Sun Microsystems’s catchphrase of the late 1980s and ’90s “The network is the computer” seems more and more prescient. In 2011 devices and the network to which they are attached are becoming inextricably part of one another. We are heading for a world in which constellations of smart mobile devices delivering ever more sophisticated services interact with the huge computational mother-ships in the cloud, which, themselves, will eventually seem as commonplace as power-stations and telephone exchanges.

When it comes to cloud computing will Australia aspire to its once-traditional back-office role — with a few scraps thrown to the protectionists, or will it aspire to something more?

Because signals to and from the rest of the world must pass through undersea cables over vast distances this raises cost and capacity issues that others nearer major markets don’t face. Our long supply lines also increase latency — or the time taken for a signal to leave our computer and then return with a response from the cloud.

These are hard physical constraint. Still, if we were destined to become a backwater we’d have seen less investment in cloud infrastructure than we have — for example, by Macquarie Telecom and Fujitsu.

So how should we go about building the best cloud industry we can? VMWare argues that Australia leads the Asia-Pacific region in adoption rates for virtualisation, one of the building blocks for cloud computing. We have the market maturity to build a strong cloud services industry.

Latency gives the local industry natural protection which can be a spur to investment for local demand. It will penalise cloud exports, but we are reasonably placed to service some of our nearer neighbours in South East Asia — though Singapore is better placed. But there are cloud services niches where latency is not such an issue, for example, supporting e-mail.

Further optimising the opportunities for cloud computing requires the strategic alignment of private and public sectors. We need ongoing investment in international data connections to the region. With the rollout of the NBN, Australia will have one of the world’s best nationwide infrastructures for fast data transfer within the country, which will promote business confidence in cloud solutions.

Our “intangible infrastructure” — our governance — is a major asset. Our political stability and the stability, transparency and integrity of our institutions stands us in good stead in our region alongside Singapore and Hong Kong.

To make the most of the natural protection that will drive purchasers of cloud services to on-shore providers, we need to finesse a range of important policy trade-offs in areas such as national security, copyright, organised crime and other problems of legal enforcement in the network.

The key to doing this really well is to understand that many services are increasingly a co-product — of competitive service providers (usually from the private sector) and government regulators. The United States Patriot Act brazenly declares the US government’s right to access anything it wants from any cloud infrastructure over which it can claim jurisdiction. That creates a demand for cloud computing services that are not subject to such capricious hazards.

Partly in response to the kinds of sovereign risks that this engenders, the Australian government has prevented its own agencies from holding personal information offshore. Other countries have done likewise.

All of a sudden, the market for exporting cloud computing services starts looking a little like the market for exporting financial services. For apart from a handful of tax havens, successful exporters of financial services — such as Singapore, Hong Kong, London, Luxemburg and even Ireland despite its current woes — are all characterised by a powerful combination of competitive efficiency and export-oriented regulation. Thus, amid vigorous domestic competition, regulation pays assiduous attention to ensuring integrity and to advantaging exporters by harmonising regulatory regimes with export in mind.

The Australian government’s prohibition of its agencies storing personal information offshore makes it a valuable “anchor client” for Australian cloud services providers. But it may not be impossible to make Australia a true export hub of cloud services even given the latency disadvantages it faces.

Just as Swiss banks are attractive to global depositors, in substantial part because of supportive Swiss regulation, so the Australian government should regulate the cloud so that we’re a preferred provider for firms and governments offshore. Indeed, Australian governments should be prepared to import cloud services from any country that gives them similar confidence and that will mutually recognise our own offerings to them.

With an open and vigorous strategy, Australia can be a force in one of the enabling technologies of the future — cloud computing. It can do so without protection and without subsidies, but only by shedding its “back office” mentality and getting on the front foot.

*Nicholas Gruen and Simon Molloy are working on a Lateral Economics study on making Australia a hub for investment in cloud computing services. This article first appeared on Technology Spectator.

Peter Fray

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