Cloud to drive industry, security concerns remain

SINGAPORE--Security remains a key issue for companies in the adoption of cloud, which will continue to drive the industry, with energy becoming a variable component in cloud costs and low-cost cloud services increasing in importance.

Brian Prentice, research vice president at Gartner, said at a conference here Tuesday that by end-2016, more than 50 percent of Global 1000 companies would have sensitive customer data stored in the cloud.

The analyst pointed out that slower economic growth and pressures to reduce cost would drive these companies to increase their usage of public clouds. Prentice added that it would be impossible for businesses to build and replicate public clouds unless they were world-class providers such as Amazon.com.

He advised governing bodies to collaborate when implementing cloud standards, for example, on data management interface. Companies, on the other hand, should take precautions by starting public cloud projects with less sensitive data, he said.

"It is important to balance risks against agility, investigate issues and thoroughly evaluate compliance and security procedures when it comes to the cloud," Prentice said.

Gartner predicts that, by 2016, some 40 percent of enterprises will make service providers provide proof of independent security testing as a pre-condition for using their cloud offering.

The problem today is that cloud service providers do not permit customers to assess their security capabilities, Prentice noted, and even if they do allow, customers themselves do not have the skills to determine the providers' level of competence.

He urged companies to request "ratings" from cloud service providers that assure their systems have been independently tested for vulnerabilities. Customers should also seek cloud service brokerages which show security inspection, auditing and certification, he added.

Cloud to factor energy costs
Prentice further highlighted that, by 2015, the price for 80 percent of cloud services would include a global energy surcharge.

He explained that as energy is increasingly used for many IT purposes such as powering data centers, it is likely that companies will increasingly adopt the pricing strategy of airlines by "taking a cost and imposing it as a levy". This will lead to energy cost being included as a variable element in future cloud service contracts, he said.

"This will create greater certainty for cloud providers and lower buying power on the consumers' end," said the Gartner analyst, who advised enterprise customers to factor this increased risk and volatility into their cloud decision and move toward externally sourced cloud providers.

Rise of low-cost cloud
Additionally, low-cost cloud services are expected to cannibalize up to 15 percent of top outsourcing players' revenue by 2015, Prentice remarked.

"The first two generations of industrialized IT services take advantage of standardization, offshore and global delivery and new delivery models, but the third generation of IT services industrialization takes advantage of cloud computing," he said. "This combination unleashes new possibilities and business models, including low-cost approaches."

He explained many companies are recognizing the capabilities of industrialized low-cost services (ILCS) and this will change the common view of pricing and the value of IT services.

To cope with this, Prentice noted that companies must consider ILCS and service price trends when refreshing their sourcing strategy or evaluating the benefits of in-house IT resources against outsourcing.

They should also maintain disciplined sourcing management and avoid long or broad scope contracts which will limit their flexibility, he added.

Gartner's top 11 predictions are:

1. By 2015, 35 percent of enterprise IT expenditure will be managed outside IT departments;
2. By 2014, 20 percent of Asia sourced finished goods and assemblies consumed in the U.S. will shift to the Americas;
3. By 2014, the financial impact of cybercrimes will grow 10 percent a year due to discovery of new vulnerabilities;
4. The investment bubble for consumer social networks will burst by 2013, while the same will happen for enterprise social software by 2014;
5. More than 50 percent of global companies will store sensitive customer data in the cloud by end-2016;
6. Low-cost cloud services will cannibalize up to 15 percent of the revenue of top outsourcing players by 2015;
7. By 2016, 40 percent of enterprises will demand proof of independent security testing as a pre-condition of using any cloud service;
8. By 2015, the price of 80 percent of cloud service will include global energy surcharge;
9. By 2015, application development projects targeting smartphones and tablets will outnumber native PC projects by ratio of 4:1;
10. By 2015, 50 percent of enterprise e-mail users will rely primarily on browser, tablet or mobility rather than desktop; and
11. More than 85 percent of Fortune 500 organizations will fail to exploit big data for competitive advantage through 2015.