Asia-Pacific leapfrogs West into public cloud

As cloud and as-a-service services soar, how is the shift to Iaas and Saas impacting technological efficiency, privacy and regulation across Asia-Pacific.

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Asia-Pacific is forging ahead with cloud computing as the region’s banks, professional services companies, airlines, telcos and manufacturers migrate to the public cloud providers. Businesses in the region are skipping the managed services and outsourcing phase of computing which their Western rivals have gone through and are instead moving directly to the public cloud, laying the foundations for Asian technological advances in the decades ahead.

Cloud services rocketed to a record 85% of the IT and business services market in Asia-Pacific in the first quarter of 2021, according to researchers ISG. This is the highest level of cloud coverage globally and APAC’s cloud share far exceeds other regions. The Americas have some 60% of IT services in the cloud with 40% managed services and outsourcing, while in Europe, cloud accounts for 45% of IT spending against 55% for managed services and outsourcing, according to ISG’s president for EMEA, Steve Hall.

“The biggest trend is that APAC is well ahead of the Americas and Europe in broad cloud adoption. Infrastructure, Software and Platform-as-a-service are absolutely exploding in the APAC market,” says Hall. His company has created what it calls The ISG Index, which calculates the Annual Contract Value for cloud deals over $5m from a range of sources. The Index estimates that $7.2bn of ACV was awarded in the as-a-service sector in APAC in 2020. This compares to under $2bn for managed services.

Europe suffers from its addiction to labour arbitrage

The heady growth of the cloud in APAC is partly down to the historically low take-up of managed services and outsourcing in Asian markets compared to Europe and the US. Western companies looked to take advantage of lower-priced labour in Asia by outsourcing their computing needs to India and other locations. But such labour arbitrage was unavailable for many Asian businesses as they already used low-price labour, and they tended to run services from their own data centres. An exception was Japan, though this has typically outsourced computing within the country rather than to India.

When public cloud services took off last decade, many APAC businesses began to migrate directly to the big cloud providers while Western companies were still plugged into long-term outsourcing and managed services contracts.

This is yet another example of Asia-Pacific enterprises leapfrogging rivals in the West. Asia largely bypassed desktop computers, landlines and wired broadband, which have been important stages in the technology journey in Western markets. Arriving later to the technology boom, APAC markets, particularly China, moved directly to mobiles, laptops and wireless broadband. Another technological leap has been in mobile payments, where many Chinese, Korean and Indian services progressed straight to using smartphones for payments, skipping the use of plastic credit cards.

The first-mover advantage of western technology in these cases gives way to a second-mover advantage in Asian markets where they can skip the transition from cumbersome older technologies and move directly to the more advanced systems.  

This is providing rich pickings for the Western hyperscale cloud companies such as Amazon Web Services and Microsoft Azure.

Hyper-scalers expand in APAC

As Hall says, “I think you’ll see some really healthy competition between the various cloud providers, you’ll even see competition between the China-based cloud providers (Alibaba Cloud and Tencent) and the US hyper-scalers, so AWS and Microsoft will continue to battle for market share.”

He says Google Cloud Platform lags AWS and Microsoft in APAC given its strong focus on the European market, but believes GCP will make a concerted push into the APAC market.

Among the notable cloud agreements in financial services signed during the first quarter of 2021, ANZ-based financial services company AMP announced it will migrate all its on-premises workload to Amazon Web Services cloud by 2022. Kyobo Life Insurance in South Korea announced it will transfer its big data system to AWS. Microsoft, meanwhile, signed an agreement with Bank of New Zealand to migrate a thousand applications to Azure in a project dubbed M1K.

According to Hall, Australia and New Zealand were early adopters of managed services contracts but didn’t reap similar benefits to Europe and the US, partly because of time zone differences. Many of their businesses are migrating rapidly to the public cloud.

Meanwhile, the switch to home working with the pandemic is another factor fuelling the switch to cloud services, according to research company IDC.

Covid has pushed more organisations into the cloud

As Ashutosh Bisht, senior research manager at IDC Asia/Pacific says: “COVID-19 made us realize that no business is 100% invulnerable. However, enterprises who were ahead on the digital transformation curve were better able to sustain operations during the pandemic and recover well from the crisis than the laggards.” He says that cloud services have become the underpinning technology for many organisations, integrated with technologies such as DevOps, AI and BDA. “Organizations were able to reimagine their business by continuously innovating and delivering to the end user,” he adds.  

Public cloud services offer reliability, scalability, availability and lower capital investment than in-house or outsourced computing. They allow new infrastructure services and systems to be set up in a matter of minutes, rather than the weeks or months this can take through a managed service or in-house data centre.

According to IDC, the sectors at the forefront of public cloud take-up are Professional Service with 15% share of public cloud services spending in APAC, and Banking and Manufacturing with about 10% share each. These three industries will account for about one third of the overall public cloud services spending throughout the period of IDC’s forecast between 2021-24. Construction and Professional services - due to increased focus on external facing interactions and customer experience - will see the fastest growth in public cloud spending with a five-year compound average growth rate of 39% and 35% respectively.

APAC’s rush to the cloud is building firm foundations for the technological battles ahead. For China and other Asian nations to steal a march on western rivals in areas such as Artificial Intelligence and data analytics, putting in place sophisticated cloud technology will be vital.

“The cloud is unleashing things that businesses just weren’t able to do in their own environments. The speed with which you can develop and deploy the services and the speed with which the hyper-scalers are bringing these capabilities are the other part of the value proposition,” says ISG’s Hall.

The advantages of leapfrogging the West will become clearer over time as the battles between the US, Europe and China for pre-eminence in AI, Internet of Things and 5G intensify.