Cloud economics

The impact of cloud computing on the IT department and its leadership is the subject of constant debate within the industry. Less often discussed is the impact of cloud on the economy as a whole.

Storage infrastructure giant EMC recently commissioned the Centre for Economics and Business Research (CEBR), a research organisation founded by IBM’s former chief economist, to examine the macroeconomic impact of cloud adoption.

CEBR’s findings were markedly positive. By evaluating what it considered to be cloud computing’s benefits to an individual business – both to its operational efficiency and its ability to scale – and extrapolating that using predicted adoption rates, CEBR forecast that cloud computing will provide €736 billion of cumulative benefits to Europe’s five largest economies between 2010 and 2015.

By making businesses in the region more efficient and more adept at scaling to meet economic opportunities, cloud computing will create 2.3 million net new jobs during that period, CEBR predicted.

These are impressive statistics, but there are a number of assumptions within the report that might sound like grim news for IT professionals. For example, the assumed benefits of cloud computing for organisations include “reduced IT headcount”.

There are a few qualifiers to this assertion, however. One is the often used (but not always convincing) argument that systems administrators who find that their jobs have been automated will be redeployed to focus on “innovation”.

CEBR’s argument, meanwhile, is that cloud computing will create such economic growth that the net impact of jobs of all varieties will necessarily be positive. “You’re getting economic expansion, so people will be required somewhere,” says Oliver Hogan, an economist from the organisation.

“From a macroeconomic perspective, if there are job losses in IT departments it improves the profitability of companies, which creates benefits throughout the economy,” he adds.

A more positive argument from an IT professional’s perspective comes not from the CEBR / EMC report, but from Simon Wardley, a researcher at IT services company CSC’s Leading Edge Forum.

Wardley invokes something known as the Jevons Paradox. William Stanley Jevons was a 19th century economist who noticed that as the efficiency of coal-burning systems improved, the consumption of coal increased. “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption,” Jevons wrote. “The very contrary is the truth."

The same goes for IT resources, Wardley argues. “Automation [through cloud computing] will reduce the number of sysadmins required if your activities stay the same, but your activities won’t stay the same,” he says. “Instead, you are likely to end up consuming such a vastly greater level of compute resources that you’ll need extensive automation just so your current sysadmins can manage it.”

The idea that cloud computing will reduce IT spending is, Wardley argues, “a misconception”.  

This argument directly contradicts CEBR’s prediction that cloud will save European businesses €144 billion in IT spend over the next five years, across both capital and operational expenditure, even after the increased spending on cloud computing is taken into account.

But it does not contradict what CEBR believes to be the principle benefits of cloud computing – driving growth through improved business development and business creation. Together, CEBR says, these will contribute €342 billion to the combined economy of the five countries by 2015.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

Related Topics