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Budgets are shrinking

but cloud remains a priority

Businesses are recognising the value of cloud computing investments, despite facing continued budgetary pressures in the current economic climate.

If business leaders have learned anything from the recession, it is that there is little room for complacency. As such, the Office for National Statistics' recent revelation that the economy contracted during Q4 2010 should be seen as more of an unwelcome development, than a shock or surprise.

For IT departments, news of a 0.5 per cent decline in gross domestic product is particularly unwelcome. Even before the quarterly growth data was published, concerns were being raised about falling IT budgets moving into 2011. Gartner reported that businesses in Europe, the Middle-East and Africa are facing average cuts of 0.4 per cent, but the situation is far worse in the UK where budgets are to be slashed by up to seven per cent.

Chief information officers (CIOs) may press the case for IT investment, and company executives may recognise the need to keep up with their competitors, but many companies are seemingly facing another battle for survival. If confidence drops, revenue tails off and the UK slides back into recession, infrastructure investment will understandably slide down the immediate agenda for some. Although perhaps cloud computing projects should prove an exception to this rule.

Overall economic trends perhaps play less of a part in influencing cloud spending levels, on the basis that hosted services, implemented sensibly and at the right time, have cost benefits in their own right. Various studies, including that published by IBM Research – which pointed to 81 per cent efficiencies post-deployment – highlight the positive impact cloud investments can have on the bottom line. And any technology which helps to reduce costs and drive revenue simultaneously will be in high demand – particularly where start-up costs are relatively low.

For those willing to overlook prevailing security, regulatory and ownership concerns – which have to date, dissuaded some firms from investing – the cloud appears to promise a high return on investment aligned with a low total cost of ownership. By nature Software-, Platform- and Infrastructure-as-a-Service are available on-demand, meaning companies are only required to pay for IT they are using. As such, businesses are able to replace over-complex and under-utilised legacy solutions, which can prove to be a drain on resources long after the initial deployment.

With the cloud, a third-party service provider is responsible for making any large-scale infrastructure investments, and also for managing servers in the data centre. This allows business users to streamline internal IT operations, and leave valuable capital alone in the bank. Users can simply shop around for the online IT services they desire, rather than throw capital at the costly hardware and software that supports them.

As it happens, firms which take this latter option are often those most reluctant to invest in the cloud. But is this because of their concerns over hosted services, or because they cannot simply write off the six-figure sum spent on their own data centre?

UK businesses cannot be sure how the economy will fare over the coming weeks and months, but this inherent uncertainty does not appear to be affecting their attitudes towards cloud computing investments. A Gartner study released this month points towards a significant rise in the number of firms embracing the cloud over the next five years.

The analyst found that just three per cent of companies currently have the majority of their IT services running on cloud technologies, but this figure will increase to 43 per cent by 2015. As such, the proportion of the IT budget spent on day-to-day operations is expected to fall by half from its current level of 66 per cent. Rob Lovell, chief executive officer at ThinkGrid, claimed the additional choice and flexibility provided by the cloud will make a significant difference to resource-starved businesses.

"Companies are asking themselves why they should continue with the status quo, making upfront capital expenditure investments and carrying all the risks associated with large scale IT implementations," he stated.

"The cloud model has made its mark and is fundamentally changing the way we all access and pay for IT."

And as cloud vendors continue to innovate, the number of businesses embracing the on-demand IT model is only likely to increase. The technology has moved beyond its infancy and is fast-maturing – meaning the risks associated with cloud computing in the past are rapidly diminishing.

So as business executives look for solutions to the challenges faced by a difficult economic environment, it should be no surprise that this IT segment should buck the trend. With budgets constrained, few CIOs can justify taking a chance on immature IT, but the cloud has moved beyond this stage. It is seen as an IT investment which adds value and reduces costs, helping to solve the problem of constrained finance, rather than adding to it.