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June 26, 2014updated 22 Sep 2016 1:26pm

How are UK companies investing in cloud computing in 2014?

Investment in private and hybrid cloud is expected to drive the cloud computing market in the UK.

By Duncan Macrae

The adoption of cloud computing solutions has been relatively slow amongst UK enterprises, primarily due to concerns relating to security, data protection, and a lack of regulation. However, driven by advantages such as a reduced cost of ownership, increased scalability, and ease of management, the adoption of such services in the UK is expected to increase.

This is evident from a Q4 2013 Kable market research report, which presented the findings from a survey of 162 UK enterprises regarding their Information & Communications Technology (ICT) investment trends. The survey investigated how UK enterprises currently allocate their ICT budgets across the core areas of enterprise ICT spend, namely hardware, software, IT services, communications and consulting.

The survey found 77% of respondents are planning to invest in this area in the next two years. Of the various cloud computing solutions, software as a service has the highest penetration rate as 54% of respondents are currently using this service in their organisations in order to reduce the license and management costs of various applications and to achieve an improved level of scalability and flexibility. Furthermore, the fact that 50% of enterprises plan to deploy this service in the coming twenty-four months shows that there will be decent demand for SaaS amongst UK enterprises.

With penetration rates of 49% and 46%, platform as a service (PaaS) and infrastructure as a service (IaaS) are experiencing a decent uptake in the UK enterprise market as enterprises look to reduce their capital and management costs relating to various IT infrastructure and platforms, as well as aiming to improve their productivity, profitability, and time to market. Both these solutions are expected to witness an upward momentum in the next two years, as 51% and 52% of respondents are planning to invest in these domains through to the end of 2015.

Meanwhile, private cloud and hybrid cloud are witnessing the lowest adoption rates with 44% and 39% of respondents respectively operating with these solutions in place. However, with 54% of respondents looking to spend on both of these solutions in the specified period, there is an increased demand for private and hybrid cloud services amongst UK enterprises. Kable therefore believes that IT vendors with a strong cloud proposition and related case studies are expected to be in a good position to reap certain benefits. Analysing the survey data by sector shows that while UK government institutions are keen to invest in hybrid cloud (with 56% of respondents planning investment here in the next two years), UK manufacturers are more inclined to spend on PaaS with 76% of respondents looking to invest in this area through to the end of 2015.

Cloud computing is still at a nascent stage of adoption in the UK enterprise market and is dominated by the big IT vendors, including the likes of Microsoft, Google, IBM, and Amazon. With a strong brand image and universal adoption, plus a range of cloud based products such as Windows Server with Hyper-V, Office 365, System Center, and Windows Azure, Microsoft is leading the pack in terms of customer perception, as 43% of respondents choose it as one of the leader in this domain. Furthermore, Microsoft has invested to strengthen its brand image in the UK cloud market with its participation as the sponsor of the inaugural UK Cloud Awards held in January 2014.

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The survey shows that Microsoft is followed by Google and IBM, with 27% of enterprises selecting these IT vendors as leaders in cloud computing. IBM is aggressively targeting the IaaS and hybrid cloud market which is evident from its July 2013 acquisition of SoftLayer Technologies, a cloud computing infrastructure provider in order to strengthen its hybrid cloud services capabilities. Meanwhile, following its market entry as a SaaS and PaaS provider, Google is also investing heavily in the cloud market, undertaking forays in the IaaS market with the official launch of its Compute Engine offering in December 2013, which is providing strong competition to Amazon, Microsoft, and IBM.

Although a lower percentage (14%) of enterprises in the UK consider Amazon web services as one of the leaders in cloud computing, the company possesses a strong cloud proposition that caters to a wide range of customers. Furthermore, Amazon is looking to strengthen its presence in the UK public sector market as for the first time it has been selected as the one of the suppliers to provide cloud services to government institutions, following the launch of the fourth iteration of the UK Governments G-Cloud program in October 2013. Meanwhile, ICT vendors such as Rackspace, Orange, AT&T, and BT occupy a limited mindshare amongst UK enterprises, as 13%, 12%, 10%, and 10% of enterprises respectively consider these players to be leaders in the cloud computing market.

Zaizi, a London-based IT consultancy that implements open source and cloud technology in the public and private sector has this comment, has also conducted research into the cloud computing sector.
The research it recently carried out with iGov Survey suggested that uptake of the technology has been faster in the private sector despite the advent of G-Cloud in the public sector.

Zaizi’s CEO, Ainga Pillai, said: "The research revealed that despite the high priority government has placed on new ways of working, only 36% were using Cloud. Even more surprising was that a mere 11% were using BYOD – which relies on a Cloud infrastructure – despite government having paid lip service to it in a big way as a means to save money and improve morale.

"Our research and experience with public sector projects suggests that this relatively slow cloud uptake in the public sector is down to lingering concerns about IT security, many of which are unfounded. As we and others prove to IT buyers that flexible Cloud or Hybrid infrastructures can be designed to offer even greater security than on-premise, we expect the pendulum to swing in clouds favour in the coming years."

Altium, an international mid-market financial advisory group, providing M&A, debt and corporate finance advice to companies, private equity firms and entrepreneurs, agrees that the rate of cloud technology adoption has varied significantly depending on sector.

Stephen Georgiadis, MD and head of UK technology at Altium, said: “Some industries such as defence or financial services, where security is a primary concern, are proving more reluctant to be weaned away from keeping their IT “on-premise” for fear of defence or confidential trading systems being accessible by hackers. To these businesses, the advantages of cloud technology are outweighed by the perceived threats, and as a result, investment in cloud technology is correspondingly slower.

 

In contrast, cloud technology is revolutionising the SME accounting market, with companies like Xero growing particularly quickly. Due to the considerable advantages available from cloud technology and the lack of regulatory or security barriers, companies are increasingly willing to adopt the newer technology, and this trend is only likely to accelerate in the coming months.

“As the transition to the cloud gathers pace, many suppliers are providing customers with a blend, or menu, of software and systems which allow the customers to pick and choose the technology that suits them. Some still want a traditional “on-premise” solution, sold via the traditional “perpetual licence plus maintenance” model, for part of their needs (e.g. ERP) but may combine this by choosing a hosted (i.e. delivered via the cloud) version for certain elements like CRM, HR or accounting.

Looking to the future, Georgiadis believes we will see the advantages of cloud technology becoming more obvious to a greater number of businesses, and the disadvantages will diminish considerably.

He added: "While the trend of varying adoption depending on sector will continue, we would expect to see an increase in investment in cloud technology across the board as the technology continues to develop.”

Roger Goodwin, co-founder of web development agency Digital Trading, believes companies could still do more to make the most of the cloud computing options available to them.

He explained: "While adopting established software and technologies seems to be on the increase, custom systems that could really help companies offer truly 24/7 365 international services are not yet being fully exploited. There is a lot of data stored in local servers and PC’s, which could offer a powerful resource for both clients and associates alike. Cloud-based solutions can provide this in an interactive and graphically appealing way, which has never before been available so easily. I also see that collaboration in sharing data between different sectors and industries could also offer a great resource.

It is inevitable, according to Goodwin, that business will become more and more dependent on cloud technology and we will ultimately move to fully cloud based business. "I believe procuring the right systems and solutions should be a primary focus when considering the growth of the organisation," he said. "Understanding how different departments and business partners can share and collaborate data, increasing profitability and productivity throughout their organisations."

 

This article was published in CBR Digital magazine on iPad, available here.

 

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