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Regulations and security concerns hinder Asia's move to the cloud; More companies rent off-site data capacity instead of buying servers
Source: International Herald Tribune
Source Date: Monday, October 11, 2010
Focus: Knowledge Management in Government
Created: Oct 11, 2010

While cloud computing is begining to take off in Asia, its adoption is being hampered by national regulations governing where data is stored, concerns about security and poor internet connections.

The Youth Olympic Games here in August presented organizers with a formidable, but temporary, computing hurdle: Manage 3,600 athletes, 20,000 volunteers and 370,000 spectators for two weeks.

Rather than buy or lease the equipment necessary to run the event, organizers rented the required computer capacity from a data center run by Singapore Telecommunications.

The Games were a showcase for cloud computing in Asia: software, data storage, networking and even computing equipment on tap -- as much as a customer desired for only as long as needed.

"In past Olympic games, they had to buy these servers," said Bill Chang, an executive vice president at Singapore Telecommunications, "and then after the Games all this equipment would be fire-sold away or given away."

Mr. Chang said that by using cloud services, customers like the organizers of the Youth Olympic Games could save 60 percent to 80 percent of the cost of purchasing the equipment themselves.

The research firm IDC estimates that the market for cloud computing in Asia outside Japan will grow to about $1.3 billion this year and will continue expanding at a rate of about 40 percent a year until 2014.

That figure is just a splash in the estimated $68.3 billion that cloud computing will bring in globally in 2010, according to the research firm Gartner. And for every case of avid adoption, as in Singapore, there are other countries where acceptance is hindered by regulations, concerns about data security and poor Internet connections.

"What will drive adoption is broadband penetration," said Emilio Umeoka, president of Microsoft's Asian operations in Singapore. "If you don't have the pipe, you can't get onto the cloud."

For potential customers, the savings from cloud computing are enticing. Like equipment leasing before it, cloud computing turns what once was a big-ticket capital expenditure into an operating expense for companies -- one that can be tuned up or down, depending on business conditions. "The savings comes in infrastructure," Mr. Umeoka said. "Your company would have less services, less people to manage the servers, less people to manage bugs or patches."

What is giving Asian customers pause, though, is the same concern being voiced elsewhere: that a company's precious financial and customer data could be lost, stolen or even rendered temporarily inaccessible through no fault of its own.

To many, the threat posed by hackers, possible government interference and even power failures justifies keeping their data housed on their own premises, in their own countries.

As a result, cloud computing in Asia is taking off faster among small, more cost-sensitive start-ups than among larger companies. China's big state-owned businesses, for example, tend not to trust third-party providers with their data.

"The propensity to outsource in China is the lowest in the region," said Philip Carter, a research director at IDC in Singapore. "It comes back time and time again in surveys to control and risk mitigation. They want to keep control of I.T. assets."

Adoption of cloud computing in China is also held back by regulation. Beijing prohibits companies from storing their data offshore, meaning they can use data centers only inside China. As a result, IDC estimated, only about 4 percent of companies in China were using cloud-based services last year, compared with 16 percent in Singapore.

But with about 40 million small and medium-size companies, the Chinese market holds enormous appeal for the providers of cloud computing services. NEC of Japan estimates the nascent Chinese market will grow 30 percent a year to reach around $2.3 billion by 2012.

"The Chinese customers are more receptive to the whole way of doing business online," said Enwei Xie, Microsoft's general manager for software development business in China. "They're sort of familiar with this whole host model."

And cloud computing providers are flocking to Hong Kong and Singapore. Even India's Tata Communications is opening a data center in Singapore to offer cross-border cloud services.

Technically, Singapore is not the ideal location for data centers. Land is expensive and temperatures are high, meaning it costs more to keep servers cool. But cutting-edge telecommunications infrastructure, a pool of technology experts and generous government incentives more than compensate, executives said.

"We didn't set up a lab in Singapore because we wanted to do cloud computing," said Christopher Whitney, managing director of a new lab Hewlett-Packard opened in the city-state in February, "but because we wanted to access its infrastructure and talent."


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