Monday, 1 March 2010

The economics of cloud computing

What will the next big technology be? This column argues that “cloud computing” will have a dramatic effect on how we live our lives and how we do business. The economic impact of the diffusion of this technology could match that of telecommunication infrastructures in the ’70s and ’80s or the introduction of the internet in the ’90s. Once diffusion gathers apace, cloud computing could significantly boost GDP growth and could create around a million EU jobs within five years.

The new big thing of the IT world is “cloud computing”, a general purpose technology that could provide a fundamental contribution to promote efficiency in the private and public sectors and promote growth, competition, and business creation.

Cloud computing is an Internet-based technology (hence “cloud”) which stores information in servers and provides it as an on-demand service. The economic impact of cloud computing will be substantial on both households and companies.

* On one side, consumers will be able to access all of their documents and data from any device (the home or work PC, the mobile phone, an internet point), as they already do for email services or social networks.
* On the other side, firms will be able to rent computing power (both hardware and software in their latest versions) and storage from a service provider, while paying on demand, as they already do for other inputs such as energy and electricity.

The former application will affect our lifestyles, but the latter will have a profound impact on the cost structure of all the industries. For instance, it can provide huge cost savings and greater efficiency in large areas of the public sector including hospitals and healthcare (especially to provide information and technologies in remote or poorer locations), education (especially for e-learning) and the activity of government agencies with periodic spikes in usage. Moreover, substantial positive externalities are expected because of energy savings: the improvement of energy efficiency may contribute to the reduction of total carbon emissions in a substantial way.

If we look at the private sector, again the introduction of cloud computing can provide cost savings. It can create multilateral network effects between businesses, and it can promote entry and innovation in all the sectors where IT costs are restrictive and are drastically reduced by the adoption of cloud computing. This last effect can have a large effect on the wider economy. Continue Reading…Full Source

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