Friday, December 09, 2011

Australian Cloud Computing Report

The Australian Department of Innovation has released the report "Cloud Computing: Opportunities and Challenges" from the IT Industry Innovation Council (11 October 2011). The report suggests there is a "... window of opportunity for Australia to be a global leader in the creation and adoption of Cloud computing innovation, both in the sense of being a leading ICT cloud computing solutions provider and in the more general sense of being a leading Cloud computing adopter...". The report recommends Australian governments and industry "... react promptly ..." to use cloud computing for productivity and high‐value ICT jobs creation. However, the report does not detail how to do this. One useful area of the report are proposals for data protection (I run a course at the ANU on "COMP7420: Electronic Document and Records Management").
Executive Summary

Cloud computing has emerged as the decade’s biggest shift in the way organisations use Information Technology (IT). The following outlines a summary of advice to the Hon Kim Carr Minister for Innovation, Industry, Science and Research from the Information Technology Industry Innovation Council regarding the industry development opportunites and challenges presented by the growth of Cloud computing.

The ‘Cloud’ provides a new paradigm for delivering computing resources (for example, infrastructure, platform, software, etc.) to customers on demand, in a similar fashion as that provided by utilities (such as water, electricity, gas, etc.). Authoritative international market research from a number of different sources predicts that the global market for Cloud prodcts and services will grow rapidly in the next few years. The global research firm IDC predicts a compound annual growth rate (CAGR) of 27.4 percent in public cloud services (including software as a service) up to 2014, rising to a total global market value of over US$55 billion1. The US‐based research firm 451 Group predicts that core cloud platform and infrastructure services outside of software‐as‐a‐service will grow at a CAGR of higher than 60 percent in the same period2. All major IT research and advisory firms predict that Cloud related products and services will grow much faster than traditionl IT services – typically at around four to five times a greater rate. This rapid growth dynamic provides a great opportunity for innovative Australian IT firms with leading‐edge Cloud technologies to achieve increased revenues and also for related improvements in local IT employment.

It is worth noting that with the local Australian ICT (Information & Communication Technologies) marketplace having a reported value of over $75 billion, and with the same fundamental dynamics regarding Cloud growth applying here to those playing out globally, there is also significant market revenue potential opening up specifically within Australia for Cloud providers. The following chart from IDC reflects that a projected 7.1 percent of total ICT spending in Australia in 2015 will be directl Cloud related, up from 2.8 percent in 2011. This will be a net increase in value of around $4.3 billion. However with many Cloud services being able to be provided from any geographic location, it is important from a local industry development perspective to focus on maximising the related opportunities arising for locl Australian ICT providers.

1http://www.techrepublic.com/blog/networking/cloud‐computing‐to‐grow‐at‐5‐times‐rate‐of‐traditional‐it‐says‐idc/3133
2 http://www.prweb.com/releases/cloud/computing/prweb4771704.htm

The key to maximising these relative opportunities lies in fuelling the level of demand for Cloud computing services and minimiing current barriers to take‐up. There needs to be a strong pull from the non‐ICT sector in terms of understanding the fundamental business benefits of Cloud adoption, including operational efficiencies, greater reach into markets, cost reduction, reduced risk of IT investment with pay‐as‐you‐go pricing, and greater flexibility to handle changes in business conditions.

A September 2011 IDC survey of enterprises in Australia found that 20.6 per cent of the respondents are already using Cloud comuting, while 38.2 per cent are actively testing or planning to deploy Cloud services in the next six to 12 months. A further 41.2 per cent of companies are planning to implement Cloud services by 2013. These are positive indications that demand is growing rapidly.


We can conclude from the various expert insights that the local Australian Cloud market growth opportunities are real and provie a clearly addressable potential for local ICT providers. The extent of the Cloud market potential touches all of the segments of the broad ICT industry – including Software, Services, Hardware, Communications and Research.

Furthermore, we believe that there is an additional local industry development growth potential inherent in the proposition that Australia ould be considered as a regional hub for the hosted provision and development of cloud computing services. This issue was canvassed by the recent Lateral Economics report, “The potential for cloud computing services in Australia.” The report was prepared on behalf of Macquarie Telecom, who are represented on the ITIIC, and also sit on the working group behind this report.

The Lateral Economics report notes that Australia’s geographic isolation provides a natural protection for Australian suppliersof cloud services to the domestic market and they argue that the Australian ICT sector should capitalise on this situation and uild a strong domestic footprint, while along the way, positioning itself as a preferred supplier to nearby markets.

Importantly the report also highlights Australia’s low sovereign risk and stable political environment as providing an attractie basis for foreign investment. Furthermore it emphasises the benefits to consumers of existing laws such as the Privacy Act and the National Privacy Principls – benefits that would be further enhanced if the Exposure Draft on Australia’s Privacy Principles issued in June 2011 is enacted

A further significant competitive advantage that Australia has over many other geographic locations in the Asia/Pacific region for the provision of hosted Cloud services relates to the wide potential availability of low‐carbon energy resources to support a desirable “Green IT footprint” for data centres. With growing global awareness of Corporate Social Responsibility needs in the economic requirements of fast‐growth companies this is important to note.

The ITIIC believe that taking positive steps to create new levels of consumer and business confidence in use of Cloud Computingsolutions will have the additional benefit of helping position Australia as a national and regional Cloud leader – increasing the related industry development in software solutions and hosting centres, thereby boosting jobs and productivity whilst attracting global investment. Australia has strong fundamentals that are needed to make this a global reality; the leading‐edge ICT skills, the legal, political and geographical certainties, as well as the assurance that data hosted here is secure. Powered and supported by transformative national initiatives such as the NBN, Australia increasingly has the infrastructure capacity and expert capability to plug into the world and reap the associated adantages.

Our overall assessment for the broad sector is that the Cloud computing market shift will impact parts of the existing Australin ICT industry in different ways,

Those elements of the ICT industry which focus on developing software solutions and software services will most likely need to apidly transition their go‐to‐market models to take advantage of Cloud‐based infrastructure and start providing their software solutions as a service from the Cloud. This may open up new markets for them and provide a springboard for growth, but given the increasing global competition dynamics in a Cloud world it is likely that the most innovative and nimble companis will prosper.

As covered by the Lateral Economics report, the provision of hosted Cloud solutions has significant potential both within Australia and in nearby markets.

While industry analysts are forecasting continued growth in ‘core IT on‐premise services and related computing infrastructure’, those segments of the local ICT industry that currently focus on this area could find growth potentially more challenging overtime. This segment will probably either have to enhance their offerings to become part of a cloud provider marketplace or face the pssibility of gradually being forced to exit this market. Those that do stay in the market will over time have to compete more directly with the global cloud computing market providers where to survive they will need to lower costs and find new local or operational efficiencies and increased productivity. In light of this, ITIIC believe there is a role for both industry associations and government in providing education and awareness for existing ustralian ICT service provider organisations of the benefits and opportunities of Cloud, particularly in the areas of productivity and efficiency improvements, and how to make the transition to providing cloud based solutions.

We further note however, as with any new paradigm shift in market usage conditions, and thereby also change in related industry innovation, that there will be significant new opportunities for Australian ICT industry providers to develop leading solutions and servics for Cloud usage globally. These opportunities will be best prosecuted if industry development of the ICT sector is seen as a key priority by the Australan Government.

The IT Industry Innovation Council recognises that Cloud computing in Australia has incredible growth potential, but is still in its infancy and the maturing of the market has a long way to go. As such it believes that a light touch in relation to government regulation of the market is the most appropriate approach. Outside of market regulation however, we believe that Government has a very key role to play in supporting the sector through some of its policy and procurement actons, and these dimensions are discussed directly in our Recommendations.

In terms of aligning the work of this paper with other key Government activities, the Council is aware that work is being done by the government on security and privacy issues, and on standards, and that there has been a significant body of work undertaken in the past 2 years looking at Cloud computing from a variety ofaspects, not the least of which is the work of the GAP Taskforce on Cloud Computing whose report was released on 25 May 2011. The recommendations of that report represent a balanced approach to the issues, and we would encourage Senator Carr’s consideration of these recommendations (included in Attachment A of this report).

Key recommendations

Recommendations Introduction

The IT IIC Working Group on Cloud Computing has met a number of times to review the nature of advice to the Minister regarding is questions raised. There are some overarching points to be made which “set the scene” for that advice, and these are:

  • That the Council believes there is a current window of opportunity for Australia to be a global leader in the creation and adopion of Cloud computing innovation, both in the sense of being a leading ICT cloud computing solutions provider and in the more general sense of being a leading Coud computing adopter. However Australian governments, Industry and the local ICT sector in particular must react promptly to this possibility with supportive actions (including the prioritising of the following recommendations) to support the achievement of wealth and prosperity arising from that opportunity;
  • That Australian industry and government should focus their energies on the potential for the use of Cloud computing techniques o drive much‐needed improvements in overall national productivity ‐ noting that actions supporting this goal need to be accelerated faster than our international competitors;
  • That there is a significant developing opportunity for local high‐value ICT jobs creation by the development and use of smart Cloud computing applications to improve our global competitiveness nd expand our export potential. The Australian Government should seek wherever practically possible to provide the right kind of stimulus actions in its approch to Cloud computing to encourage the development of a vibrant local ecosystem;
  • The Council notes that there is a need to engender a sense of urgency and clear political leadership in this debate. Governments in other jurisdictions around the world are beginning to consider and take specific actions to encourage and promte their country as a leader in Cloud computing. One example of this in the procurement context is United States Government’s “Cloud First” policy which requires federal government agencies to first consider cloud as a mechanism to deliver any new IT initiatives. Another example from a consumer protection perspective is the discussion paper recently released by the Singapore Government’ Ministry of Information, Communications and the Arts for a Proposed Consumer Data Protection Regime for Singapore. The paper expressly notes: “A general DP [data protection] law will also strengthen Singapore’s position as a trusted hub and create a conducive environment for the fast‐growing global data management and data processing industries, such as cloud computing, to thrive in Singapore. Singapore has many competitive advantages as a data hosting location, such as its telecommunications infrastructure, geographical location, safety from natural disasters and power reliability. However the lack of a general DP law in Singapore may increasingly be seen as a significant disadvantage that could deter somecompanies from choosing to host their data here. The development of DP legislation would thus support Singapore’s future development as a global hub for data.”
Recommendations Summary

The ITIIC Working Group on Cloud Computing makes the following recommendations to Minister Carr:

1. The ITIIC recognises the valued work of the recent GAP Cloud Computing taskforce (coordinated by Department of Broadband, Communications & Digital Economy), and commends the GAP recommendations to the Minister.

The report’s recommendations focus on maximising the benefits of Cloud computing and minimising its risk. It calls for government to issue a statement of support for Cloud computing. Other recommendations advocate government adopting a position of leadership and vision, the establishment of a standing public/private Cloud Committee, domestic and international engagement, assessing Australia’s Cloud readiness, education and awareness, and co‐regulation, including the possible development by industry of cloud computing trust‐marks and a possible
industry self‐regulatory code of conduct. The recommendations are included in full in Attachment A.

2. The ITIIC recognises the significant work undertaken also by the Australian Government in producing the Cloud Computing Strategc Directions Paper and the importance of the ongoing work being done to implement it. It is supportive of further accelerating many aspects of this work, as per Recommendation 5 below.

3. The ITIIC recommend that the following actions be undertaken to address industry development issues within the sector.

a) That the Australian Government should strongly support the development of an enhanced local Cloud computing industry, building on the inherent strengths that the stable Australian financial, policy and regulatory environment provides. This environment will be further strengthened by developing guidelines for Cloud Service Providers to publically demonstrate cber‐security, provable maintenance of privacy of customer data, and guaranteed unencumbered (trusted) operation (Security/Privacy/Trust).

This recommendation is proposed based on the fact that the IT Industry Innovation Council considers that Australia has a natural dvantage in being a safe, secure destination for hosting of Cloud data and applications, particularly so given the regulatory environment of neighbouring countries and the geological stability of neighbouring countres in the Asia/pacific region. The recommendation is also based on the expectation that more and more users will move to a Cloud environment once Cloud servces are considered to be trustworthy. The recommendation is further based on the natural advantage Australia has with abundant renewable energy sources, including solar and geothermal, which would offer Cloud Service Providers the opportunity to reduce operational costs and support ecological “green” objectives.

Specific proposed activities to be led by the Australian government under this recommendation include:

i. Raise Australia's reputation as a safe and secure location for hosting cloud services with the goal of developing a compelling lobal brand that characterises Australia as the "Safe, Secure, Green Cloud" destination.

ii. Work closely with government, commercial and research organisations to establish a set of well‐informed and consistently applied accreditation guidelines for Cloud Service Providers to demonstrate Security/Privacy/Trust. The IT Industry Innovation Council would be pleased to be involved in this work and believe it would require:

a. A review and formulation a set of measures for Security/Privacy/Trust for Cloud Service Providers. It is extremely important that this be done in close co‐operation with Australian Government bodies such as AGIMO and the Office of the Australian Information Commissioner. It is also important to obtain input from Cloud Service Providers in the formulation process.

b. Working with major Cloud Service Providers to establish an agreed common set of validation tests (standards) against which they can state that they meet appropriate measures.

c. Engagement with a standards bodies, such as W3C (World Wide Web Consortium ‐ hosted by CSIRO in Australia), and the ACS (Australian Computer Society) to promote acceptance of such measures.

d. Establishment of a mechanism by which the measures and validation suite may be reviewed and refined/updated.

e. Establishment of a mechanism by which these measurements may be independently assessed.

f. Work closely with government, commercial and research organisations to establish a publically recognised set of marks which demonstrate levels of Security/Privacy/Trust, similar to the energy and water "Star‐Ratings" for household goods.

g. Development of associated and relevant underpinning themes, such as local clean energy capability and deep skills in the local industry to support the proposition.

h. Detailed consideration should be given to the value of making the ICT Industry (and its inherent linkage with both Cloud Computing and the Digital Economy) a key industry development priority area for the Australian Government, thereby raising its status in relation to the activities of associated agencies such as Austrade.

b) Through engagement with the relevant industry association’s focus on developing a plan to provide expertise and advice that wil enable the local ICT industry to transition to the Cloud.

c) That the Minister use the Enterprise Connect program to educate Australian Business on the business agility, transformational opportunities, and efficiencies offered in a Cloud based environment, and investigate opportunities through other existing government programs (digitalbusiness.gov.au, the Digital enterprises initiative, Supplier Advocate programme, etc.) to improve awareness and drive faster take‐up.

d) That Government, industry, CSIRO and NICTA collaborate and develop and execute a joint cloud computing research agenda. This agenda could include researching value and opportunities provided specifically for enhancing Australia’s reputation and cpability in a Cloud Computing global market including potential areas such as linkages of Cloud technologies with the NBN, leadership in applied usage of Cloud applications and innovative new Cloud software solutions for complex economic and communiy challenges.

4. The Department of IISR be included in the establishment of an ongoing Cloud Consultative Committee as proposed by the GAP Taskfrce (see Attachment A), and that it use its involvement to address issues such as alignment between the Cloud computing agenda and its association wit the NBN, the eight goals of the National Digital ...

From: Cloud Computing: Opportunities and Challenges, IT Industry Innovation Council, Australian Department of Innovation, 11 October 2011

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