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Sand Hill Group Study Finds Massive Job Creation Potential through Cloud Computing

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The impact of cloud computing is huge. It’s more transformational than the Internet, which revolutionized communications and ecommerce but, unlike cloud computing, it didn’t really change the way companies build and deliver IT systems and services. Cloud computing is such a disruptive innovation that it has the potential to make a bigger economic impact than the Internet’s $8 trillion exchanged each year via ecommerce. But does that impact include job creation, or will it lead to job loss?

I was recently in Washington, D.C., talking about jobs in the cloud, along with Jacqueline Vanacek, who is a vice president and cloud computing enthusiast at SAP America, Inc., a subsidiary of SAP AG. Sand Hill Group had the opportunity to work with SAP America, Inc. to study the jobs issue from several angles across key business segments, including evidence uncovered in our Leaders in the Cloud studies in 2010 and 2011. We were able to quantify the job creation potential through cloud computing and presented the findings in a white paper, “Job Growth in the Forecast: How Cloud Computing is Generating New Business Opportunities and Fueling Job Growth in the United States” (Sand Hill Group, January 2012).

We concluded that, as cloud computing transforms the entire IT landscape, it will also be a powerful catalyst for generating hundreds of thousands of net new jobs in the United States and worldwide. In fact, cloud computing already generates a sizable number of U.S. jobs. For instance, 11 tech companies with cloud operations as a significant business unit added 80,000 jobs in the United States and abroad between January 2010 and January 2011, despite the poor economy.

Three trends driving cloud computing growth

Three industry trends are driving the cloud model to be even bigger and create massive business opportunities and hundreds of thousands of new jobs: mobile, social and Big Data. Nearly half a billion users will connect to the cloud from mobile devices this year and mobile application downloads are projected to reach 98 billion by the end of 2015. Facebook, Twitter, LinkedIn, Google+ and other social networking sites would not be possible without cloud computing technologies. And cloud infrastructure and platforms really shine in addressing the challenges of accessing, processing and analyzing Big Data.

As with any new technology, some lower-skilled jobs will be lost because of cloud efficiencies. However, the evidence to date points to the cloud’s ability to generate far more jobs than will be lost. It’s the same phenomenon that occurred when the Internet swept into businesses in the 1990s. Our research found that the Internet created 2.5 new jobs for every job lost over the past 15 years. Moreover, the cloud has a huge ability to attract next-generation workers, many of whom report they prioritize cloud-based mobile and social technologies over salary when considering a job offer.

Quantifying the job-growth potential

In its April 2011 report, “Sizing the cloud,” Forrester predicted that the cloud market will be $118.17 billion by 2014. Gartner’s projection is $177 billion in 2015, which is a more modest 25 percent annual growth estimate. In either case, cloud companies will add an average of $20 billion of net new revenues every year for the next four to five years.

How does revenue growth translate into job growth?

We used two statistics to quantify the potential for cloud generated jobs: average revenue-per-full-time-employee for Internet Services and Software companies for (a) mature technology leaders and (b) small and medium-sized companies. Averaging these two revenue-per-full-time-employee numbers yields $212,000. Dividing the $20 billion average annual revenue growth (estimated above) by $212,000, results in 94,339 new jobs per year. In other words, to support that much more revenue, at a medium rate of $212,000 revenue-per-FTE, we could expect tens of thousands of jobs to be created in the United States and abroad.

If that growth rate is sustained over the next five years, the total number of jobs created could be almost 472,000 in the United States and overseas. Since the United States is the leader in cloud innovation at this early stage of the market, it is reasonable to expect that the bulk of new jobs will be concentrated in the United States.

Venture capital drives cloud innovation and jobs

More evidence of cloud computing’s potential for generating new jobs lies in venture capital investment data. We studied data from The National Venture Capital Association, which tracks thousands of IT companies that receive venture funding. Venture investments during the past five years were mostly cloud investments.

Given the trends evidenced in the NVCA data and barring another economic downturn, it is reasonable to assume that cloud computing investments for the next five years have the potential to support nearly 213,000 jobs.

Cost savings from cloud solutions leads to new jobs

Traditional businesses of all kinds — even those that don’t define themselves as technology companies — benefit from cloud innovations to improve their productivity and agility, reduce costs, free up resources for investment and compete globally with larger companies.

Our 2011 Leaders in the Cloud study revealed that 46 percent of the survey participants and 91 percent of the participants in follow-up interviews cited cost savings as a critical objective in moving to cloud solutions. Our research shows that an average savings of 25 percent across IT services and hardware is not inconceivable. Re-investing the cost savings into new business opportunities can yield hundreds of thousands of new jobs in the next five years.

In addition, the Center for Economics and Business Research in London (www.cebr.com) released a report in December 2010 that estimated that cloud computing will generate more than €763 billion in economic benefits over the next five years and will create approximately 2.3 million jobs in France, Germany, Italy, Spain, and the UK.

Our study supports the fact that business growth in the areas of mobile computing, social networking and data management is resulting in new job creation. All three segments have one thing in common — the cloud — and its impact on job creation at every key growth stage in the business life cycle will be dramatic.

Click here to download the full report on “Job Growth in the Forecast: How Cloud Computing is Generating New Business Opportunities and Fueling Job Growth in the United States.”It includes more revenue-growth details, a detailed explanation of our quantification of the potential jobs, two case studies highlighting economic benefits gained by two companies that migrated to the cloud, a section on the government impact on job creation through cloud computing, and an extensive reference section.

M.R. Rangaswami is founder and CEO of Sand Hill Group and publisher of SandHill.com.

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