the Internet. The report focuses on public cloud services, open to all customers, in the business segment. 1.2 Summary of Key Findings Analysis of Cloud Barriers Barriers have not stopped public cloud adoption so far, but have limited the strengthening of cloud intensity (number of cloud solutions adopted). There is not one single barrier to cloud uptake. However, EU companies believe legal jurisdiction, and security and data protection have restricted their cloud use the most. The high correlation of top barriers drives a negative cumulative impact on cloud adoption and short-term plans. Large companies (>250 employees) and vertical markets with the strongest cloud penetration (finance and telecommunications) have the highest levels of concern with cloud issues. In the government sector, most important barriers are security and data protection, legal jurisdiction, and data location. 8

9 EU companies under-evaluate the relevance that some business issues had on their cloud uptake and short-term plans of adoption. IDC analysis of cloud impact indicators shows that evaluation of usefulness (particularly in SMEs), local language, and ownership of customisation (particularly among large companies) have hampered adoption and short-term plans to a stronger degree than what companies told in the survey. Large companies have a better understanding than SMEs of what really affects their cloud strategy. IDC analysis on cloud impact indicators confirms large companies' own assessment of top barriers. According to EU businesses, the relevance of some barriers (legal jurisdiction, data location, service providers' liability and responsibility, data access and portability, and security and data protection) is set to strengthen overtime. With the natural evolution of the market, some business and technical barriers will lessen. However, Internet connectivity (mobile broadband in particular) and tax incentives on capital spending may have a stronger impact on the future evolution of the cloud market than seen so far "No Intervention" Cloud Scenario to 2020 The scenario assumes "no intervention" to face some of the most pressing barriers to cloud adoption. If no actions are taken to overcome cloud barriers (particularly those that EU companies expect to strengthen over time), investments in the cloud will soften. After solid growth in (32.9% annually), the EU compound annual growth rate of cloud spending will moderate to 21.6% into By then, public cloud spending will amount to 35 billion (or 9% of total IT spending in the EU business segment). As persisting barriers hamper the strengthening of cloud intensity in EU businesses, growth rates will soften in all vertical markets. In particular, cloud spending in the government sector will show the lowest growth rates and will remain small compared to potential. SMEs will continue to lag behind and their gap with large companies will enlarge. The share of SMEs of total public cloud spending will decrease from 16% in 2014 to 13.5% in As such, the cloud would not produce a "leapfrog" phenomenon and would fail to provide automation benefits to the EU SME segment. 9

10 1.2.3 Actions to Increase Cloud Adoption There is not a silver bullet able to overcome all barriers to cloud. However, the enterprise survey provides good indications of the actions that should be prioritized to help cloud investments in the EU. 80% of survey respondents identified the following key actions to increase cloud uptake: o o o o Clear rules over accountability and reliability of vendors about security, Portability of data and application between cloud provides, Better Internet connectivity, Security certification of cloud service vendors on their security and data protection arrangements. Policy counts. If barriers were removed: o o o More than 98% of EU companies would start or strengthen investments in cloud solutions. The cloud would attract new users: 96.3% of companies that are currently thinking at the cloud (without formal plans yet) would start investing. 93.6% of companies that are currently not even thinking at the cloud would also start investing. Cloud intensity will strengthen across the board. On average, nearly all EU companies will rely on four cloud solutions. IDC acknowledges that these results may be somewhat optimistic and that not all intentions will translate into real investments. However, the indication that targeted actions can help cloud uptake is strong "Policy driven" Cloud Scenario to 2020 If cloud barriers were removed with a series of coordinated actions, the most relevant benefit would be the increasing pervasiveness of cloud solutions leveraged across companies' business processes. IDC acknowledges that not all key actions can be addressed within policy frameworks, but the EC can create a favourable environment (for example, use cases and best practices can support cloud skills development and help foster innovation) and make a push to find solutions to non regulatory related issues. Under the "policy driven" scenario, public cloud spending will grow at a 38.3% compound annual growth rate and will amount to nearly 80 billion in 2020 against 35 billion in the "no intervention" scenario. 10

11 Growth rates will strengthen across all vertical markets, and in particular in the government sector, where several barriers have hampered large-scale cloud projects. SMEs (especially companies with employees) will increasingly rely on cloud solutions. The share of SMEs on total public cloud spending will increase to 25% in By then, SMEs will dedicate 17.4% of their IT budgets to cloud solutions. More interestingly, although IDC assumes lower total IT spending in the "policy driven" scenario compared to the "no intervention" scenario, total SMEs' IT spending would be higher in the "policy driven". Thanks to the cloud, more SMEs would adopt IT solutions for the very first time. In this setting, the cloud would help EU SMEs gaining efficiency and help their competitive position on the global market. 11

12 2 A N A L Y S I S O F C L O U D B A R R I E R S 2.1 Introduction The IDC enterprise survey, undertaken as part of this study, shows public cloud services are already in use at a large number of EU companies (64% of respondents are already using some type of cloud solutions). However, adoption is currently higher for "basic" solutions (such as and security), and among large companies, while smallest SMEs (1-9 employees) lag behind. Despite relatively high adoption rates, cloud intensity (number of cloud solutions' adopted) is also rather limited: some 28% of companies adopt more than one cloud solution (beyond ), and just 2.6% adopt all twelve cloud solutions IDC investigated in the survey. Looking at current investments, average budgets assigned to the cloud are still small, and public cloud services accounted for just 1.6% of EU IT spending in the business segment in 2011 (or 4.6 billion). Although tangible economic benefits are available from cloud adoption, low cloud intensity means that cloud has so far had an almost negligible beneficial impact on the EU economy as a whole. A wide range of bottlenecks and barriers hinder full adoption of the cloud model, hampering the materialization of extended benefits to the EU economy. The following section identifies and analyses cloud barriers in detail, as a first step to recommend actions that would create a more favourable environment for the development of the cloud market in the EU. 2.2 Identification of Cloud Barriers In the enterprise survey, IDC asked respondents about a wide range of potential concerns, including: Security: "We are worried about the security and data protection guaranteed by cloud services" Trust: "It is difficult to judge which cloud services are trustworthy" Data location: "We do not know and/or cannot control the location of our corporate data" Local support: "There is no local support for the services" Change control: "We cannot control software changes and upgrades made by the vendor" Ownership of customisation: "We do not know who owns the customisations/changes we make to the cloud services" Evaluation of usefulness: "We do not know how to evaluate the usefulness of cloud service for our organisation" Slow Internet connection: "Our Internet connection(s) is/are not reliable or fast enough" 12

13 Local language: "There is no local language version of the services" Tax incentives: "Tax and other incentives make buying with capital more attractive than paying for what we use on subscription." Additional questions drilled down into other potential concerns, including: Legal jurisdiction: o o "If we have a dispute with the cloud service provider, I may have to go to court in another country inside the EU" "If we have a dispute with the cloud service provider, we may have to go to court outside the EU" Data access and portability: o o o o o "Concern about our ability to move data from one vendor to another or onto our own IT" "Concern about our ability to move our business processes from one vendor to another or onto our own IT" "Concern about our ability to move our software and systems from one vendor's cloud platform to another's or onto our own IT." "Concern about our ability to connect business processes in the cloud services to business processes on our existing systems" "Concern about continuous availability and access to our data stored on cloud services, and/or to delete it" Results for legal jurisdiction and data access and portability (provided in Figures 1 and 2 below) unveil that: In case of a dispute, companies are generally more concerned having to go to court in a country outside the EU rather than within the EU. EU companies are almost equally concerned with the issues investigated in the survey for data access and portability. However, availability and access to data is seen as the most stringent issue, with 8% of companies stating this restricted their cloud use completely. 13

14 F I G U R E 1 L E G A L J U R I S D I C T I O N B A R R I E R % of respondents stating barrier is restricting (very/completely) cloud adoption Going to court outside the EU 13.9% 19.8% Completely Very Going to court in another EU country 9.6% 20.0% 0.0% 10.0% 20.0% 30.0% F I G U R E 2 D A T A A C C E S S A N D P O R T A B I L I T Y B A R R I E R % of respondents stating barrier is restricting (very/completely) cloud adoption Connecting business processes in the cloud to those in own systems 5.4% 18.2% Moving business processes from one vendor to another on onto their own IT systems 5.2% 18.6% Moving data from one vendor to another on onto their own IT systems 5.6% 19.1% Completely Very Availability and data access 7.9% 19.5% Moving software and systems from one vendor's cloud platform to another on onto their own IT systems 5.2% 20.0% 0% 5% 10% 15% 20% 25% To be able to compare these barriers with the others listed above, IDC calculated average results for the items describing legal jurisdiction and data access and portability, and provided a full ranking of all barriers (Figure 3). 14

15 With percentage of respondents ranging from 32% to just above 17%, there is not one single barrier to cloud adoption in the EU. Legal jurisdiction, and security and data protection are at the top of the ranking. Nearly 32% of respondents believe that issues related to legal jurisdiction are currently restricting (very or completely) the uptake of cloud. Nearly 12% think they are restricting completely their cloud use. Security and data protection follows in the ranking, with 30.5% of respondents seeing it as a strong barrier, and with up to 10% of respondents saying that this restricted their cloud use completely. However, all the other concerns are quite close in importance, with less than 19% of respondents considering the evaluation of cloud usefulness, slow Internet connectivity, the lack of solutions in local language, and tax incentives on capital spending important barriers. F I G U R E 3 C L O U D B A R R I E R S % of respondents stating barrier is restricting (very/completely) cloud adoption Legal Jurisdiction Security& data protection Trust Data Access and Portability Data location Local support Change control Ownership of customisation Evaluation of Usefulness Slow Internet Connection Local language Tax incentives 25.1% 24.9% 23.8% 22.8% 22.4% 21.4% 18.2% 18.0% 17.9% 17.4% 31.7% 30.5% 62.2% of respondents 0% 5% 10% 15% 20% 25% 30% 35% As shown in Figure 3, 62.2% of respondents mentioned at least one of the top six concerns, which implies a quite strong correlation of top barriers. Indeed, IDC went through an analysis of barriers' correlation, considering all possible combinations. The highest correlation levels are recorded for the top barriers and, in particular, for "legal jurisdiction & data access and portability", and "legal jurisdiction & security and data protection". 22.5% of respondents mentioned the combination of the first two barriers as restring cloud usage the most; nearly 20% mentioned the combination of the other two (Table 1). This means that if it is true there is not one single barrier to cloud adoption, it is also true that there is a cumulative negative impact on adoption, driven by the high correlation level of all top barriers. Therefore, a single action would not suffice to overcome the current 15

16 situation. A number of coordinated actions, with a focus on top barriers, would be needed to create a more favourable environment to cloud adoption. Interestingly, most of top barriers (legal jurisdiction; security and data protection; trust; and data location) can be addressed within policy frameworks. T A B L E 1 A N A L Y S I S O F B A R R I E R S ' C O R R E L A T I O N Analysis of Correlation: % of companies on total sample for each possible combination of barriers (top 9) Ranking Combination of Barriers Correlation 1 Legal jurisdiction & Data access and portability 22.6% 2 Legal jurisdiction & Security and data protection 19.5% 3 Data access and portability & Security and data protection 18.1% 4 Security and data protection & Trust 16.0% 5 Security and data protection & Data location 15.8% 6 Legal jurisdiction & Trust 15.3% 7 Legal jurisdiction & Data location 14.9% 8 Data access and portability & Trust 14. 9% 9 Data access and portability & Data location 14.4% Source: IDC, 2012 Respondents have different perspectives on barriers, depending on the vertical in which they operate, the size of their companies and the level of adoption of cloud solutions. From a vertical market perspective (Table 2), finance institutions show the highest levels of concern compared to any other industry, in particular for security and data protection, trust, data location, and data access and portability. More than 33% of finance institutions attach a strong relevance to these barriers. Telecommunications and healthcare/education are relatively more concerned with legal jurisdiction problems than other industries. Telecom players also show a quite high level of concern with the ability to control software changes. Security and data protection, data location and legal jurisdiction are the strongest barriers in government. 16

17 T A B L E 2 C L O U D B A R R I E R S B Y V E R T I C A L % of respondents stating the barrier is restricting (very/completely) cloud adoption by vertical market Finance Manufacturing Government Healthcare/ Education Distribution Telecommunications Other services Evaluation of Usefulness 25.4% 18.5% 16.5% 14.2% 13.8% 21.6% 19.2% Slow Internet Connection 25.5% 16.0% 14.0% 19.1% 19.7% 20.5% 18.2% Security& data protection 39.0% 32.7% 32.9% 23.4% 31.9% 30.3% 29.0% Data location 36.5% 21.1% 28.0% 19.3% 27.7% 24.6% 23.2% Ownership of customisation 27.9% 22.3% 23.7% 20.1% 21.8% 21.0% 18.8% Trust 34.6% 22.1% 22.3% 16.8% 23.9% 33.1% 28.8% Change control 26.9% 19.9% 20.6% 22.2% 21.3% 29.5% 20.9% Local support 29.1% 23.8% 17.8% 20.7% 22.9% 28.1% 20.7% Local language 25.0% 16.1% 16.1% 22.1% 17.0% 19.9% 15.5% Tax incentives on capital spending 16.6% 17.9% 22.4% 14.2% 15.4% 18.6% 16.2% Legal Jurisdiction 33.1% 27.6% 28.8% 35.4% 30.1% 35.4% 33.3% Data Access and Portability 37.2% 23.6% 24.6% 21.6% 25.0% 28.9% 23.6% Source: IDC, 2012 Looking at the results by company sizes, large companies (>250 employees) generally have higher levels of concern compared to SMEs (<250 employees) for most of barriers analysed (Figure 4). However, small companies (1-99 employees) find it more difficult to evaluate the usefulness of cloud than large ones. Medium-sized companies ( employees) are the most concerned with legal jurisdiction issues. Despite ranking high, legal jurisdiction is not the first concern for large 17

18 companies (which, at the high-end, may leverage an internal legal department, while most of SMEs do not). Security and data protection is the most important barrier among large organisations. F I G U R E 4 C L O U D B A R R I E R S : S M E S V E R S U S L A R G E C O M P A N I E S % of respondents stating barrier is restricting (very/completely) cloud adoption: SMEs vs Large companies Legal Jurisdiction 31.4% 31.9% Security& data protection 25.8% 35.7% Data location 25.0% 23.7% Trust 28.7% 22.3% Data Access and Portability 27.9% 22.2% Change control 25.4% 21.2% Local support 23.8% 21.2% Ownership of customisation 23.5% 19.8% Evaluation of Usefulness 17.3% 19.7% Local language 18.0% 17.9% Slow Internet Connection 20.5% 15.8% Tax incentives 19.9% 15.6% 0% 5% 10% 15% 20% 25% 30% 35% 40% >250 employees <250 employees The analysis of the top three barriers by user group gives also interesting results. Full cloud users in more than one area (most sophisticated cloud users 32.7% of respondents) are the most concerned with barriers that call for policy intervention (security and data protection, legal jurisdiction, data access and portability). Full cloud users in only one area (13.4% of respondents) are more concerned with a mix of barriers, ranging from legal aspects (legal jurisdiction) to trust and the ability to control software changes. Limited/trial users (18.4% of respondents) are concerned with security, but also with the ownership of customization and the lack of local support. Security and data protection, data access and portability, and limited local support create troubles to companies planning cloud usage (13.3% of respondents). 18

19 Companies thinking of adopting cloud (but without plans yet 11.5% of respondents) and companies that are not adopting, nor planning or thinking of the cloud (10.7% of respondents) share the same perspective on cloud barriers. Security and data protection, data access and portability, and local support hamper current adoption and short-term plans. 2.3 First Assessment of Barriers' Relevance Data in the previous section refer to companies' own assessment of barriers; what they told us in the survey to be restricting their cloud usage. As already analysed in D2, barriers have not stopped cloud adoption so far: even the heaviest enterprise users of cloud have high levels of concerns with respect to cloud services. To understand to which level each barrier is really impacting cloud adoption and plans, IDC has undertaken a more in-depth analysis of survey results, considering two broad groups of companies for each barrier: o o Companies that said the barrier is strong Companies that said the barrier is low to moderate The interesting result of the analysis is that companies do not always behave consistently with what they say they do. Considering as an example legal jurisdiction (the most important barrier according to EU companies in the survey), 47.1% of companies that consider this barrier as strong are full cloud users in at least one area. Only 45.6% of companies that consider it a low to moderate barrier are full cloud users in at least one area. The difference is even higher if we look at the full cloud users in more than one area (34.1% versus 31.9%). Despite being considered a strong barrier, the impact of legal jurisdiction on current cloud adoption has not been particularly strong. On the contrary, the impact that the evaluation of usefulness of cloudhas on current adoption is higher than what companies told us in the survey. Only 42.2% of companies that consider this barrier strong are full cloud users in at least one area, against 47% of companies that consider this barrier as low to moderate. The gap is consistently wide if we consider full cloud users in more than one area (29.3% against 33.5%) To be able to understand real impacts of barriers on the cloud journey, IDC has therefore decided to leverage a set of indicators, which describe impacts on adoption, plans of adoption and cloud intensity (number of cloud solutions adopted). Indicators are as follows: Indicator 1: Companies' own assessment of cloud relevance: it measures companies' own assessment of the relevance attached to the different barriers and represents the ranking of importance as indicated by EU companies in the survey, weighted to give more 19

20 relevance to responses of SMEs (the laggards on the cloud journey). Indicator 2: Impact on current cloud adoption: it measures the impact the barrier has on the adoption of cloud, by evaluating the difference in the adoption status of companies that assigned low to moderate relevance to a barrier versus those that assigned strong relevance to the same barrier. Indicator 3: Impact on current cloud intensity: it measures the impact the barrier has on the number of cloud solutions companies adopt, by evaluating the difference in the adoption status by solution area of companies that assigned low to moderate relevance to a barrier versus those that assigned strong relevance. Indicator 4: Impact on non adoption: it measures the relevance of the barrier for companies not adopting/planning to adopt cloud, by evaluating the difference in the rate of non adoption of companies that assigned low to moderate relevance to a barrier versus those that assigned strong relevance. Indicator 5: Impact on cloud plans: it measures the impact the barrier has on plans for adoption of cloud, by evaluating the difference in the adoption plans of companies that assigned low to moderate relevance to a barrier versus those that assigned strong relevance. Indicator 5 covers all end-users short-term intentions, including "no adoption and no plans". Indicator 4 is therefore part of Indicator 5 (a "sub-indicator" of 5). Indicator 6: Impact on the evolution of cloud intensity: it measures the impact the barrier has on the number of cloud solutions companies plan to adopt, by evaluating the difference in plans of adoption by solution area of companies that assigned low to moderate relevance to a barrier versus those that assigned strong relevance. Indicators range from 0 to 1, where 0 is "least important barrier" and 1 is "most important barrier". Given that results for some barriers are pretty close, "0" doesn't mean the barrier is not relevant at all, but that it is less relevant compared to the others under analysis. All results for the impact indicators (indicators 2, 3, 4, 5, 6) are shown in Table 3. 20

21 T A B L E 3 B A R R I E R S ' I M P A C T I N D I C A T O R S Indicator 2 - Impact on current cloud adoption Indicator 3 - Impact on current cloud intensity Indicator 4 - Impact on non adoption Indicator 6 - Impact on Indicator 5 evolution of - Impact on cloud cloud plans intensity Evaluation of Usefulness Slow Internet Connection Security& data protection Data location Ownership of customisation Trust Change control Local support Local language Tax incentives on capital spending Legal Jurisdiction Data Access and Portability Source: IDC, 2012 Key findings include: Evaluation of usefulness, ownership of customisation, data access and portability, and local language have the strongest impact on current cloud adoption. Legal jurisdiction, evaluation of usefulness, and trust are hampering current cloud intensity. Data location, data access and portability, security and data protection are the key barriers hampering plans of adoption. Trust, legal jurisdiction, security and data protection, and data access and portability are the key barriers stopping investments. Evaluation of usefulness, legal jurisdiction, trust, security and data protection hamper the strengthening of cloud intensity. A comparison of Indicator 1 (companies' own assessment of barriers' relevance) and the average of the impact indicators described above gives us a reality check of what companies perceive as key barriers and how barriers have really impacted adoption and are impacting current plans of investment. The comparison is shown in Table 4. It is evident that EU companies in the survey have under-evaluated the impact that some business issues have on cloud adoption, in particular those around the evaluation of usefulness, which, as it usually happens with emerging technologies, has quite an impact on adoption and plans, particularly on SME 21

22 companies in the survey. Proving the business case is always a key requirement for the adoption of Information Technology, especially if the solution is relatively new. The availability of cloud solutions in the local language is also more important than companies told us in the survey. This result is quite aligned with IDC estimates of the current cloud market, which sees the UK dominating the EU, with a 33% share in As explained in D2, the availability of cloud solutions provided by US vendors and initially only available in English, is one of the key reasons behind stronger cloud spending in the UK. The lack of transparency of the ownership of customised changes made to the cloud solution is also a more important barrier than perceived by EU companies, particularly for large ones. On the other hand, despite remaining quite strong, barriers linked to potential regulatory problems have been so far relatively less important than stated by EU companies in the survey, particularly for SMEs. T A B L E 4 B A R R I E R S ' A N A L Y S I S : R E A L I T Y C H E C K Indicator 1 - Assessment of cloud relevance Average Impact Indicator* Legal Jurisdiction Security& data protection Trust Data Access and Portability Data location Local support Change control Ownership of customisation Evaluation of Usefulness Slow Internet Connection Local language Tax incentives on capital spending * Average of Indicators 2, 3, 5, 6. Indicator 4 included in indicator 5 Source: IDC, 2012 The final relevance indicator was built considering the average of all indicators (1, 2, 3, 5, and 6) and provides the final analysis of relevance for each barrier (Table 5). Note indicator 5 considers also "no adoption and no plans of adoption" (indicator 4). To further deepen the analysis, barriers have been categorized according to the areas to which they pertain and the potential actions they require: Data Jurisdiction and Location: covering concerns around where data reside and which court/laws are applicable in case of a dispute: 22

23 Legal jurisdiction Data location Security and Trust: covering aspects of data security, data protection and overall reliability of cloud vendors: Security and data protection Trust Portability and Technology Transparency/Control: grouping technical concerns over data (and business processes') portability from one vendor to another and onto companies' own IT systems; fears of losing control over software changes; and lack of transparency over ownership of customization of cloud solutions done by end-users: Data access and portability Change control Ownership of customisation Business: including business issues related to companies' evaluation and understanding of cloud as well as current offerings: Local support Evaluation of usefulness Local language Industrial policy: issues that can be addressed with new and/or strengthened industrial policies: Slow Internet connection Tax incentives on capital spending The table shows how top barriers to the cloud are currently a mix of data jurisdiction and location issues, security and trust, and business concerns. 23

24 T A B L E 5 F I N A L B A R R I E R S ' R E L E V A N C E Cluster Data jurisdiction and location Security and Trust Portability and technology transparency Business Industrial policy Ranking of Barrier Final Barrier Relevance barrier relevance Legal Jurisdiction Data location Security& data protection Trust Data Access and Portability Ownership of customisation Change control Evaluation of Usefulness Local support Local language Tax incentives on capital spending Slow Internet Connection Source: IDC, Barriers' Relevance for SMEs versus Large Companies As SMEs lag behind large companies in the cloud journey, it is interesting to analyse data by company size to understand what is hampering adoption at the low-end of the market. IDC went through the analysis of the indicators presented for the total market, for both SMEs (<250 employees) and large companies (>250 employees). Results are in Tables 6 and 7. As impact indicators represent the relevance each barrier has on cloud adoption and plans for adoption, the indicators for the total market (presented in Tables 3 and 4 above) are not necessarily the average of the impact indicators highlighted below for large and SME companies. This is partly because total data are weighted. More importantly, indicators' values describe the ranking of importance a barrier has on companies' adoption and plans. As such, a medium barrier for both SMEs and large companies may be a strong barrier for the total of the market (with higher values for the indicator for the total market compared to those assigned to SMEs or large companies respectively). This would happen if, for example, SMEs had a different view of strong barriers compared to large companies, but a more similar assessment for medium barriers. Moreover, 0 to 1 indicators' values may describe different gaps in cloud adoption and plans, depending on the survey results they refer to (adoption, plans, or intensity in the two size classes respectively). Therefore, the following indicators should be analysed to understand relevance within each company size segment. For the combined and total impact, the reader should refer to Tables 3 and 4 in the previous paragraphs. 24

25 Starting with SMEs, key findings resulting from the analysis of the impact indicators include: Data access and portability, ownership of customisation, ability to control changes, local support, and evaluation of usefulness have the strongest impact on current cloud adoption. Trust, and evaluation of usefulness are hampering current cloud intensity. Data access and portability and legal jurisdiction are the key barriers hampering plans of adoption. Legal jurisdiction, trust, data access and portability, security and data protection, and evaluation of usefulness are the key barriers stopping investments. Evaluation of usefulness, trust, and legal jurisdiction, hamper the strengthening of cloud intensity. T A B L E 6 B A R R I E R S ' I M P A C T I N D I C A T O R S : S M E S Indicator 2 - Impact on current cloud adoption Indicator 3 - Impact on current cloud intensity Indicator 4 - Impact on non adoption Indicator 6 - Indicator 5 Impact on - Impact on evolution of cloud plans cloud intensity Evaluation of Usefulness Slow Internet Connection Security& data protection Data location Ownership of customisation Trust Change control Local support Local language Tax incentives on capital spending Legal Jurisdiction Data Access and Portability Source: IDC, 2012 Most important barriers for large companies are as follows: Security and data protection, ownership of customisation and evaluation of usefulness have the strongest impact on current cloud adoption. Legal jurisdiction, security and data protection and trust are hampering current cloud intensity. 25

26 Security and data protection and data location hamper plans of adoption. Trust, legal jurisdiction, data location and data access and portability are the key barriers stopping investments. Trust and legal jurisdiction hamper the strengthening of cloud intensity. T A B L E 7 B A R R I E R S ' I M P A C T I N D I C A T O R S : L A R G E C O M P A N I E S Indicator 2 - Impact on current cloud adoption Indicator 3 - Impact on current cloud intensity Indicator 4 - Impact on non adoption Indicator 5 - Impact on cloud plans Indicator 6 - Impact on evolution of cloud intensity Evaluation of Usefulness Slow Internet Connection Security& data protection Data location Ownership of customisation Trust Change control Local support Local language Tax incentives on capital spending Legal Jurisdiction Data Access and Portability Source: IDC, 2012 In general, the analysis of impact indicators by company size unveils that (Tables 8 and 9): Evaluation of usefulness is a stronger barrier than what SMEs and large companies told us in the survey, but its relevance is much higher for SMEs than for larger companies. Trust is one of the most important barriers in SMEs (with almost the same "impact" score of evaluation of usefulness). Lack of solutions in local language has a medium relevance for SMEs. Ownership of customisation is a more relevant barrier than what emerges from companies' own assessment, especially for large companies, which usually rely on extensive customisations of their systems. The analysis of impact indicators confirms large companies' own assessment of relevance for legal jurisdiction and security and 26

27 data protection. Large companies seem to have a good perception of their current top barriers to cloud adoption. SMEs assigned strong importance to legal jurisdiction, security and data protection and data location. However, these barriers have so far had a more limited impact on cloud adoption compared to the evaluation of usefulness and trust. Nonetheless, legal jurisdiction, and security and data protection have an impact on SMEs' short-term cloud plans (especially on plans for "non adoption"), which makes them areas to look at for the development of cloud among EU SMEs. T A B L E 8 B A R R I E R S ' A N ALY S I S : R E A L I T Y C H E C K S M E S Indicator 1 - Assessment of cloud relevance Average Impact Indicator* Legal Jurisdiction Security& data protection Data location Data Access and Portability Trust Change control Local support Ownership of customisation Evaluation of Usefulness Local language Slow Internet Connection Tax incentives on capital spending * Average of Indicators 2, 3, 5, 6. Indicator 4 included in indicator 5 Source: IDC,

28 T A B L E 9 B A R R I E R S ' A N ALY S I S : R E A L I T Y C H E C K L A R G E C O M P A N I E S Indicator 1 - Assessment of cloud relevance Average Impact Indicator* Security& data protection Legal Jurisdiction Trust Data Access and Portability Data location Change control Ownership of customisation Local support Slow Internet Connection Tax incentives on capital spending Local language Evaluation of Usefulness * Average of Indicators 2, 3, 5, 6. Indicator 4 included in indicator 5 Source: IDC, Barriers' Relevance in the EU Public and Private Sectors Given the delay in cloud adoption in the public sector, IDC went through an analysis of the impact indicators also for the public sector versus the private sector. The aim of this analysis is to investigate if there is any specific barrier peculiar to the public sector. For the sake of this exercise, IDC relied on survey results for the government, healthcare and education sectors (public sector 239 respondents) versus all other vertical markets (private sector 817 respondents). The reader should use some caution in interpreting public sector data, considering the analysis is based on a further segmentation of respondents, which depends on the answers given about the relevance of each barrier. Results are shown in Tables 10 and 11. Starting with the public sector, key findings include: Security and data protection, trust, ability to control changes and local support have the strongest impact on current cloud adoption. Evaluation of usefulness, legal jurisdiction and security and data protection are hampering current cloud intensity. Security and data protection, evaluation of usefulness, data location, and legal jurisdiction are the key barriers hampering plans of adoption. 28

29 Evaluation of usefulness, security and data protection, data location, trust and legal jurisdiction are the key barriers stopping investments. Evaluation of usefulness and trust hamper the strengthening of cloud intensity. T A B L E 1 0 B A R R I E R S ' I M P A C T I N D I C A T O R S : P U B L I C S E C T O R Indicator 2 - Impact on current cloud adoption Indicator 3 - Impact on current cloud intensity Indicator 4 - Impact on non adoption Indicator 5 - Impact on cloud plans Indicator 6 - Impact on evolution of cloud intensity Evaluation of Usefulness Slow Internet Connection Security& data protection Data location Ownership of customisation Trust Change control Local support Local language Tax incentives on capital spending Legal Jurisdiction Data Access and Portability Source: IDC, 2012 In the private sector, key barriers include the following: Ownership of customisation, evaluation of usefulness, data access and portability and local language have the strongest impact on current cloud adoption. Legal jurisdiction, and security and data protection are hampering current cloud intensity. Data location, legal jurisdiction, ownership of customisation, and trust are the key barriers hampering plans of adoption. Trust, legal jurisdiction, data access and portability, security and data protection and ownership of customisation are the key barriers stopping investments. Trust, legal jurisdiction, and evaluation of usefulness hamper the strengthening of cloud intensity. 29

30 T A B L E 1 1 B A R R I E R S ' I M P A C T I N D I C A T O R S : P R I V A T E S E C T O R Indicator 2 - Impact on current cloud adoption Indicator 3 - Impact on current cloud intensity Indicator 4 - Impact on non adoption Indicator 5 - Impact on cloud plans Indicator 6 - Impact on evolution of cloud intensity Evaluation of Usefulness Slow Internet Connection Security& data protection Data location Ownership of customisation Trust Change control Local support Local language Tax incentives on capital spending Legal Jurisdiction Data Access and Portability Source: IDC, 2012 Considering how respondents in the private and public sectors answered the question on barriers' relevance, it is possible to draw the following conclusions (Tables 12 and 13): Security and data protection is perceived as a strong barrier in the public sector. The analysis of impact indicators confirms the relevance of this barrier on cloud adoption and plans of adoption. Trust and evaluation of usefulness have had so far a strongest impact on public institutions' cloud strategy than what they told in the survey. Legal jurisdiction, data location and data access and portability had a lower impact on public sector's cloud strategy than what they perceive. However, legal jurisdiction is already hampering current cloud intensity and short term plans of adoption. Data location has also a negative impact on short-term plans. Ownership of customisation, and evaluation of usefulness have a more important impact on the cloud strategy of the private sector than what emerges from the question in the survey. The availability of solutions in the local language is also somewhat more important than perceived. Legal jurisdiction and trust are confirmed to be key barriers to the development of cloud strategies in the EU private sector. 30

31 Security and data protection has been so far somewhat less important than what stated in the survey. Its impact is however high on short term-plans of EU companies in the private sector. T A B L E 1 2 B A R R I E R S ' A N A L Y S I S : R E A L I T Y C H E C K F O R T H E P U B L I C S E C T O R Indicator 1 - Assessment of cloud relevance Average Impact Indicator* Legal Jurisdiction Security& data protection Data location Data Access and Portability Ownership of customisation Change control Local language Local support Trust Tax incentives on capital spending Slow Internet Connection Evaluation of Usefulness * Average of Indicators 2, 3, 5, 6. Indicator 4 included in indicator 5 Source: IDC,

32 T A B L E 1 3 B A R R I E R S ' A N A L Y S I S : R E A L I T Y C H E C K F O R T H E P R I V A T E S E C T O R Indicator 1 - Assessment of cloud relevance Average Impact Indicator* Security& data protection Legal Jurisdiction Trust Data Access and Portability Local support Data location Change control Ownership of customisation Evaluation of Usefulness Slow Internet Connection Local language Tax incentives on capital spending * Average of Indicators 2, 3, 5, 6. Indicator 4 included in indicator 5 Source: IDC, Evolution of Barriers' Relevance IDC asked respondents in the survey about the evolution of the relevance of barriers in the years ahead, with a focus on the following barriers: Security and data protection Data access and portability Service providers liability and responsibility Data location Legal jurisdiction More than 30% of EU companies in the survey expect each of these barriers to strengthen (somewhat or significantly) overtime (Figure 5). There is more pessimism around whether the security and data protection and of the data access and portability barriers will disappear. In particular, with reference to portability, IDC believes that the more companies engage with cloud, the more portability issues become relevant. 32

33 F I G U R E 5 E V O L U T I O N O F B A R R I E R S ' R E L E V A N C E % of respondents Legal Jurisdiction 8.5% 24.0% 32.5% Data location 9.1% 32.5% 23.4% Service providers liability and responsibility 9.3% 35.8% 26.5% Total Barrier significantly strengthening over time Data Access and Portability 10.5% 28.3% 38.8% Barrier somewhat strengthening over time Security& data protection 14.4% 29.1% 43.5% 0% 10% 20% 30% 40% 50% This is confirmed by the fact that companies expecting data access and portability to become a more relevant barrier are already full cloud users in more than one area (Figure 6). Generally speaking, full cloud users in more than one area expect the significance of barriers to strengthen more than any other user group. This means that cloud intensity (measured as number of cloud solutions adopted) will remain limited if no coordinated actions are taken. 33

34 F I G U R E 6 S T R E N G T H E N I N G O F B A R R I E R S B Y C L O U D U S E R G R O U P % of respondents for which the barrier is strengthening (somewhat/significantly) by cloud user group Legal jurisdiction over our cloud contracts Data location Service providers liability and responsibility Data access and portability No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area Security and data protection 0% 10% 20% 30% 40% 50% 60% Interestingly, but worryingly, barriers are set to strengthen primarily among companies that stated the barrier is already strong, but also among companies that stated the barrier is currently just low to moderate (Figure 7). More than 50% of companies considering security and data protection, data access and portability and trust as strong barriers expect them to significantly or somewhat strengthen overtime. However, more than 30% of companies considering these barriers as low to moderate expect them to strengthen overtime, which makes the outlook for cloud adoption quite uncertain if actions are not taken. 34

35 F I G U R E 7 S T R E N G T H E N I N G O F B A R R I E R S F O R C O M P A N I E S F O R W H I C H T H E B A R R I E R I S A L R E A D Y S T R O N G V E R S U S C O M P A N I E S F O R W H I C H I S L O W T O M O D E R A T E % of respondents Security& data protection 37.5% 57.0% Data Access and Portability 31.8% 54.2% Service providers liability and responsibility 30.6% 51.4% Companies for which the barrier is currently already strong Companies for which the barrier is currently low to moderate Data location 28.7% 44.8% Legal Jurisdiction 22.2% 49.3% 0% 10% 20% 30% 40% 50% 60% The relevance of barriers is set to strengthen independently from the size of the company. Nonetheless, a higher number of large companies (which have currently already the strongest levels of concern) expect each barrier to strengthen over time. The only exception is data location, for which a higher than average percentage of companies in the mid market (35.2% in the size class employees) expect the barrier to strengthen over time (Figure 8). 35

36 F I G U R E 8 S T R E N G T H E N I N G O F B A R R I E R S B Y C O M P A N Y S I Z E % of respondents Security and data protection 34.1% 46.8% 44.1% 42.2% Data access and portability 27.6% 44.4% 37.2% 36.2% Service providers liability and responsibility Data location Legal jurisdiction 39.0% 36.4% 33.8% 27.9% 33.7% 35.2% 31.4% 26.8% 36.6% 31.0% 29.7% 25.7% 0% 10% 20% 30% 40% 50% 250+ employees employees employees 1-9 employees Looking at vertical markets (Table 14), the overall picture is not dramatically diversified. Security and data protection is set to become a more relevant barrier in all the vertical markets, with more than 40% of companies across industries (and up to nearly 48% in finance) indicating this barrier as strengthening the most in the future. More than 40% of public sector institutions (government, healthcare and education) and of companies in other services expect data access and portability to become an increasingly pressing issue over time. Service providers' liability and responsibility is set to become a more important matter in the finance and distribution sectors. 36

37 T A B L E 1 4 S T R E N G T H E N I N G O F B A R R I E R S B Y V E R T I C A L M A R K E T ( % O F R E S P O N D E N T S ) Data access and portability Security and data protection Service providers liability and responsibility Data location Legal jurisdiction Finance 39.4% 35.0% 37.2% 47.7% 41.8% Manufacturing 35.3% 29.5% 29.5% 40.6% 34.7% Government 41.2% 31.8% 34.2% 44.0% 37.3% Healthcare/ Education 43.0% 35.4% 32.7% 46.7% 36.0% Distribution 28.7% 29.8% 39.4% 42.5% 40.4% Telecommunications 39.1% 35.2% 31.1% 45.1% 37.4% Other services 42.4% 33.1% 32.5% 42.9% 32.1% Source: IDC, First Conclusions on Cloud Barriers' Relevance The analysis of companies' own assessment of barriers' relevance, of the indicators of real impacts on the cloud journey, and of the evolution of barriers over time leads to some first conclusions that have been summarized in the two tables below (Tables 15 and 16). Table 15 looks into the current and short-term relevance of barriers, and represents a summary of the analysis produced so far on companies' own assessment of each barrier and indicators of real impacts. 37

38 T A B L E 1 5 S H O R T - T E R M F I N A L B A R R I E R S ' R E L E V A N C E Cluster Barrier Short-term relevance of Barrier Relevance for Relevance for Relevance for Relevance for the Private Large companies SME Companies the Public Sector Sector Data jurisdiction and location Security and Trust Portability and technology transparency Legal Jurisdiction High High High High High Data location Medium Medium Medium High Medium Security& data protection High High Medium High High Trust High High High Medium to high High Data Access and Portability Medium Medium High Medium High Ownership of customisation Medium High Medium Low to Medium High Change control Low to medium Low Medium Low to Medium Medium Business Industrial policy Evaluation of Usefulness High Medium High High Medium to High Local support Medium Low Medium Medium Medium Local language Low to medium Low Low to Medium Low to Medium Low to Medium Tax incentives on capital spending Low Low Low Low Low Slow Internet Connection Low Low Low Low Low Source: IDC, 2012 Table 16 describes expectations of the evolution of barriers' relevance in the longer term, based on survey results on the strengthening of barriers over time, and IDC's assumptions on the natural evolution of the market with respect to technology and business issues. The assessment excludes assumptions on a potential policy intervention. Barriers around legal jurisdiction, data location, security and data protection, trust and data access and portability are set to strengthen over time and to be strong in the years ahead. This is based on the enduser survey results presented in this study. Regarding technology transparency and control, IDC believes that barriers should lessen over time, as the market matures and rules become clearer. Nonetheless, issues over ownership of customisation should remain a medium barrier in those segments where customisation of systems and applications is traditionally strong (such as large companies). Issues over the control of changes and upgrades done by cloud providers should also lessen over time. The need not to update and maintain software is indeed one of the key drivers of cloud adoption. As the market matures, this concern should lose importance, and 38

39 companies should start recognising the benefits related to automated upgrades done by vendors at no extra costs. IDC believes that this should be particularly true in the SME area, while large companies with bigger IT departments may still fear losing control of their IT systems. The impact of business related issues should also lessen over time. However, the evaluation of cloud usefulness is set to remain a strong barrier in SMEs, especially for smallest ones (1-9 employees). Issues around local support and local language should improve, as the market matures and new cloud offerings are launched across EU countries. On the other hand, IDC expects tax incentives and slow Internet connection to move from low barriers to medium. Despite ranking low in companies' own assessment of barriers and having had so far little impact on cloud adoption and short-term plans, IDC expects: Tax incentive on capital spending to increasingly impact demand in regulated sectors that benefit from that (in particular in the government sector, where this is already happening) Slow Internet connection to impact demand in the SME segment, but also in other sectors. When asked about key actions that would increase cloud adoption, EU companies indicate better Internet connectivity among the top ones. In this setting, IDC believes that the development of broadband, and in particular of mobile broadband, is set to be increasingly a requirement for the development of the EU cloud market. Table 16 describes IDC expectations on future barriers' in case no policy intervention is made, and it provides the key set of assumptions on cloud barriers in the "No Intervention" scenario, presented in the following chapter. 39

40 T A B L E 1 6 L O N G - T E R M F I N A L B A R R I E R S ' R E L E V A N C E Cluster Data jurisdiction and location Security and Trust Portability and technology transparency Business Industrial policy Barrier Source: IDC, 2012 Long -term relevance of Barrier Relevance for Relevance for Relevance for Relevance for the Private large companies SME Companies the Public Sector Sector Legal Jurisdiction High High High High High Data location High High High High High Security& data protection High High High High High Trust High High High High High Data Access and Portability High High High High High Ownership of customisation Medium Medium Low to medium Low to medium Low to medium Change control Low Low to medium Low Low to Medium Low Evaluation of Usefulness Medium Low to medium High Low to medium Medium Local support Low to medium Low Low to medium Low to medium Low Local language Low Low Low Low Low Tax incentives on capital spending Medium Low to medium Low Medium Low to medium Slow Internet Connection Medium Low to medium Medium Low to medium Low to medium 40

41 P U B L I C C L O U D S C E N A R I O F O R E C A S T : " N O I N T E R V E N T I O N " 3.1 Introduction The detailed analysis of survey results and related indicators identified the main barriers limiting the full potential of public cloud services' adoption. As shown in Table 16, a natural evolution is likely to soften over time some of the limiting factors, although some barriers are likely to remain a pressing issue to adoption, in the case that no coordinated intervention is made. With this in mind, the chapters that follow look at the advancement of public cloud adoption to 2020 among EU enterprises based on two different scenarios. In the first setting, denominated the "No Intervention" scenario, forecasts are based on the strict assumption that no policy intervention is made to address the specific concerns related to public cloud services adoption, as identified and analysed in the previous section. The "Policy Driven" scenario, described in Chapter 5, presents forecasts in a setting where policies are coordinated to address and help soften cloud specific barriers to adoption. As benefits of policy actions will not come overnight, the forecast period for both scenarios is the timeframe Forecast: "No Intervention" Scenario EU enterprises, especially large enterprises, have already embarked on a public cloud journey. Although currently public cloud spending is still small in euro terms, there is strong evidence supporting the fact that interest is growing fast. IDC anticipates that between 2011 and 2014 public cloud services spending by EU businesses will grow at an annual compound rate of 32.9% to reach some 10.9 billion, representing some 3.6% of total IT spending overall. Looking at the years ahead, if no actions are taken to overcome barriers, IDC expects public cloud services spending to moderate to a 21.6% annual compound growth rate into This compares to an expected growth rate of total IT in the order of 4% annually in the EU business segment (or 3.3% when considering other IT spending beyond cloud). So by 2020, IDC anticipates that in the "No Intervention" scenario, the public cloud services opportunity will represent some 9% of the total IT market opportunity or some 35 billion overall (Figure 9). 41

42 F I G U R E 9 P U B L I C C L O U D " N O I N T E R V E N T I O N " 2020 S C E N A R I O This forecast scenario is based on the strict assumption that no EU policy intervention directly related to addressing and relenting some of the most pressing issues around cloud is taken on, in particular for legal jurisdiction, security and data protection, trust, data access and portability, and data location. Although security and data protection will remain a barrier to cloud adoption, IDC assumes also in this scenario that there will not be a major security accident (in the EU or elsewhere in the world) that may further damage EU companies' confidence in the security of cloud services. Other key assumptions have been considered in building the scenario, covering different aspects: From a macroeconomic perspective: No change to the EU27 market composition will happen and no country will exit the Euro area. After a period of weakness, the EU economy will return to moderate growth in the timeframe, with average annual GDP growth expected to reach 1.6% in the timeframe (against 0.8%-0.9% in ). 42

43 After a difficult 2011 and 2012, unemployment will remain relatively stable starting There will be no factors/happenings/external shocks that may cause a big deviation from the long-term average of the EU business and consumer confidence indicators, for a persistently long time-frame. Political instability in the Middle East will remain fluid but will not have a strongly adverse impact on the EU economic growth up to The /$ exchange rate will remain relatively stable along the scenario forecast period. In terms of capitalization: Bank loans will remain the primary source of funds for SMEs. Lending conditions to SMEs will have somewhat improved in Venture capital investments will also moderately improve. There will not be a prolonged stock market plunge, as observed in mid-2011, which deteriorated business confidence driving lower economic expectations across EU countries. In terms of labour supply: Lack of IT talents will remain a structural constraint, especially in SMEs. This should, however, favour the adoption of cloud computing. There will be an increasing focus on cloud specialists in the vendor community and universities will gradually start to adopt new approaches to teach graduates about cloud computing. From a cloud infrastructure and offerings perspective: Broadband will evolve, but Internet connectivity will remain an issue in less business-intensive geographical areas. By 2020, more IT vendors will have entered the public cloud market, including traditional vendors and new entrants. The number of available offerings will also have increased. However, barriers' pressures will hamper the launch of cloud solutions that deal with most sensitive data and business processes (i.e. vertical specific applications). By 2020, IT vendors will have made some progress in building an effective channel targeting SMEs with tailored solutions. IDC also worked on a forecast to 2020 for the total IT market, considering just a moderate growth of cloud computing, as assumed in this "No Intervention" scenario. 43

44 In this setting, total IT in the EU business segment is anticipated to grow at a 4% CAGR in In hardware, new/enhanced mobile devices, replacement cycles of traditional hardware, growth in public cloud hardware spending and infrastructure demand from both private and public cloud players will drive positive growth in By then, the centre of gravity for IT will have increasingly shifted from the PC to the mobile device. In software, the industry will keep on going through a major transformation, from basic architecture (service-oriented architecture [SOA]) and the way software is written (composite applications) to the way software is delivered (public cloud) and even funded (advertising based). IDC assumes that this transformation will take a decade. By 2020, even assuming a moderate growth of cloud, many of these developments will have already made an impact on the software industry, which is therefore expected to show positive growth along the forecast period. The IT services industry is also transforming. This is a long, slow process involving the rise of offshore IT services, the increased integration of IT services inside business services, and the advent of new service delivery models. Most firms have developed a multishoring capability and blended pricing model and are now working on ways to standardize on technologies and methodologies, deliver services online or in new form factors, invest in datacenters, and expand into business services. Despite the race to automate service creation and delivery, there is a looming talent shortage, which IDC expects will continue to affect the market also in the long-run. Overall, IDC anticipates IT services will grow in , but at a slower pace compared to the software market. Under these assumptions, cloud adoption of at least one solution will increase across all industries, but cloud intensity will remain limited, with most of companies adopting cloud just in selected solution areas and not across the board. Basic cloud solutions (like and security) will experience the fastest growing demand. Due to lack of offerings, investments in cloud-based vertical specific solutions will lag behind. Therefore, after first enthusiasm in , growth rates will lower to reach the 21.6% CAGR, presented in Figure Vertical Outlook: "No Intervention" Scenario Compared to the expected annual rates to 2014, growth will lessen across all vertical markets in the "No Intervention" scenario (Figure 10). In telecom and finance, the decrease in expected growth relates to barriers that hamper the strengthening of cloud intensity in sectors where adoption is already higher than average. In manufacturing, distribution and other services, lower CAGRs are also due to the anticipated cloud inability to reach the many SMEs that operate in these vertical markets. 44

45 Without clear rules around data location, protection, jurisdiction and overall actions aimed at improving trust, the government sector will remain a cloud laggard, with investments happening just in those solutions that do not imply storing sensitive data and/or with domestic cloud providers, with local datacentres. F I G U R E 1 0 P U B L I C C L O U D " N O I N T E R V E N T I O N " 2020 S C E N A R I O C A G R S B Y V E R T I C A L By 2020, manufacturing and the primary sector (agriculture, forestry and mining) will still account for the largest cloud spending (27%), followed by finance (22%) and other services (22%). The public sector and especially the government segment will remain small, compared to its potential (representing just 4% of total EU cloud spending). This would mean that the share of the public sector of public cloud services will have substantially reduced from 11% in 2011 to 8% in 2020, in the "No Intervention" scenario (Figures 11 and 12). 45

46 F I G U R E 1 1 P U B L I C C L O U D S P E N D I N G B Y V E R T I C A L, F I G U R E 1 2 P U B L I C C L O U D " N O I N T E R V E N T I O N " S C E N A R I O S P E N D I N G B Y V E R T I C A L,

47 Because of these trends, public cloud services will represent a different share of total IT spending by vertical market, as shown in Figure 13. As already observed in D2, the share of public cloud services of total IT spending depends not only on the level of investments vertical markets make in the public cloud, but also on the level of IT budgets they assign to other IT areas (IT services or hardware, for example). The share of cloud in manufacturing and other services was already higher than average in 2011 and 2014, and will increase through to 2020, also driven by the larger budgets these vertical markets assign to software solutions compared to other industries. In finance (whose spending is dominated by IT services) and in telecommunications (where a large share of IT budget is devote to networking equipment), the share of cloud of total IT will be just slightly below average (9.5% and 9.1% of total IT respectively). Nonetheless, these two vertical markets will have the strongest penetration of cloud of total software in this scenario. Government and healthcare/education will continue to lag behind other vertical segments, as current barriers keep on affecting adoption in these two verticals in the "No Intervention" scenario. F I G U R E 1 3 P U B L I C C L O U D O F T O T A L I T S P E N D I N G B Y V E R T I C A L, A N D " N O I N T E R V E N T I O N " Company Size Outlook: "No Intervention" Scenario EU companies are expected to act differently also depending on their size (Figure 14). The "No Intervention" scenario assumes that cloud adoption in SMEs will increase, but cloud intensity will strengthen just among IT-oriented SMEs (around 20% of the total market, according to 47

48 IDC's clusters analysis). Large companies will grow just slightly above average, at a 22.2% CAGR over the scenario period. F I G U R E 1 4 P U B L I C C L O U D C A G R S T O , " N O I N T E R V E N T I O N " S C E N A R I O B Y C O M P A N Y S I Z E 250+ employees 22.2% 34.2% Average 21.6% 32.9% employees 18.9% 29.0% CAGR CAGR employees 18.1% 25.4% 1-9 employees 15.5% 21.7% 0% 10% 20% 30% 40% However, given large companies' current share of the market, most of incremental spending is expected to happen in this size segment (+ 21 billion against just + 3 in SMEs over ). In the "No Intervention" scenario, large companies will account for some 86.5% of total EU public cloud spending in The share of SMEs will decrease from 16% in 2014 to 13.5% in 2020 (Figure 15). 48

49 F I G U R E 1 5 P U B L I C C L O U D S P E N D I N G, " N O I N T E R V E N T I O N " S C E N A R I O B Y C O M P A N Y S I Z E BN 250+ employees employees employees employees EU SMEs will continue to rely on free cloud solutions (currently available or that will be available in the future), and consequently their spending will remain limited. By 2020, large companies will assign 10.8% of their IT budget to the public cloud, while SMEs will spend only 4.4% of their total IT budget on cloud solutions (Figure 16). In this setting, although the cloud perfectly suits SMEs' IT needs, it will not be able to generate a substantial "leapfrog" phenomenon. SMEs will focus on selected cloud functionalities, mainly free of charge. This will hamper the adoption of sophisticated IT solutions, and the realisation of benefits derived by increased automation and efficiency across key business processes. 49

50 F I G U R E 1 6 P U B L I C C L O U D O F T O T A L I T S P E N D I N G, " NO I N T E R V E N T I O N " S C E N A R I O B Y C O M P A N Y S I Z E 50

51 4 A C T I O N S T O O V E R C O M E C L O U D B A R R I E R S 4.1 Introduction This chapter describes key actions aimed at increasing cloud adoption, resulting from the analysis of the enterprise survey; and the impact these actions would have on cloud adoption among EU companies. 4.2 Actions to Overcome Cloud Barriers The enterprise survey investigated a number of potential actions that could facilitate the adoption or strengthen current investments in cloud computing. Actions investigated include: 51 Standardisation: "Better interoperability and standardisation of cloud services, to guarantee choice" Connection: "Ensuring better and more reliable Internet connectivity for businesses" Accountability: "Clear rules about cloud service providers accountability and liability about security, no matter which country they are from" Security certification: "EU-wide certification of cloud service vendors on their security and data protection arrangements" Government certification: "EU-wide certification of cloud services vendors on suitability for government usage" Data jurisdiction: "EU-wide rules clarifying that my country's laws and only my country's laws apply to my data stored in another EU country" Customer rights: "EU-wide standards on the rights of customers of cloud services vendors". Incentives: "Funds or incentives to adopt cloud services" Portability: "Guaranteed data and applications portability between cloud vendors" Data protection: "Harmonized regulation about data protection standards, no matter where the data is" EU confinement: "Regulation forcing cloud services providers to store and back up corporate data only in the EU" Standardised contracts: "Standardised contract terms from cloud service providers so different vendors' offers can be easily compared" Remove local laws: "The removal of local laws and regulations that limit the use of cloud services"

52 Results are shown in Figure 17. As there is not one single barrier to the cloud, there is also not one single solution to cloud issues. Nonetheless, EU businesses indicate that clear rules about cloud service providers' accountability and liability regarding security, and portability of data and applications are the most important actions that would strengthen their cloud adoption. Around one third of respondents mentioned accountability and portability. Better Internet connectivity and security certification also rank high, with 26% of respondents mentioning these. These first four actions have been mentioned by 80% of respondents. Almost the entirety of respondents (96%) mentioned the first six actions (including also customer rights, data protection and data jurisdiction). As such, the analysis gives good indications on actions that should be prioritised to help cloud investments in the EU. F I G U R E 1 7 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N % of respondents that ranked action 1, 2 or 3 Accountability Portability Connection Security certification Customer rights Data protection Data jurisdiction Incentives Government certification Standardized contracts Standardization EU confinement Remove local laws 13.3% 18.8% 18.3% 18.3% 31.7% 29.2% 26.2% 26.1% 23.9% 23.5% 23.4% 23.1% 23.1% 80% of respondents 96% of respondents 0% 5% 10% 15% 20% 25% 30% 35% However, there are differences in what SMEs, large enterprises, private and/or public companies perceive as the most important actions to take. Figure 18 shows that close to one third of EU SMEs indicate clear rules about cloud service providers' accountability and liability regarding security, and portability of data and applications as the most important actions. This does not differ greatly from the total market, however one third of SMEs also indicate better Internet connectivity as a key action, hence showing that acting on connectivity would likely boost adoption also among smaller sized businesses, which so far have proven to lag larger sized companies in cloud adoption. Moreover, with funds and 52

53 incentives ranked fifth overall, it is clear that SMEs are more likely to adopt cloud should they be given better and easier access to finance. Large enterprises are aligned with SMEs in terms of the primary action that would lead to a higher use of cloud computing. Indeed, 32% of respondents with more than 250 employees mentioned accountability (Figure 19). However, close to a third of these companies indicated a stronger importance for actions related to certification on suitability for government usage (29%), with portability mentions following close. Moreover, stronger mentions of actions related to EU-wide standards on the rights of customers of cloud services vendors, which ranks sixth overall, indicate that larger companies, which are more likely to operate across multiple territories compared to smaller companies, evidently have stronger necessity to be ensured that no matter where they choose the service provider their rights are the same. F I G U R E 1 8 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N : S M E S Accountability Portability Connection Security certification Incentives Data protection Data jurisdiction Customer rights Standardized contracts Standardization Government certification EU confinement Remove local laws 14,0% 18,6% 18,4% 17,9% 17,8% 32,0% 30,5% 28,2% 25,8% 25,2% 24,0% 23,7% 22,7% 0% 5% 10% 15% 20% 25% 30% 35% 53

54 F I G U R E 1 9 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N : L A R G E C O M P A N I E S Accountability Government certification Portability Security certification Data protection Customer rights Data jurisdiction Connection Incentives Standardized contracts Standardization EU confinement Remove local laws 12,9% 24,9% 24,8% 24,8% 23,2% 22,5% 21,2% 19,3% 18,8% 17,0% 29,3% 28,3% 31,9% 0% 5% 10% 15% 20% 25% 30% 35% From a vertical market perspective, looking into the private sector and public sector responses shows that companies from both sectors are aligned as to the top actions: having in place clear rules about cloud service providers accountability and liability about security (Figure 20 and Figure 21). However, on average significantly more EU private businesses mention portability compared to public sector business (30.5% compared to 25.6%), and indeed portability ranks significantly lower for public sector organisations compared to private counterparts. Public sector companies, on the other hand, make more mentions of better Internet connectivity (29.3% compared to 25.1%) returning this as the second most important action for them as opposed to being fourth in the private sector. Indeed, reliable and efficient connectivity is not only a pre-requisite to the proper function of cloud services, it is also extremely important to ensure proper continuity of critical business processes moved to the cloud. Data jurisdiction mentioned by some 26% of public companies is a significantly more urgent action for companies in this segment, which naturally places a stronger emphasis on actions related to government 54

55 certification (mentioned by some 26% of respondents, down to 22% among private sector enterprises). Conversely, private sector respondents indicate stronger urgency for actions related to security certification and customer rights compared to public sector enterprises. F I G U R E 2 0 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N : P R I V A T E S E C T O R Accountability Portability Security certification Connection Data protection Data jurisdiction Customer rights Incentives Government certification Standardized contracts Standardization EU confinement Remove local laws 13,3% 26,8% 25,1% 24,6% 23,2% 22,4% 22,1% 22,0% 19,6% 18,7% 18,3% 30,5% 32,1% 0% 5% 10% 15% 20% 25% 30% 35% 55

56 F I G U R E 2 1 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N : P U B L I C S E C T O R Accountability Connection Customer rights Government certification Incentives Portability Data jurisdiction Security certification Data protection EU confinement Standardization Standardized contracts Remove local laws 18,2% 17,4% 16,5% 13,2% 30,6% 29,3% 26,1% 26,0% 25,9% 25,6% 24,3% 23,9% 21,8% 0% 5% 10% 15% 20% 25% 30% 35% Looking at the results of the analysis of barriers and key actions identified by end-users, there is common agreement that accountability and liability of vendors are key to strengthen cloud adoption. Companies that attached strong relevance to each of the five barrier clusters identified in Chapter 2 rank accountability among the top actions to increase cloud adoption. Portability is also quite strong across companies, independently from what they perceive as key barriers. Security certification is a more relevant action for companies concerned with security and trust issues; Internet connectivity for those that identified industrial policy barriers (which include slow Internet connection); and data protection for those most worried with data jurisdiction and data location issues (Figure 22). 56

57 F I G U R E 2 2 K E Y A C T I O N S T O I N C R E A S E C L O U D A D O P T I O N V E R S U S C L O U D B A R R I E R S Data Jurisdiction/ Location Security/Trust 4.3 Impact on Cloud Adoption of Interventions Interoperability and Tech Transparency The enterprise survey asked respondents about impact on cloud adoption and investments if intervention (especially around the first six actions indicated in Figure 17) was made. Results (Figure 23) show that policy counts. 48.2% and 44.1% would start investing or strengthen investments in /calendar/diary and security solutions, respectively, if actions were taken. More interestingly, 47.2% would invest in storage online, 43.6% would invest in cloudbased databases, and nearly one third of respondents would strengthen or start investing in most of the areas. Business Connection ** ** ** ** *** Standardization * Accountability **** **** **** **** *** Security certification ** *** ** ** ** Government certification * * * * * Data jurisdiction ** ** ** ** ** Customer rights ** ** ** Incentives ** ** * ** ** Portability *** *** *** *** *** Data protection *** ** ** ** ** EU confinement * * Standardized contracts * * ** ** Remove local laws Industrial Policy 57

58 F I G U R E 2 3 I M P A C T O F A C T I O N S O N C L O U D I N V E S T M E N T S B Y S O L U T I O N A R E A % of respondents that would start investing/strengthen investments if actions were taken /calendar/diary Storage on-line Security Databases Accounting/Back office System & network management Sales mgmt Personnel/HCM/Talent Mgmt Business intelligence and analytics Application development Content mgmt Infrastructure/compute power 48.2% 47.2% 44.1% 43.6% 34.7% 31.5% 28.5% 28.4% 27.8% 27.0% 24.9% 23.4% 0% 10% 20% 30% 40% 50% 60% The analysis by cloud user groups provides even more positive results (Figure 24). More than 98% of companies would start or strengthen investments in at least one cloud area (up to 96% will invest beyond e- mail). If cloud barriers were removed, nearly 100% of companies that plan to adopt cloud (but have not yet invested), and more than 96% of companies that are just thinking about the cloud (without formal plans) will embark on the cloud journey. 93.6% of companies that are not planning, nor thinking about the cloud ("no cloud") will also start investing. 58

59 F I G U R E 2 4 I M P A C T O F A C T I O N S O N C L O U D I N V E S T M E N T S B Y C L O U D U S E R G R O U P % of respondents that would start investing/strengthen investments if actions were taken Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 96.0% 98.2% 83.9% 93.6% 92.6% 96.3% 98.2% 99.9% 96.8% 99.1% 98.4% 98.7% 97.1% 99.4% 0% 20% 40% 60% 80% 100% % investing in at least one solution excluding % investing in at least one solution Not only will cloud adoption increase, but cloud intensity will also strengthen if key coordinated actions were taken (Figure 25). As observed also in D2, cloud adoption rates in the EU are already relatively high, but cloud intensity is still rather moderate, thus hindering the materialisation of benefits that cloud can bring to EU companies. Removing barriers would significantly increase the number of cloud solutions in which companies would be willing to invest. This is true for all cloud user types: even companies not planning or thinking about the cloud would invest in at least 2.5 cloud areas (2 excluding ). IDC acknowledges that these results are somewhat optimistic, and that companies do not always do what they say they will. Even when talking about short-term plans, not all of these translate into real investments. Nonetheless, the indication that barriers hamper cloud investments and that specific actions can help adoption is undoubtedly clear and strong. 59

60 F I G U R E 2 5 I M P A C T O F A C T I O N S O N C L O U D I N T E N S I T Y Average number of solutions respondents would start investing/strengthen investments in, if actions were taken Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area Average Number of Solutions excluding Average Number of Solutions including 4.4 Impact on Cloud Adoption in SMEs and Large Companies The impact of acting on the factors identified in Figure 18 would drive a greater propensity to invest on cloud services also among SMEs. In fact, Figure 26 shows that with appropriate policy in place some 48.8% of SMEs would start investing or considerably strengthen investments in /calendar/diary, with some 46.4% also indicating investments in the area of on-line storage. Investments in other areas, such as security and cloud-based databases would also increase significantly, albeit to a slightly lesser extent compared to the average. Indeed, 42.1% of SMEs would start or strengthen investments in cloud based security as opposed to some 44.1% overall, with some 39% of SMEs also expecting to invest in cloud-based databases (as opposed to 43.6% of total EU companies). 60

61 F I G U R E 2 6 I M P A C T O N S M E S ' I N V E S T M E N T S B Y S O L U T I O N A R E A /calendar/diary Storage on-line Security Databases 48,8% 46,4% 42,1% 39,0% Accounting/Back office System & network management Sales mgmt Business intelligence and analytics Personnel/HCM/Talent Mgmt Content mgmt Application development Infrastructure/compute power 32,7% 31,5% 28,6% 26,2% 23,8% 22,1% 20,6% 20,1% 0% 10% 20% 30% 40% 50% 60% Interestingly, Figure 27 shows clearly that appropriate policies in place would facilitate strongly the SME cloud journey. Indeed, on average some 97.7% of small and medium business would invest or start investing in at least one solution (down to 95.8% when excluding e- mail), which is slightly below the general average presented in Figure 24, and data shows that the no cloud SME user group has a higher percentage of businesses that would start investments. The difference from the overall sample, furthermore, is particularly relevant when excluding (88.3% would start investing in at least one solution area as opposed to 83.9% of the overall sample). Moreover, survey results indicate that policy actions would trigger more easily investments among those SMEs that have started to think of adopting at least one cloud-based solution but that so far have not made actual plans (95.6% of SMEs versus some 92.6% of the overall sample). 61

62 F I G U R E 2 7 I M P A C T O N S M E S ' I N V E S T M E N T S B Y U S E R G R O U P Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 95,8% 97,7% 88,3% 94,1% 95,6% 97,1% 98,0% 99,5% 97,0% 97,8% 98,5% 98,5% 95,3% 98,6% % of SMEs investing in at least one solution excluding % of SMEs investing in at least one solution 0% 20% 40% 60% 80% 100% Figure 28, shows that cloud intensity for SMEs will increase significantly, but will remain overall lower compared to the total market (3.3 compared to 3.6, when considering solutions excluding ). 62

63 F I G U R E 2 8 I M P A C T O N S M E S ' C L O U D I N T E N S I T Y Total 3,3 3,8 No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 2,1 2,5 3,0 3,5 3,2 3,6 3,6 4,1 4,2 4,7 3,1 3,6 Average Number of Solutions excluding Average Number of Solutions including With coordinated policy actions in place addressing the most important issues identified in Figure 19, 47.3% of large enterprises indicate that they would start investing or strengthen investments in cloud-based database and storage on-line (Figure 29), as cloud-based services in these areas could help address the costs and complexity of dealing with growing data flows for example. Moreover, 46.5% would invest on cloudbased security, which compares to 42.1% of SMEs. 63

64 F I G U R E 2 9 I M P A C T O N L A R G E C O M P A N I E S ' C L O U D A D O P T I O N B Y S O L U T I O N A R E A Databases Storage on-line Security /calendar/diary 47,3% 47,3% 46,5% 46,1% Accounting/Back office Application development Personnel/HCM/Talent Mgmt System & network management Business intelligence and analytics Content mgmt Sales mgmt Infrastructure/compute power 35,4% 32,8% 31,1% 31,0% 29,5% 27,8% 26,4% 25,3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Figure 30 indicates quite noticeably that for large businesses, policy action would result in a greater penetration among the more advanced user groups such as those which already deploy at least one solution or which have already started planning adoption. Indeed, almost all respondents in these user groups expect to strengthen investments in cloud solutions. While this is perhaps rather optimistic, it confirms that large enterprises that have already explored the benefits of cloud computing are willing to invest more. In this setting, it is unsurprising that cloud intensity in large companies will remain overall higher than average as shown in Figure 31, driven by higher intensity among the currently more advanced user groups, while the laggard user groups would show a lower cloud intensity compared to SMEs. 64

65 F I G U R E 30 I M P A C T O N L A R G E C O M P A N I E S ' C L O U D A D O P T I O N B Y U S E R G R O U P Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 95,9% 98,5% 82,8% 93,1% 86,8% 94,7% 98,1% 100,0% 97,4% 100,0% 98,0% 98,7% 100,0% 100,0% % of Large Enterprises investing in at least one solution excluding % of Large Enterprises investing in at least one solution 0% 20% 40% 60% 80% 100% 65

66 F I G U R E 3 1 I M P A C T O N L A R G E C O M P A N I E S ' C L O U D I N T E N S I T Y Total 3,8 4,3 No cloud 1,8 2,3 At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 2,9 3,6 3,6 4,0 3,7 4,1 4,7 5,2 3,3 3,6 Average Number of Solutions excluding Average Number of Solutions including Impact on Cloud Adoption in the Public and Private Sectors The impact of policy to address the factors identified as hindering the full potential of cloud adoption among private enterprises would be to push forward investments in the area of /calendar, storage, security and databases (Figure 32). In particular, some 46% of private EU business respondents indicate that they would start investing or strengthen investments in /calendar/diary, and close to 42% would invest in cloud-based security and databases. Investments in the other solution areas will remain comparatively lower ranging from close to one in four respondents expecting to invest in infrastructure/computer power to one in three indicating they would start or strengthen investments in accounting/back office solutions. 66

67 F I G U R E 3 2 I M P A C T O F C L O U D A D O P T I O N B Y S O L U T I O N A R E A I N T H E P R I V A T E S E C T O R /calendar/diary Storage on-line Security Databases 46,5% 45,6% 42,4% 41,8% Accounting/Back office Sales mgmt System & network management Business intelligence and analytics Application development Personnel/HCM/Talent Mgmt Content mgmt Infrastructure/compute power 33,3% 32,0% 31,0% 30,2% 27,2% 26,7% 24,0% 22,7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Like for the total of the market, the analysis by cloud user group for private sector respondents is, generally speaking, rather optimistic (Figure 33). More than 98% of companies would either start investing or strengthen investments in at least one cloud-based solution (96.4% when excluding ), with a more marked impact on investments among those private business that have already invested. Even so, what emerges from the analysis is that among private enterprises, the removal of barriers through policy action would drive stronger investments among those end-users that have already evaluated the cloud but have still not made specific plans, hence acting as a strong catalyst to moving to the cloud for hesitant companies. Indeed, close to 99% of private enterprises would invest in at least one solution including (95.5% excluding ). This compares, as evidenced in Figure 36, to some 89.1% and 85% on like-to-like basis for the public enterprises. 67

68 F I G U R E 3 3 I M P A C T O N C L O U D A D O P T I O N B Y U S E R G R O U P I N T H E P R I V A T E S E C T O R Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 96,4% 98,3% 86,7% 92,9% 95,5% 99,0% 97,5% 99,9% 98,0% 99,3% 97,9% 98,3% 97,6% 99,2% % of Private enterprises investing in at least one solution excluding % of Private enterprises investing in at least one solution 0% 20% 40% 60% 80% 100% As a consequence of the impact on investment trends if actions were taken to address the specific barriers to cloud adoption, cloud intensity among private enterprises would raise to higher levels within the user group that has evaluated cloud but that has still not made plans to invest. In general, Figure 34 shows however that cloud intensity in the private sector would be more restricted than that of the public sector (Figure 37), particularly when including (4 compared to 4.3). 68

69 F I G U R E 3 4 I M P A C T O N C L O U D I N T E N S I T Y I N T H E P R I V A T E S E C T O R Total 3,6 4,0 No cloud 2,1 2,5 At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 3,2 3,8 3,3 3,8 3,4 3,8 4,5 5,0 3,2 3,5 Average Number of Solutions excluding Average Number of Solutions including Noticeably, survey data shows that removing barriers to cloud adoption by means of policy driven actions to address challenges related in particular to accountability, Internet connectivity, data jurisdiction and government certification (Figure 35) would result in one in two public enterprises starting or strengthening investments in e- mail/calendar/diary, storage on-line, security, and databases. In addition, some 38.4% would actually move to the cloud or increase investments in the accounting and back office area, which compares to lower shares in the private sector (33%). 69

70 F I G U R E 3 5 I M P A C T O N C L O U D A D O P T I O N B Y S O L U T I O N A R E A I N T H E P U B L I C S E C T O R /calendar/diary Storage on-line Security Databases 52,8% 51,6% 49,0% 48,5% Accounting/Back office System & network management Personnel/HCM/Talent Mgmt Content mgmt Application development Infrastructure/compute power Business intelligence and analytics Sales mgmt 38,4% 33,1% 32,9% 27,4% 26,3% 25,3% 21,0% 18,9% 0% 10% 20% 30% 40% 50% 60% From a user group perspective among public sector enterprises policy action would have a strong implication on strengthening investments among the more mature user groups which have already adopted some cloud solution or which have made future deployment plans (Figure 36). In fact, when including , almost every respondent expects to start/strengthen cloud investments (with the exception of trial users for which the share still stands at an impressive 98.5%). On the other hand, a more limited impact is expected from the two groups that have no cloud strategy in place, with the ultimate result that compared to the private sector slightly fewer companies expect to start/strengthen investments in the cloud. Clearly, as a direct effect of policy action on the investment trends as highlighted above, higher cloud intensity would emerge among the currently more advanced public enterprise cloud users, while remaining to some degree more limited in those organizations that still do not have a clear strategy in place (Figure 37). This is particularly evident when comparing like-for-like to the private sector expectations. 70

71 F I G U R E 3 6 I M P A C T O N C L O U D A D O P T I O N B Y C L O U D U S E R G R O U P I N T H E P U B L I C S E C T O R Total No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 95,1% 97,9% 87,6% 95,3% 85,0% 89,1% 100,0% 100,0% 94,0% 98,5% 100,0% 100,0% 95,3% 100,0% % of Public enterprises investing in at least one solution excluding % of Public enterprises investing in at least one solution 0% 20% 40% 60% 80% 100% 71

72 F I G U R E 3 7 I M P A C T O N C L O U D I N T E N S I T Y I N T H E P U B L I C S E C T O R Total 3,7 4,3 No cloud At least one thinking but no plans At least one planning Limited/trial users Full use more than one area Full use only one area 2,0 2,5 2,9 3,5 3,4 3,8 3,8 4,3 4,8 5,4 3,5 4,0 Average Number of Solutions excluding Average Number of Solutions including

73 P U B L I C C L O U D S C E N A R I O F O R E C A S T : " P O L I C Y D R I V E N " 5.1 Introduction This chapter presents 2020 scenario cloud forecasts in case coordinated actions to face most pressing cloud barriers are taken, in what IDC has called the "Policy Driven" scenario. Based on the analysis of key actions and impact on cloud demand described in chapter 4, the policy driven scenario provides forecast for the timeframe, with detail by vertical and size, under the assumptions key cloud barriers are removed Forecast: "Policy Driven" Scenario A series of barriers hinder the adoption of the cloud model and the pervasiveness of cloud solutions in EU companies. What if these barriers were removed through a series of coordinated policy actions? The scenario assumes the undertaking of at least the following actions in the short-term: Accountability: "Clear rules about cloud service providers accountability and liability about security, no matter which country they are from" Connection: "Ensuring better and more reliable Internet connectivity for businesses". Security certification: "EU-wide certification of cloud service vendors on their security and data protection arrangements" Data jurisdiction: "EU-wide rules clarifying that my country's laws and only my country's laws apply to my data stored in another EU country" Portability: "Guaranteed data and applications portability between cloud vendors" Data jurisdiction: "EU-wide rules clarifying that my country's laws and only my country's laws apply to my data stored in another EU country" Data protection: "Harmonised regulation about data protection standards, no matter where the data is" These are the most important actions requested by end-users. As analyzed in Chapter 4, addressing these would produce a strong impact on the demand for cloud solutions in the EU. More companies would adopt the cloud model, but the most relevant benefit would be the increasing pervasiveness of cloud solutions leveraged across companies' business processes. Although not all 73

74 investment intentions will translate into real investments before 2020, cloud intensity would significantly increase. Public cloud spending would grow at a 38.3% compound annual growth rate and would amount to nearly 80 billion in 2020 (Figure 38) against 35 billion in the "No Intervention" scenario. F I G U R E 3 8 P U B L I C C L O U D " P O L I C Y D R I V E N " S C E N A R I O BN Share of IT: 1.6% CAGR: 32.9% Share of IT: 3.6% CAGR: 38.3% Share of IT: 20.1% CAGR: CAGR: 0.9% 1.9% Total Cloud Other IT For this scenario, IDC did not make different assumptions regarding the evolution of the macroeconomic environment and the trends in market capitalisation already described for the "No Intervention" scenario. The key variable that differentiates the two scenarios is the introduction of dedicated actions to increase cloud adoption. However, the resulting increase in cloud adoption and spending would have an impact on some of the assumptions presented in the "No Intervention" scenario. In particular, the following trends characterise the "Policy Driven" scenario against the "No Intervention" one: The demand for cloud specialists will increase much faster, creating more pressure on universities to educate new specialists. Increasing end-user demand and decreasing concerns will push the launch of new cloud solutions, not only in the traditional horizontal IT areas, but also in the vertical specific area. Increasing demand from SMEs will also push vendors to strengthen their channel cloud strategies and launch new and more solutions tailored at their needs. 74