Brazil's poor record in the promotion of innovation and in the adoption of new technologies is not news. In addition, a heavy tax burden, which may have helped weather the crisis in 2008, is, however, a major obstacle to entrepreneurship. These factors, combined with the lack of investments in infrastructure, have made a victim of the local Internet industry - and of Cloud Computing. Nevertheless, the outlook for Cloud Computing in Brazil is surprisingly promising.

There is significant pent-up demand in the industry as a whole still. According to Registro.br, Brazil has about 2 million active domains. That is less than what several U.S. players feature individually; for instance, 1&1 alone accounts for 2.6 million domains according to webhosting.info. With a population that is roughly two thirds that of the U.S., this difference is due to a significantly lower penetration of Internet access at home and in the office: only 17% of Brazilian households have broadband access, while in the U.S. this figure reaches 60%.

The shared hosting market in Brazil is estimated at USD $400 million, with an average growth of 25% per year. Gartner estimated IT outsourcing in Latin America to be a USD $9 billion market in 2009. However, even faster growth is expected to occur upon the accelerating adoption of IT solutions by small companies, fostering demand for new applications and creating a virtuous investment cycle that is extremely beneficial for the country.

The adoption curve of Cloud Computing by the corporate environment, in spite of the positive fundamentals, will be subject to market and technological intricacies that impact both timing and volume aspects.

In large corporations, Cloud Computing showed up on CIOs' radar screens in 2008. In 2009 and early 2010, IT professionals began to perceive that Cloud Computing could indeed be an actual solution for their infrastructure demand (IaaS). Up to that point, local market offerings were restricted to virtual servers, which showed, by and large, static configurations. Only in 2010 did the emergence of real elastic solutions occur. Such new products met the demand for computing power on demand with the ability to adjust features on the fly.

Private Clouds took a head start. Brazilian media group Globo, the fourth largest media conglomerate in the world, made headlines at XEN Summit this year with the adoption of a private cloud platform. Many large and medium companies in Brazil have followed suit since.

The offering of a public cloud platform (IaaS) in Brazil has been pioneered by two important players: Locaweb (which uses VMware) and Tecla (based on XEN). The upcoming months should see the emergence of a couple of new players, bringing fierce competition to this segment. Adoption by the market, however, has been relatively slow. Adding up all the figures released by market participants, there should be no more than 3,500 active virtual servers currently. Tecla's cloud platform, which was launched in April this year, accounts for 600 of those. Locaweb (launched in mid 2008) accounts for the rest. The challenge here seems to be how to instill in market participants' minds the advantages of this new (and, to some, still somewhat unintuitive) technology so as to speed up adoption. Clearly, it is in private players' best interests to devise the best initiatives in order to achieve this goal.

Ultimately, however, growth will be determined by the effective demand for Internet-based products and services on the part of the public in general. The latter is the direct result of the share of population actively participating in the digital economy. The World Bank published a study that indicates a 1.38% increase in per capita income for every 10 pp of growth in broadband penetration. Not surprisingly, a recently announced government plan to create universal broadband access (complete with tax incentives and substantial investments in fiber infrastructure) has stirred much excitement in the country, and may be the element that, combined with local creativity and entrepreneurship, will turn Brazil into a world power in the information technology industry.