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Cloud Mini-Series Part 1: The Transformative Potential of Cloud Computing

· March 26, 2014

This post is the first in a series of articles on the opportunities and challenges of cloud computing in the developing world.

It’s worth reminding ourselves that innovation is an inherently uncertain business. Its disruptive potential depends to a large degree on the social and economic context into which it is born. Groundbreaking inventions remain unsuccessful because no market has developed yet or because people simply don’t see the value. “Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night”, film mogul Darryl Zanuck of 20th Century Fox famously said in 1946. At the time, 8000 U.S. households had a TV set. By 1960, that number had climbed to 45.7 million.

Also, whereas the potential of disruptive innovations may not be apparent at first, its negative effects, e.g. copyright infringement, are immediately visible and can go against powerful, established interests. Economists call this the ‘innovation asymmetry.’

Other inventions become successful for uses that are different from what they were originally designed for. One such example is the smartphone, branded initially as a status toy for the urban elites, which has become the entry point to the Internet for billions of people in the developing world. The same may be true for cloud computing.

The transformational potential of the cloud

In developed markets, most businesses see cloud computing as an incremental improvement of their infrastructure: Moving locally stored data to the cloud allows them to cut costs on servers and maintenance. For example, in-house data centres rarely exceed server utilization rates (CPU) of 5 – 15 percent, whereas cloud services run at 30 – 40 percent. That’s an improvement but it is not exactly revolutionary.

In the developing world, however, the impact could be much more substantial. Similar to the mobile phone, which allowed users to “leapfrog” fixed-line telephony, cloud computing provides people with instant, scalable, and secure access to a world-class infrastructure they could not normally afford. This shift in how computing power is delivered and consumed is comparable to the evolution of the electricity grid in the US a century ago, when businesses began buying electricity as a service, rather than owning and running their own power generators. And just like the electricity grid democratized access to power, cloud computing provides universal access to one of the core features of modern businesses: the capacity to store, share, and process vast amounts of complex data. This could have significant effects on the productivity and efficiency of businesses in the developing world.

One such example is microfinancing, which plays a vital role for small businesses in the global South. It’s a laborious and low-margin business, constricted, on one side, by the need for low interest rates and, on the other, by significant administrative and organisational costs. Currently, the technology employed by microfinance businesses, especially smaller ones, is often limited to manual ledgers and spreadsheet programs, an issue that has also been criticised by the African Union. These businesses do not have the means to deploy sophisticated IT systems like banks, yet they have to manage fairly complex operations. Modern, affordable cloud solutions could have a significant effect on these businesses as it allows them to keep a distributed workforce in sync, centralise their databases and ensure that lending practices are applied consistently across the board.

Different types of cloud services

What exactly do we mean by the ‘cloud’? It’s a rather vague and broad concept, which means different things to different people (and some believe it is simply a marketing trick to describe what is known as the Internet). Basically, cloud computing is an umbrella term for data and computing processes that are run and stored remotely.

To better understand the potential of cloud computing, let’s have a look at the different types of cloud services. First, there is a difference between private clouds, operated solely for a single organization, and public clouds offering commercial services (e.g. Amazon Web Services). Private clouds are typically used for highly sensitive information and require large upfront investment, which make them unfit for small businesses. Hence, public cloud is where most of the potential for development lies. As regards public clouds, there are three main business models: 1) Infrastructure as a service, 2) platform as a service and 3) software as a service.

Infrastructure services are basically cloud providers that “rent” processing power and storage capacities to users (e.g. HP’s BladeSystem Matrix). Platform services, on the other hand, typically also include an operating system, a database, and a web server. This makes them attractive for software developers (e.g. for smartphone apps) who can run their applications on the cloud without the cost and complexity of managing the underlying hardware and software layers. And finally, software services, which are full-fledged applications, fully hosted in the cloud. This includes all popular Internet services, from office tools like Google Apps to online marketplaces, to social media tools.

Arguably, software services have the greatest development potential of the three. The usability and reach of those services, many of which are free to use, allow even the smallest enterprise to organize, market and sell their products efficiently. Just look at online marketplaces like eBay, Etsy or Mercado Libre and how they have enabled SMEs all over the world to trade on a global marketplace.

This was the first in a series of posts on the opportunities and challenges of cloud computing. The following articles will look at the economics behind the cloud, protectionist threats, the cost of forced localisation and the communication strategies of the cloud industry.

Matthias Langenegger is Deputy Geneva Representative in the Geneva office of the Computer & Communications Industry Association. 

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.