IT spending on cloud services to exceed 20% of IT budget in ‘12: KPMG

According to a recent report by KPMG international, IT spending on cloud services by businesses worldwide is set to soar in 2012. One-tenths of organizations worldwide already run core IT services on the cloud. Cloud activity is high, with 81% of respondents experimenting with cloud computing at the moment. As few as 10% of executives surveyed, said their company had no immediate plans to allocate IT spending to the cloud.

In the survey conducted early this year, the respondents included both cloud service users and providers. The client community and end users both showed an increased readiness to accept and exploit the benefits of cloud computing, leading to an expansion in IT spending on cloud services. By 2012, organizations will be spending around 20% of their budgets on cloud services, according to the KPMG report.

Reasons for widespread cloud adoption

There are numerous drivers behind the widespread adoption and IT spending on cloud services. Cost benefits are the key motivator, with 76% of organizations believing that IT spending on cloud will deliver cost savings. Three-quarters of respondents believed that they needed to show cost savings to validate a move to cloud services. In order to make IT spending on cloud services worth the investment, IT spends will need to be 1% to 25% of current spending levels.

Eighty percent of organizations increased their IT spending on cloud services as an effort towards process improvement, seeing a potential gain in speed to solution and all-pervasive accessibility, as well as flexibility, agility, scalability, security, and advanced technology within the organization. Another reason cited was technical benefits and improvements, which otherwise could not be realized from one’s own data center. Lastly, the strategic benefits of outdoing the competitor and gaining an edge were also listed as factors leading to greater IT spending on cloud services.

Apprehensions about adopting cloud services

Despite increased cloud adoption and IT spending on cloud services, many potential adopters have been discouraged by news reports of data compromise and temporary shutdowns. Over 50% of respondents indicated data security concerns as the primary deterrent to IT spending on cloud services. Others were dissuaded by the quality of provider performance, as well as downtime.

Challenges in cloud adoption

Cloud adoption is beset with business and operational challenges, which affect IT spending. Nearly 20% of respondents referred to IT governance as a top challenge, emphasizing the need for corporate governance models to be maintained when adopting cloud services. Other respondents mentioned regulatory compliance and loss of control over customer data as other disincentives to IT spending on cloud services. However, these security, governance and data ownership concerns are now being addressed.

While evaluating the consequences of cloud adoption, many respondents overlooked the subject of tax. Approximately 45% of respondents do not evaluate the tax repercussions of cloud services at all, or are unaware of it being assessed in their organizations.

The India perspective

According to Kumar Parakal, Executive Director, KPMG, the four sectors in India that will benefit most from the cloud are healthcare, education, government services, and small and medium sized enterprises. Cloud computing is likely to increase technology use in India, which, contrary to popular belief, is low at the moment, with India ranked 94 in technology use out of a total of 120 countries considered.