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How cloud computing can boost productivity, wages, and living standards across the UK

University of Nottingham

When facing a rapidly evolving challenge like a pandemic, every day matters. In March this year - just as the UK was going into lockdown - digital health company Babylon was already offering a new dedicated COVID-19 Care Assistant, providing patients with a continually updated symptom tracker, virtual consultations, and rapid referral to hospital care when needed.

A rare, positive revelation from this crisis has been that for all we tend to worry about our economy’s long-term productivity challenges, some parts of it have proved as agile as ever. Babylon was far from the only company to reconfigure its offering at astonishing speed. From global video chat services seeing an order of magnitude increase in traffic, to small businesses switching to delivery or virtual classes, we have seen clear examples of innovation across the UK.

One reason many companies have been able to rapidly pivot, or scale their offering, is because their core business infrastructure is built on the cloud.

First pioneered with the invention of Amazon Web Services (AWS) in 2006, cloud computing makes it much easier for small companies to combine the flexibility of a start-up with all the computing power and security of the world’s leading technology companies. Instead of committing to expensive purchases of IT equipment up front, companies have the ability to flex up and down their computing resources to meet their exact needs from day to day, hour to hour, or even minute-to minute.

The flexibility of the cloud not only allows companies to react to the unexpected - a historic global pandemic, say - it also makes entirely new types of business possible. It means online education businesses like Firefly can ramp up their resources during exam season, or a fantasy sports platform like FanDuel can meet the rush of a game day. It allows a visual effects company like Milk to access enough raw computing power to simulate an ocean, or supports AI specialists Faculty in solving the problems of clients ranging from the BBC to the NHS.

A new report by economic consultancy Public First highlights how cloud computing has become increasingly important to the UK’s fastest-growing companies. Public First estimates that AWS generates £8.7 billion in economic value for businesses across the UK, more than the Premier League or the country’s music industry - and that over the next decade the cloud’s total impact on GDP is likely to double.

The cloud acts as a catalyst for four main drivers of growth: technology, human capital, entrepreneurship, and market competition. On average, using cloud services is a significantly more cost effective and more flexible solution for individual businesses - boosting their productivity. By reducing the start-up costs needed to get into a particular sector, the cloud helps drive innovative new business models and increases competition in existing sectors. Finally, by making it easier to build online tools and share data, the cloud supports greater worker collaboration and more flexible forms of work.

According to Public First’s research, companies running on the cloud are nearly three times as likely to increase their revenue by 5% or more per year as those that are not. More than half (58%) of cloud-using businesses say that their business or operating model would not be possible without it.

Even more strikingly, in 2019, 39 of the 50 fastest-growing UK companies - each growing at least 600% per year - were using AWS. And 16 of the UK’s 17 current ‘unicorns’ (private companies each with a valuation of over $1 billion) are currently using AWS, including Babylon, Deliveroo, Snyk, and Transferwise.

By building on the cloud, these companies can focus on what makes their service unique, while scaling to meet the needs of a global consumer base. Digital bank Monzo, for example, has grown from zero to four million customers in under five years.

Unfortunately, the benefits of the cloud are not evenly spread. While half of companies in Greater London reported using cloud platforms, the same was true for only around a quarter of companies in the East Midlands.

The UK has always had a long tail of businesses that lag behind the rest of the economy, slow to adopt the latest technology or business practices. If we are to level up all parts of the UK, we need to care as much about these softer drivers of productivity as we do about more traditional investments, like transport projects.

If we could boost the cloud usage in the North East to match that of London, Public First estimates that it would raise local productivity by 2.6%, the equivalent of three years’ worth of pay rises in one go.

The lockdown has shown us the power of the Internet and cloud computing. Now, in the post-Covid world, as this research highlights, there is an opportunity to use that same technology to boost productivity, wages and living standards, right across the UK.

To read the Public First report findings in full, visit: www.awsimpactreport.publicfirst.co.uk/