A study conducted by Stanford University professors Nicholas Bloom and Nicola Pierri sought to understand how cloud computing is helping new and small businesses to be competitive. The results were recently published in the Harvard Business Review, and you can find a summary of the study here on our blog.
The professors' research suggests that technology can, in fact, provide an advantage for new and small businesses. To reach this conclusion, the study analyzed the adoption of cloud computing in US businesses. The popularity of cloud computing has exploded in the last five years, as companies have come to realize that this strategy can cut fixed computing costs. This has led to the hypothesis that cloud computing has "democratized computing, bringing it to the masses of businesses."
The research confirmed this hypothesis based on the analysis of data from over 1 million, revealing three main results. First, cloud computing experienced significant growth in six years (less than 0,5% of companies adopted it in 2010, while 7% adopted it in 2016, representing an annualized growth rate of almost 50%). Second, cloud computing adoption occurred across all regions of the United States. The third result is that, unlike other technologies, cloud computing was first adopted by smaller and younger companies.
The dataset for the analysis came from call center From Aberdeen Information, which makes annual calls to millions of companies in the US and records in detail the hardware and software used by them, since the 1980s. This dataset is frequently used by academic researchers because of its broad coverage and data quality. One limitation of this data is the users' interpretation of cloud computing (Although many internet services currently involve accessing your data from another company over the internet, for the purposes of this research we expect companies to be responding to a more restricted use case: the use of specific enterprise cloud hosting services such as AWS, Microsoft Azure, Google Cloud Platform, IBM Cloud, Oracle, or Alibaba.) This document uses records from over 150.000 US companies with information on cloud computing adoption.
The adoption of cloud technology across industries in the US.
Initially, it was observed that cloud adoption rates increased from 0,3% in 2010 to 7% in 2016, more than doubling in alternate years. Furthermore, this increase occurred across all industry groups studied.
The research also shows the geographic distribution of cloud computing, highlighting widespread adoption across all municipalities in the US, demonstrating that this is not just a technology used by... hipster startups In New York and San Francisco. The increased use of cloud computing has also been a reality in other countries (where data is available) since 2010.
Learn what the world's #1 cloud-based ERP can do for your business.
The data also shows that smaller companies have the highest adoption rates of this technology. Companies with fewer than 25 employees have adoption rates between 10% and 15% on average, while medium-sized companies have lower adoption rates. In fact, adoption rates are lowest in companies with around 100 employees, perhaps because they have sufficient scale to adopt internal computing systems, but not enough scale to afford both internal systems and cloud services. Companies with 500 or more employees typically showed cloud computing adoption rates between 5% and 10%. This suggests that small businesses appear to be pioneers in cloud computing adoption.
In contrast, we compared the adoption of cloud computing with the adoption rates of two other technologies: personal computers (PCs) and e-commerce. These show the more classic pattern of greater adoption by large enterprises. The cloud truly stands out as being particularly attractive to smaller businesses.
But it's not just small businesses driving cloud computing adoption. Younger companies are adopting cloud computing faster than older ones. The most agile, young, and entrepreneurial companies are pioneering adoption. Again, this hasn't been seen with other technologies – older companies tend to be the first to adopt PCs and e-commerce.
All of this suggests that cloud computing is a technology that attracts smaller and younger companies. One hypothesis for this is its ability to provide high-powered computing without the overhead costs associated with providing internal software and hardware. In this sense, cloud computing has spread and democratized computing for the masses.
Flexible access to computing resources allows small businesses to scale up (or down) quickly and experiment with new products and features. This operational agility can be particularly valuable when facing uncertain demand or a rapidly evolving competitive environment. Recent evidence from Kristina McElheran and Wang Jin shows that the ability to “rent” IT resources has also helped young companies survive and increase productivity.
These are encouraging findings, especially in light of declining business dynamism and the rate of new job creation. startups documented by John Haltiwanger and his colleagues. Although there is no data on how cloud computing affects company performance, it is not difficult to imagine that the reduction in computing costs could considerably improve the chances of smaller companies. In conclusion, cloud computing may end up being one of these disruptive forces.
