The Economic Consequences of the Diffusion of Cloud Computing

FEDERICO ETRO, University of Milano-Bicocca and Intertic Cloud computing is an emerging general purpose technology (GPT) that could provide a fundamental contribution to efficiency in the private and public sectors, as well as promote growth, competition, and business creation. It is an Internet-based technology through which information is stored in servers and provided as an on-demand service to clients.The impact of cloud computing on both households and companies will be substantial. On one side, consumers will be able to access all of their documents and data from any device (the home or work personal computer [PC], the mobile phone, or an Internet point, among others) as they already can for email services or social networks. On the other side, firms will be able to rent computing power (both hardware and software in their latest versions) and storage from a service provider and pay on demand, as they already do for other inputs such as energy and electricity.1 The former application will affect our lifestyles, but the latter will have a profound impact on the cost structure of all the industries using hardware and software,2 and therefore it will have an indirect but crucial impact on business creation and on the macroeconomic performance of countries. Cloud computing can exert a number of effects on the economy. For instance, it can enable huge cost savings and more efficiency in large areas of the public sector, including hospitals and healthcare (especially for providing information and technology to remote or poorer locations), education (especially for e-learning), and the activities of government agencies that experience periodic peaks in usage. Moreover, substantial positive externalities are expected because of energy savings: the improvement of energy efficiency may contribute to the reduction of total carbon emissions in a substantial way—information and communication technologies (ICT) is responsible for 2 percent of carbon emissions in Europe, of which 1.75 percent is due to the use of ICT products and services, and 0.25 percent to their production.The introduction of cloud computing can provide cost savings in the private sector as well: it can create multilateral network effects among businesses and increase productivity within businesses, and it can promote entry and innovation in all the sectors where ICT costs are relevant and are drastically reduced by the adoption of cloud computing.This last effect can be quite large in terms of consequences for the aggregate economy, and is the focus of the evaluation of the economic impact of cloud computing on the economy conducted in this chapter. In a recent study, we estimated the economic impact of the diffusion of cloud computing in Europe through incentives to new business creation.3 Starting from conservative assumptions about the cost-reduction process associated with the spread of cloud computing over five years, we obtained results showing that the diffusion of cloud computing could provide a positive and substantial contribution to the annual growth rate 107 1. 9: T he E co no m ic C on se qu en ce s of t he D iff us io n of C lo ud C om pu tin g Part 1.r2 3/2/10 4:40 AM Page 107