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Cloud computing as a strategy for NZ business

It’s a cliche but in cloud computing we really are missing the wood for the trees.

Perhaps unfairly, I blame IT vendors for pushing ‘x as a service’ ad nauseam. Most people hear all those tech terms and tune out.

Yet, cloud computing as a business strategy has the potential to be a game changer. Businesses, politicians and policy makers have to understand that cloud computing represents table stakes for international competitiveness today, a necessity rather than tech blah blah.

Conditioned by thinking in physical terms- our small market and geographical isolation- the transition to digital and Internet thinking is not easy. It’s made worse by our collective failure to lift our sights from tech talk to strategic thinking, both at a business and country level.

Cloud computing does offer potentially significant benefits for the intended audience of IT vendor-speak, enterprises. All the talk of reduced operational costs, shift from capital expenditure to operational costs, access to best practices, reduced time to market, and increased agility/flexibility is true. But that’s missing the wood for the trees. Worse, we are drowning in a sea of IT vendors proclaiming how they have the bestest and truest cloud solution.

At the most fundamental level, cloud computing is truly about enabling new business strategies.

It is about New Zealand overcoming physical limitations of market size and the tyranny of distance.

It is about New Zealand businesses looking at the world as their market from day one. It is about having access to a cost base that only global scale can provide. It is, ultimately, about New Zealand businesses competing globally.

It is unfortunately also about continued marginalisation if we don’t grasp the opportunity now.

It would be great if our Internet infrastructure - data centres and connectivity - allowed us to be a global source for cloud computing resources. But that doesn’t stop us from using global cloud computing services to address global markets.

The reality is that New Zealand businesses cannot compete globally using New Zealand Internet infrastructure as their cloud computing resource.

Just as we tout our design capability and manufacture overseas for global markets, so too should businesses take advantage of New Zealand’s attraction to global talent to base their intellectual grunt here while using overseas cloud computing services to deliver globally.

The government can help. For example, by changing the punishing employee share options taxation laws. Or, building the New Zealand brand by being a world leader in addressing climate change. This will add to the advantages we already have, such as the ease of starting a new business, being corruption free, and solid privacy laws.

However, it is really up to businesses to understand and grasp the opportunities strategically. Some of them have already done so but the vast majority need to translate tech terms into business opportunities with an Internet mindset, consciously overcoming the mindset of physical goods and services.

Vikram Kumar is CEO of Mega. He blogs at Internet Ganesha.

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Comments and questions
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What is punishing about the share option taxation laws in NZ? The gain from employee share options is just as much income as is a salary payment, and is a reward fro employee services. Therefore it should bear the same tax rate.!

The problem is paying tax on notional gain at the time of issue. Unlike income, there is no actual cash flow. Employee share options as a tool to reward risk-taking and alignment of long-term goals with shareholders then becomes a difficult path for both the company and the employee.

Share options are only taxed to the employee on exercise based on the difference between market value and exercise price (ie. their gain). Assuming the employee is on the top tax rate before option income, I dont see any issues with this approach.

If structured right, the share options issued are deductible to the company on issue.

I dont see any issues with that. What do you changed?

Unless your cloud provider is big and ugly enough to buy the US Government you may get shut down without warning. Then what?

Good point, Alan. There is also a lot of doubt around whether cloud computing is as secure, reliable, free from prying eyes and as cost-effective. For instance, cost analysis shows that as little as a 1% drop in productivity at the desktop has the same effect on staff costs as tripling the IT budget. 1% is 40 lost seconds in every hour. Many remote 'cloud systems' are slow enough to lose anywhere from 5 to 15 minutes in the hour. A case of "penny wise, pound foolish".

Then there is security. If a rogue authority or someone rogue working for an authority needs your data, they do not have to ask you or hack your network. They simply ask the hosting company, which are obliged by law to supply it. You will never know.

There is a general perception that Cloud Computing involves (1) delegated control of information (2) inherent risk in having the information geographically removed from the local server and/or remote backup site (3) requirement to trust the technology, systems, security and processes of a third party provider that, by virtue of being a 'cloud provider', is by definition a much bigger target for hackers ad other security breaches.
There are many many benefits of cloud computing. Just speak to the users of Evernote and DropBox!! However, at a corporate level the perceived risks and loss of control may be too much of a challenge against a backdrop of constant reports of large system (e.g. Telecom) integrity being breached. If the US defence system can be hacked, then how safe are these nebulous cloud systems?
PS. These comments are intended as 'devils advocate' and don't necessarily reflect my own personal views on Cloud computing.

In addition to security, there is a major issue of the NZ Privacy laws which effectively require all personal data to be stored only on NZ based servers.

Absolutely not the case and is really local vendor FUD. See http://ict.govt.nz/guidance-and-resources/agency-guides/government-use-offshore-ict-service-providers/faq

NZ businesses are at a strategic disadvantage because of time and distance from markets. This matters as much in the digital world as in the physical one. Technological innovations will lead to long run strategic advantages only if there is an underlying inherent strategic advantage that is sufficient to overcome the time and distance effects. We have this in pastoral farming because we can grow grass and convert it into protein much cheaper than most of the rest of the world. We have a (temporary) niche advantage based around the personal skills of a number of key individuals in digital arts. But it is not clear that this is a long-run advantage. Changing laws might make a difference - but this requires a commitment to standing apart from the rest of the world. I'm not sure our current populist legislators would abide data law changes that turned NZ into the digital equivalent of banking's Switzerland or the tax havens of Monaco and the Caribbean. Unless this happens, there is no real sustainable advantage for a small, distant country in the digital domain. .

NZ privacy law does not require all personal data to be stored on NZ based servers.

The IBM Data centre VSS service fails for 2.5 days;
Microsoft Azure goes offline for 1/2 day due to certificate expiry;
2E2 holds their cloud hosted data hostage to extract more fees after going into receivership;
Amazon's cloud outage duiring thunderstorms in June 2012 and again in October;
Amazon's further cloud outage in 2011;
The Sony Playstation network hack - offline for weeks;
And of course Megaupload[dot]Com taken offline forever by the FBI

Just as a few examples. Why on earth would I trust my data (and for that matter trust that the cloud provider wasn't selling my data) to an overseas cloud? When I know that when (not if) things go wrong I'm going to be so far down the list of priorities that there'll be contrails between me and the top.

I can think of better places to host my data than to have it held hostage to cloud providers.

I'm a kiwi. Living off shore again.
Vikram, reading comments – they just don’t get the big picture
NZ Govt spends 1.5b on internet to public initiatives
AU Govt over 40B AUD, going live this year. Affect is 100mb to house hold door at a great prices. Net affect will be Australia can do business with the world, have increased productivity and at reduced operating cost and opportunity to move IT back end into the cloud.
Cloud + high speed internet will give Australian business a completive edge to do business across ever sector.
Window applications are written to be cloud enabled
Windows 8 , cloud enabled.
HP decides to focus on Tablets – Cloud conection devices.
In 2011 I put out to FRP in NZ to host production and internal + development. Costs came in off the planet. 100k pa – 4 servers (web + database) won’t name the big T1 players. Using Windows Azure cloud Platform is faction of the annual cost. Reduced tech staff, no need for an IT Manager either!
Sorry, but the boat has left. Current waka is paddling in the wrong direction, paddlers are crying poverty wow is us. Our beloved NZ leader ( ex-banker ) states NZ can reach par with Austrian house holder wealth. He’s delusional or won’t concede the sheep are dumb