The Impact Of Cloud Computing On The Indonesian Economy - PwC

1Figure 2: Characteristics of each cloud deployment model1Traditional2Co-location3On-premisesprivate cloud4ManagedPrivate cloud5Public cloud6On-premisesshared cloudOn-demandself-service Metered service some Rapid scaling Resource pooling some some someBroad networkaccess limitedWhich cloud deployment model is right foryou?There is no single answer that works for all situations.Companies with different backgrounds will answer thisdifferently depending on their situation. A new start-upwould very likely start with the public cloud model, as itrequires the least amount of setup time and likely alsothe lowest cost. A company with a large existing ITinfrastructure base will have a more complex decisionas the migration to the cloud could be very complex andthere might be some technological or even regulatoryconstraints to consider. These cases will requirein-depth analysis and careful planning to map out howcloud computing will be adopted by the company.In general, it could be said that the benefits of cloudcomputing would potentially be the highest in the PublicCloud model because this allows for the maximumeconomies of scale. On the other hand, servicesdelivered using the Public Cloud will have a high levelof built-in standard features, and therefore they wouldtypically be less customisable than the other models.PwC The Impact of Cloud Computing on the Indonesian EconomyUnderlying technologies used in cloudcomputingThere are a number of key technologies used incloud computing to achieve its flexibility andscalability. A key technology is virtualisationwhereby computing hardware can be emulatedusing software. Another key technology is automaticprovisioning. This allows the cloud system toallocate more hardware resources automaticallywhen needed. System monitoring and metering isintegral to the system as a way for the cloud providerto make sure they meet the required service levelagreement and charge their customers according tothe actual resource usage. To optimise the use ofcomputing resources, the system uses loadbalancing to distribute demand across availableresources. A more sophisticated cloud technologythat could be in use is bursting, whereby a cloudsystem can be configured to extend its network anduse resources from different locations automaticallywhen required without disrupting the service to thecustomer. Cloud providers continue to innovate andexpand their technologies to offer even more reliableand secure cloud services to their customers thatare easy to use and at an affordable price.6

2Adoption of cloudcomputing in Indonesia80% of respondents are currentlyusing some form of cloudcomputingFigure 3: Cloud adoption in Small and MediumBusinessesQ: Do you currently use cloud services?Figure 4: Cloud adoption in large enterprisesQ: What is your current adoption level of cloudservices?PwC The Impact of Cloud Computing on the Indonesian EconomyOur survey revealed that cloud computing is usedby the vast majority of respondents. Among thesmall and medium businesses, 89% ofrespondents are actively using cloud services,with 9% more planning to use it in the near future(see figure 3)Among large enterprises, 80% of respondents arealready using cloud technology, 11% are planningto use it this year and the remaining 7% plan touse it in the next three years (see figure 4).However, among those who are currently usingcloud computing, in general this seems torepresent only a relatively small part of theircomputing resources as only 7% of the largeenterprise respondents have currently allocatedcloud computing at more than 20% of their ITbudget (see figure 5)Figure 5: Allocated IT budget cost for cloudservices for large enterprisesQ: How much cost is allocated from annual IT budgetfor cloud services?7

2Figure 6: Types of cloud services adopted insmall and medium BusinessesFigure 7: Types of cloud service modelsadopted in large enterprisesQ1: What types of cloud services have you used tosupport your business?Q: What types of cloud service model do youcurrently use in your organization?Q2: What additional cloud services have youadded to support your business after your businessstarted operation?Q: What types of cloud service model do you planto use in your organisation in the future?Q3: What type of cloud services you plan to add inthe future to support your business?Our survey found that small and medium businessrespondents use a variety of cloud solutions. 60% ofthem use an e-commerce cloud service. This may beexplained by the fact that e-commerce was theprimary sales channel during the COVID-19 pandemic.File sharing solutions have almost the same level ofusage at slightly less than 60%.For large enterprises, we asked about which cloudservice models they are using. Some companiesare using more than one cloud service model,including IaaS, PaaS, and SaaS. From thesethree cloud service models, 67% of largeenterprise respondents are using IaaS, followedby SaaS at 60% and lastly PaaS at 40%. Thisindicates that cloud in large enterprises is usedmore for capacity expansion (main use case ofIaaS) and ready made solutions (main use case ofSaaS) than for software development (main usecase of PaaS).Next in terms of popularity we see payment solutions,office productivity applications and websites whichwere used by around 40% of respondents. From thesurvey we also found that around half of therespondents only started to use the above cloudsolutions after they had been operating for some time.This illustrates that these small and mediumbusinesses managed to adopt cloud computing andchange their operations while they were operational.There were also a few solutions used by only about20% of the respondents. This includes private email,video conferencing, content distribution andaccounting.PwC The Impact of Cloud Computing on the Indonesian Economy8

2Figure 8: Reasons to adopt cloud technology forSmall and Medium BusinessFigure 9: Reasons to adopt cloud technologyfor large enterprisesQ: Why do you use cloud services?Q: What were your reasons for adopting cloud computing?The survey also asked about the reason businessesadopted cloud computing. 67% of the small andmedium businesses respondents stated thatimproving operational effectiveness was their reasonto adopt cloud computing. Revenue generation wasthe next popular response at 23%, while 19% statedthat cost saving was their reason.PwC The Impact of Cloud Computing on the Indonesian EconomyThe most common reason for cloud adoption forlarge enterprises was to improve IT operationaleffectiveness (80%). The second most commonreason was to convert the IT cost model fromcapital investment to operational costs (53%),followed by improving productivity (33%). Some ofthese companies are currently using the Cloud fordisaster recovery (around 7%).9

3The potential benefits of cloudcomputing as a utility service forcomputing resources are clear,and our survey provides an insightinto the specific benefits that areexpected or have been realised byIndonesian companies. We willdiscuss first the top line (revenue)benefits of cloud computing beforegoing into the cost saving benefits.Benefits of cloudcomputing for businessesFigure 10: Revenue improvement by using cloud for SMBQ: How much is the increase in your income / turnover from the use ofthe cloud service?Revenue impact of theCloud on the small andmedium businesssegmentRespondents from the SmallMedium Business segmentreported that a significant portionof the their revenue was positivelyimpacted by their use of cloudcomputing. In fact, 84% of theSMB respondents who arecurrently using the Cloud say thatthey saw a revenue increase of20% or more attributable to theuse of cloud computing (figure 10)Figure 11: Revenue increase by adopting cloud service for SMBbased on industryQ: How much revenue increase do you get from using the selectedcloud service?Further breakdown of this numbershows that the revenue increasevaries based on the type ofindustry in which they operate.The highest reported revenueimprovement came from thebusiness services sector while thelowest came from wholesale andretail trades (see figure 11).PwC The Impact of Cloud Computing on the Indonesian Economy10

3Figure 12: The benefits of cloud computing for largeenterprisesQ: To what extent do you agree/disagree with thestatements regarding the benefits of cloudPotential benefits of cloud for largeenterprisesLarge enterprise respondents expect thebenefits to be delivered through the Cloud’sability to scale up or down quickly in responseto the market dynamics. This in turn enablescompanies to foster innovation, allowingexperimentation and listening better to theircustomers. All of these can be done without asignificant upfront IT investment.Many of the large enterprise respondents alsosaw that cloud computing would potentiallylower IT costs and overall OPEX, but costsaving is not seen as the main benefit targetedby companies in the large enterprise segmentas cost saving benefits ranked lowercompared to scalability, meeting strategicgoals, and innovation. We will discuss furtherthe cost saving benefits on the next page.Figure 13: Productivity benefit of cloud for large enterprisesQ: Is there any increase in your productivity after using the cloud?In terms of productivity benefits, mostrespondents (80%) agreed that cloudcomputing could deliver significant timesaving. The Cloud’s key characteristics ofrapid scaling and on-demand self-servicereduce the time needed to acquire andimplement the IT infrastructure and thatsignificantly speeds up their time to market.Other productivity benefits cited byrespondents included increased output,improved customer engagement andincreased revenue.CASE STUDYA company in ride-sharing businessprocesses millions of transactions dailyusing cloud computingSituation:As an online digital transportation platform,the company needs to be able to processmillions of requests daily and process thedemand for services within seconds.Cloud based solution:Cloud computing enables massive parallelprocessing of the requests for a quickturnaroundBenefits: Ability to process data in parallel forreal-time transaction processing Scalability of the system to grow withthe businessCase study courtesy of AWSPwC The Impact of Cloud Computing on the Indonesian Economy11

3Cost saving benefits from cloud computingFigure 14: Cost saving impact of cloudfor SMBQ: How much is the decrease in operatingcosts from using cloud services?Adopting cloud computing will typically result in a direct savingon the cost for IT hardware and software. This is mainlybecause by using the Cloud companies do not have to buyextra capacity upfront to account for planned growth and/or tohandle the peak load of the system. Adopting the Cloud willalso reduce the cost of internal IT support staff because someof the functions of the internal IT support will be replaced bythe cloud provider. The cost saving may also extend beyondIT and into the business side.In the survey we asked the respondents about how much costsaving they have seen by adopting cloud computing. About50% of SMB respondents who are currently using cloudcomputing said that they gained cost savings of more than10% (see figure 14). It is interesting to note that 19% of themstate an even higher cost saving of 30% or more.Figure 14: Cost saving impact of cloudfor large enterprisesQ: How much is the estimated cost saving thatyou get by implementing cloud services?PwC The Impact of Cloud Computing on the Indonesian EconomyRespondents from the large enterprise segment stated a moremodest cost saving impact compared to the SMB segment. Inthis segment only 33% of current cloud users obtained costsavings of more than 10%. This is consistent with the earlierquestion about cost savings as a potential benefit whereby30% of these respondents disagreed that cloud computingwould result in reduced overall costs.Nevertheless, the survey does confirm that companies areseeing cost saving from the use of cloud computing,especially in the SMB segment.12

3Potential use cases of cloud computing for the largeenterprise segmentThe survey asked for more details on how the respondents saw theopportunity of using the Cloud. 70% of the respondents said that theirorganizations were considering using the Cloud for Big Data andanalytics.More than 40% of respondents believe they could use cloud computingin the area of non-core systems, with more than 30% specifically inCRM and Marketing and close to 30% for ERP (Enterprise ResourcePlanning)During the COVID-19 pandemic, the need for online collaboration hasincreased significantly, 40% of respondents saw opportunities to usethe Cloud for collaboration purposes and 20% of respondents sawopportunities to use it for office automation.The respondents saw more opportunities to adopt cloud services fortheir non-core systems compared to their core systems. The non-coresystems are often less complex and therefore easier to migrate to theCloud compared to the core system. Companies may also consider it isless risky to put non-core systems in the Cloud until they get moreexperience in using the Cloud.An observation from the survey is that many respondents saw anopportunity to adopt SaaS solutions such as ERP, CRM, collaboration,office automation, and collaboration. SaaS solutions in general cansimplify the IT solution life cycle from the ideation phase until theoperations and maintenance phase.Figure 16: Opportunity for cloud servicesQ: What kind of IT services do you see as most suitable for yourorganisation to be migrated to the Cloud environment?CASE STUDYA provincial government inIndonesia uses CloudComputing to coordinateCOVID-19 responseSituation:Lack of adequate infrastructuremade it difficult to collect andanalyse data to make decisionsin planning and coordinating aCOVID-19 pandemic responsein the province.Cloud based solution:Developed a cloud-basedapplication with more than 35features, such as virus spreaddata collection and mapping,hospital bed availability, andvaccine distribution.Benefits: Ability to reach citizens inremote areas digitally inreal time. Better quality data fordeveloping insights,making decisions, andcoordination. Rapid and continuousdevelopment of theapplication.Case study courtesy of AWSPwC The Impact of Cloud Computing on the Indonesian Economy13

3InnovationCASE STUDYInnovation is a significant competitive agenda for mostorganisations in the current digital era. The COVID-19 pandemicis forcing most companies to innovate and adopt digitaltechnologies faster. The Cloud’s ability to provide computingresources very quickly allows companies to experiment with ideaswithout having to spend much time in preparing the requiredinfrastructure. If the idea does not work well, they can simply stopthe Cloud services, thereby avoiding further costs. On the otherhand, if the idea does work, they can scale up the IT infrastructurequickly to rollout the solution to a large number of users.Cloud computing enables a start-upin education sector to connectteachers, students, and parents andachieve a better education forIndonesian studentsWhen we drilled down further on where in the innovation agendacloud computing could help their organisation, 40% ofrespondents believed it was helping them to expand theirproducts and services, another 20% are using the Cloud to reachnew customers and 15% to enter new markets.Figure 17: How cloud fosters innovationQ: In what ways does cloud help to encourage innovation withinyour organisation?Situation:COVID-19 forced student-teacherinteractions to move to digital channelsposing a challenge in maintaining thequality of educationCloud based solution:Developed an online digital educationplatform with solutions for learningmaterials, assignments, onlinediscussions, and exams, fullyaccessible from the internet.Benefits: Ability to design and implement richinteractions between teachers andstudents, as well as parents andschools Ability to scale up and down toservice the uneven demand patternCase study courtesy of AWSCASE STUDYA start-up in health industry helpsimprove the accessibility of thehealth service through the use ofcloud computingSituation:Difficulty accessing health services andfacilities that are distributed unequally inIndonesiaCloud based solution:Developed an ecosystem of doctors,health facilities, and pharmacies toserve 20 million customers using cloudcomputing.Benefits: Ability to reach customers inremote locations Achieving business scalabilitywithout worrying about technologyinfrastructureCase study courtesy of AWSPwC The Impact of Cloud Computing on the Indonesian Economy14

4Economic value and othersocial impacts of cloudcomputingProductivity benefits of the CloudAt a business level, the use of cloud computing supports improvements inproductivity, through cost or time reductions, or enabling staff to work moreefficiently. For example, by streamlining analysis, information sharing anddata management across teams and offices.Time savings were seen as the main productivity benefit of cloud bysurvey respondents, and over half also agreed that use of cloudcomputing lowers IT investment.Quantifying the economic value of productivityimprovementsThis analysis leverages recent research by A. Yusuf, commissioned by theAsian Development Bank, on the effect of new and disruptive technologieson the Indonesian economy.1 The research uses a recursive-dynamicmulti-regional computable general equilibrium and applies sector-specificlabour productivity shocks to the model, representing the effect of the newtechnological changes on the economy.The model shows that an increase in labour productivity not only improvessector value-added (by producing the same amount of output for less cost),but also tends to increase the level of output. The extent of outputexpansion varies from sector to sector and depends on the sensitivity ofdemand to price changes. Output will expand significantly where demand issensitive to a price reduction (achieved through more efficient use ofresources), maintaining or increasing the demand for labour - i.e. negatingthe need for labour force reductions.Attribution to the use of cloud computingOverall, Yusuf found that Indonesia would experience a net gain toeconomic output and employment through the adoption of disruptivetechnologies, amounting to around 0.5% in additional GDP growth per year.However, to isolate the impact of cloud services adoption alone, we considerthe level of investment in cloud services in Indonesia, relative to other formsof new investment in disruptive technologies.It is estimated that around 12.5% per year on average of all new ITinvestment is

Definition of cloud computing US National Institute of Standards and Technology's (NIST) defines Cloud Computing as follows: "cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services)