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Changes to EU Funding to Boost Demand for Cloud Services

Local enterprises are still in the phase of “getting familiar” with cloud technology, but its widespread use may be set to grow soon, particularly for hybrid solutions that mix the advantages of private and public cloud services.

Market researchers say that cloud computing is about to enter a second wave of development, with ever more enterprises with big budgets, data centers and complex applications turning their attention to both public and private cloud solutions. A recent Forrester Research found that 38% of 1,000-plus North American and European corporate infrastructure technology decision-makers said they are building private clouds, 32% of them were planning to opt for public cloud services, and 30% intented to implement some form of cloud technology in the next 12 months. Nearly 60% of respondents said they would consider setting up a hybrid model. 

Invitel Solutions Zrt., a leading Hungarian cloud provider, confirms that the popularity of the cloud is set to grow further in Hungary as well, and the hybrid structure can prove ideal on a mass scale. “Under such a framework, outsourced IT functions can be operated partly in totally tailor-made local data centers, and partly by cross-border players providing services in accordance with global standards,” reads a statement from Invitel Solutions Zrt. sent in response to questions passed by the Budapest Business Journal. Using this approach security, one of the top concerns for potential corporate clients, can be guaranteed in a more cost-effective manner than merely betting on one’s own resources.

“Paradoxically, the need for a more elevated IT security will give a further boost to cloud computing since, as corporate IT systems are getting ever more complex and it is ever more difficult to find qualified personnel, the role of external specialized companies will gain in significance,” Invitel believes.

Room to Grow 

Data shows that, at the moment, only 8-10% of Hungarian enterprises use cloud technology and a mindset shift is required because many of them still regard it not as the means, but the end. According to a recent survey by Microsoft and IVSZ (the ICT Association of Hungary), executives mostly fear not being able to comply with legal and data protection regulations, dependency of a third-party provider, and additional costs connected to initial launch.

 “Our experience shows that large corporations in Hungary are still merely in the phase of getting familiar with the technology,” Veronika Hegedűs-Csapó, service portfolio manager of T-Systems tells the BBJ. “They have implemented minor measures to improve efficiency, by typically building a private cloud, whereas public cloud solutions have been optimized for a very limited number of processes. Thanks to a favorable regulatory environment, and by mastering best practices, there should be a shift towards public solutions.”

Global trends already point into that direction. The global public cloud market will hit USD  146 billion this year, up from USD 87 bln in 2015, and is having a compound annual growth rate of 22% as enterprises realize in ever bigger numbers that on-premises solutions often end up costing more. In more developed markets, the openness towards the technology is such that companies are now comfortable with running business apps such as SAP on the cloud. 

As Hegedűs-Csapó explains, expectations for IT security are very high, in the financial sector in particular. What is more, such compliance is more of a legal requirement now due to, for instance, a relevant recommendation from the National Bank of Hungary. In fact, the latter is a novelty in the entire region, for now putting Hungary ahead of the pack. “This helps solidify customer confidence in the cloud as such, whereas for the providers it will create more obligations and a need for intensified customer care,” Hegedűs-Csapó adds.

In the experience of T-Systems, the public cloud market in Hungary is dominated by multinational cloud vendors, whereas local Hungarian players prevail in the private cloud segment. And despite the existing concerns and prejudice, the number of CTOs planning to use some sort of cloud service has doubled recently, a fact that projects great growth potential. Polls also indicate that public clouds will attract more interest than private ones.

Clouds Bouyed by EU Funds 

Another factor that seems likely to give further impetus to an upward market trend is a new set of criteria concerning the use of EU funds. According to the changed regulations, the money can not only be used for cloud investment purposes, but also to cover any operational expenses such as monthly or yearly plans. This embodies a huge improvement since, until now, EU funding has been used to build data centers with underused capacity. This modification could help encourage actual clients to use such centers at last. Under the relevant rules, some 4,000 micro- and small- and medium-sized enterprises will be eligible for HUF 17.5 bln of non-refundable funds, and HUF 21.9 bln of preferential loans. 

According to IVSZ, Hungarian players on the cloud market aren’t interested in competing with the large global public cloud vendors. Instead they choose to provide managed cloud services beyond those offered by multinational providers. This way the use of cloud services becomes more flexible and simple for clients.

The key to success of ITO providers is proper cloud management software, so many of them are developing their own platforms. “We see future potential in hybrid solution management, but for that to happen the concept of the public cloud needs to be embraced more extensively,” IVSZ said in a statement to the BBJ. “On the other hand, we believe that data centers serving as a basis for cloud services also have a bright future, not least because of the nice location of Hungary within the region. Our obvious objective here at IVSZ is to capitalize on that potential by building out the most ideal service provider and governmental framework criteria possible.”