How local authorities and SMEs could benefit from cloud computing

The Castelfranco Charter provides a roadmap to adopting cloud technology to achieve cost efficiency and profits. Small businesses and local authorities' adoption of cloud services could provide a big boost to the economy and the Castelfranco Charter could help speed up the transition.

Cloud computing is the new revolution in information and communication technology. It's something we are already familiar with: emails and social networks are all services provided using the cloud.

But the new idea associated with cloud computing is to bring the same concept to business, and shift data and basic applications to the cloud. This could generate huge savings and more efficiency in large areas of the public and private sector, especially in services and manufacturing. Case studies suggest that cost savings could be between 10% and 50%.

A brilliant idea has emerged from a small but dynamic Italian local public authority, the Asolo Ulss, near Venice. This public health company has produced a charter, the so-called Castelfranco Charter (from the place where it started last October), which provides a set of recommendations to help public authorities to adopt cloud computing. The idea, recently launched in an international conference tour, is simple but useful to promote cloud computing adoption, and could also apply to private companies willing to take it up. The recommendations are:

Operate on a redundant broadband network, for the connection between the company, the customers and the service providers.

Ensure "private cloud" usability as a preliminary step before agreeing to switch to a "public cloud".

Establish a roadmap to move systems into cloud computing under sustainable economic, management and security conditions.

Ensure storage of data in datacenters located in a EU country guaranteeing compliance with laws and regulations.

Request providers to guarantee interoperability and data portability in the event of transfer to another provider.

Request providers to guarantee permanent operative continuity of the systems in cloud.

Specify the vendor's management policy for data storage/backup activities in cloud.

Formalise the service providers' liability for data misplacement, loss and/or theft, outages, downtime, and interoperability failures.

Modify ICT infrastructure for service management skills.

Appoint a privacy and risk manager to supervise data management, protection and security.

Local public authorities and small private companies could follow these steps and safely move to the cloud. It will benefit them and the economy.

Of course, the effects of cloud computing will depend on the speed of its adoption, so policymakers should promote a rapid takeup, especially in the public sector. The difficulty will be to overcome problems of reorganisation, data portability and data privacy. All this requires a strategy and public authorities around Europe should co-ordinate for the purpose.

Cloud computing is currently developing along different concepts, focused on the provision of infrastructure as a service (renting virtual machines), platform as a service (using platforms on which software applications can run) or software as a service (renting the full service, as for emails). In preparation for its development, many hardware and software companies are investing to create new datacenters and services.

Cloud platforms provide services to create applications in competition with, or as an alternative to on-premise platforms – the traditional platforms based on an operating system as a foundation, on a group of infrastructure services and on a set of packaged and custom applications. The crucial difference between the two platforms is that, while on-premise platforms are designed to support consumer-scale or enterprise-scale applications, cloud platforms can potentially support multiple users on a wider scale, namely the internet, generating large gains in terms of cost-effectiveness.

The most relevant economic benefit of cloud computing is associated with a generalised reduction of the fixed costs of entry and production, in terms of shifting fixed capital expenditure from IT into operative costs depending on the size of demand and production. This contributes to reducing the barriers to entry especially for SMEs. The consequences on the endogenous structure of the markets will be wide, with entry of new companies, a reduction of mark-ups, and an increase in average and total production.

In recent research we have adopted a macroeconomic approach to study the effects that this innovation has on the cost structure of the European firms investing in IT and consequently the incentives to create and expand new businesses, on the market structure, on the level of competition in their sectors, and ultimately on the effects for aggregate production, employment and other macroeconomic variables.

Starting from conservative assumptions on the cost reduction process associated with the diffusion of cloud computing over five years, we have estimated that it could provide a positive and substantial additional contribution to the annual growth rate (up to a few decimal points), helping to create about 1.5 million permanent jobs in the EU through the development new SMEs. Similar results have been obtained by other research institutes, such as IDC.

Federico Etro is professor of economics at the University of Venice, Ca' Foscari. You can visit his website at Intertic.org/Etro.