Cloud computing has all the characteristics of a ‘general purpose technology’ – comparable to the steam engine or electricity – and it will continue to change fundamentally the way that business is conducted. To provide robust economic policies, it is high time to update statistical surveys and industrial classification systems to get a grip on the economic implications of cloud computing.
That is the central message from a new study of cloud computing and national accounting by Diane Coyle and David Nguyen of the Economic Statistics Centre of Excellence. Their research will be presented at the Royal Economic Society's annual conference at the University of Warwick in April 2019.
Cloud computing is an example of the way that digitalisation of the economy is making it harder to interpret economic statistics, including productivity growth.
Cloud computing allows for computing software and hardware to be accessed remotely via the internet. This physical separation between the user and the computing machine itself is powered by large data centres that often host thousands of servers at a time. The largest providers of these globally and in the UK are Amazon, Google and Microsoft.
The new research identifies three key issues that may mean that the cloud computing phenomenon is obscuring economic developments:
- Businesses are substituting capital expenditure (on ‘traditional’ information and communications technologies, ICT, equipment in-house) with operating expenditure (regular payments to cloud providers), which is (at present) not capitalised in their accounts.
- Hence it becomes crucial to track quality improvement in cloud services (just as is already the case for ICT equipment) or there is a risk of understating real productivity and GDP as businesses shift to cloud use. In fact, the research shows that quality-adjusted prices for cloud services are falling considerably faster than nominal prices.
- Cloud services can be easily traded across borders and hence statistics on trade in service need to be updated to reflect those. The researchers show that cloud services could have accounted for up to £3 billion in measured UK imports in 2017.
It is evident that individuals and businesses alike are increasingly using cloud-based services to access online storage, shops, education, entertainment or communication. An increasing number of businesses rent their entire ICT infrastructure via the cloud (prominent examples include Netflix, Snapchat and Spotify).
According to the Office of National Statistics, one in four businesses in the UK purchased a cloud computing service in 2017 (up from one in five in 2015). Moreover, the probability of using cloud services is much higher for larger businesses and for those operating in the ICT sector.
From the perspective of businesses, this has significant benefits, including cost savings on large upfront investment in ICT equipment and the ability to scale flexibly the use of computing services up or down, depending on current business needs.
Furthermore, performance, reliability and security are generally higher when provided by specialised providers that can spread the costs for latest technologies over multiple large data centres.
Cloud Computing and National Accounting’ by Diane Coyle and David Nguyen, Economic Statistics Centre of Excellence