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Govt urged to cut costs with offshore cloud computing

The government should lead the way to cheaper cloud computing services by using offshore providers rather than just New Zealand firms, the Productivity Commission says in its final report on improving productivity in the services industries.

"By favouring domestic cloud services, which are significantly more expensive than similar overseas services, the government has missed opportunities for cost savings and technology demonstrations," the report, issued this afternoon, says.

"The government should address any data sovereignty, security and privacy risks associated with offshore cloud computing through international negotiations, with Australia in the first instance."

To deal with the issue of cloud-stored data being, in effect, "everywhere and nowhere" because of its storage on servers around the globe, the government should pursue "free-trade-in-data agreements" with other countries to ensure that the rights and responsibilities of data owners "do not vary with the physical location of their data."

Resolving these issues would assist New Zealand firms in adopting cloud computing, where the barrier to its adoption in the first place is often psychological rather than technological, since it involves ceding physical control of on-site data to a contractual relationship with an offsite, potentially offshore, provider.

"Overcoming barriers to adoption of cloud computing typically involves designing contracts and institutions to minimise and best allocate risk, and building trust in those contracts and institutions," the commission says.

The report identifies the uptake of information technology as one of the biggest trends driving service sector productivity and gives evidence that New Zealand is slower than other developed countries to adopt it. Appropriately skilled business leadership and workforces are part of the issue, as well as the fact that software is an intangible, fast-depreciating asset.

To encourage investment and innovation in ICT, the commission suggests relaxing KiwiSaver mandates to allow more investment in private equity and venture capital markets. Policymakers should also ensure regulation is not stifling uptake.

"When procuring ICT, the government should purchase non-exclusive rights for the use of intellectual property," the commission says. "This would encourage lower prices for the government and allow the productive reuse of that IP by suppliers."


Comments and questions

Good Read.

There aren't comparable services available offshore yet. Cost of hardware is only 10% of the total coat of running systems. What about the other 90% of inefficiency? And negotiations will need to be with the US and not Australia.

We can only hope a smart fellow like this is listened to. History shows that it is very hard for a sensible person to make it too far in the public service, before they are beaten down by the empire builders.

If overseas services can be used with full encryption from end to end, then yes, maybe this should be considered. But that assumes that a) metadata (the "when" and "by whom" which doesn't benefit much from encryption) and b) ability to access to data when a vendor folds (they will) are non-issues.

Ultimately, the NZ IT has the ability to easily provide comparable cloud infrastructure on shore, although generally at a smaller scale... however the cost difference can be small, and the benefit to NZ of having the skills to build and maintain these services here has massive value. And what value is the a) lower latency of local facilities (that's a physics limitation that can't be addressed by technology), data sovereignty, access/personal connections to vendors, and customers who would be insignificant on a global scale but who are sizeable and valuable in the local market... Moreover, gov't clients gain the benefits of a 30% deduction in the form of tax-take.

Frankly, I think the clamour to ship our services overseas is a slap in the face to our domestic IT industry (which runs rings around most in the world) and is, I suspect, generally put forward by those who have a painfully naive understanding of sovereignty, privacy, and intellectual property as they apply to IT.