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September 17, 2012

Public Cloud Market to Exceed $100 Billion by Next Prez Race

Robert Gelber

Analysts agree: more good news for public cloud providers

Between the ubiquity of Internet-connected devices and businesses looking to expand their reach through digital means, it’s becoming nearly impossible to talk about technology without mentioning “the cloud.” At the center of it all is a collection of public service providers like Amazon, Microsoft, Google and other smaller outfits supporting services like email, storage and content distribution. These Internet workhorses just received a bit of good news in the form of two industry reports, one from IDC and one from Gartner, each predicting an industry that is set to growth mode.

In an official statement, analyst firm IDC estimated that global spending on public IT cloud services would reach $40 billion by the end of the year and a staggering $100 billion by 2016. This forecast runs a compound annual growth rate (CAGR) of 26.4 percent – five times faster than the IT industry as a whole.

“By the end of the decade, IDC expects at least 80% of the industry’s growth, and enterprises’ highest-value leverage of IT, will be driven by cloud services and the other 3rd Platform technologies,” said Frank Gens, senior vice president and chief analyst at IDC.

This anticipated growth spurt is impressive, even rivaling Audrey II, the man-eating plant from Little Shop of Horrors. But what areas of the public cloud market will support these numbers?

The report’s authors say the industry will make up 16 percent of total IT revenue in areas including storage, applications, infrastructure management, platforms and servers. They also believe public cloud services will enable the continuing growth of the aforementioned IT sectors.

Of the specific cloud offerings, IDC says SaaS implementations will receive the largest amount of public cloud spending over the next few years. However, this hinges greatly on the development of PaaS offerings over the next 12-18 months. Without a solid undergirding, a SaaS implementation could be described as a house built on sand.

The United States is expected to hold onto its standing as the largest market for public cloud services followed by the Western European and APAC regions (not including Japan). While these areas will most likely experience continued progress, it’s the emerging markets that could see the sharpest uptick. IDC predicts that by 2016, these nations will be responsible for 30 percent of net-new public cloud service spending and their share of the market will have doubled.

Next: Gartner Concurs >>

IDC isn’t the only firm peddling a bullish cloud forecast. Today, Gartner also made claims about the cloud services market, stating it would likely reach $109 billion in 2012 and $206 billion by 2016. If these numbers seem impossibly high, not to mention too far afield from IDC’s estimations of $40 billion and $100 billion respectively, there’s an explanation.

Gartner is including business process as a service (BPaaS) in its tallies, and supposedly BPaaS makes up 77 percent of the total market. Take that figure away from the 2012 calculations and Gartner’s prediction drops to $25 billion. That’s still $15 billion off IDC’s number, but at least it’s a tolerable gap as far as these things go.

The report’s authors explain the large BPaaS numbers as owning to the inclusion of cloud advertising into the segment. From the current time until 2016 approaches, they estimate BPaaS will hold a steady share of the public cloud spending pie, i.e., nearly half (47%).

Ed Anderson, research director at Gartner, offered advice to businesses and individuals looking to take advantage of the booming industry:

The cloud services market is clearly a high-growth sector within the overall IT marketplace… The key to taking advantage of this growth will be understanding the nuances of the opportunity within service segments and geographic regions, and then prioritizing investments in line with the opportunities.

If BPaaS was the Usain Bolt of 2012’s public cloud business, then SaaS and IaaS took a distant second and third finish. Software services are expected to hit $14.4 billion in 2012 while the infrastructure business will hover around $6.2 billion. The flip side to the IaaS market’s relatively small market share is that it’s the most poised for growth. In fact, IaaS has the best growth rate of the bunch with an expected 2012 growth rate of 45.4 percent.

According to Gartner’s crystal ball, IaaS’ trajectory will put it within reach of the SaaS market by 2016. PaaS offerings are forecasted to grow as well, even as they continue to be overshadowed by other cloud sectors.

The two firms found common ground on at least one point: the US will continue to account for the largest cloud market. Gartner concludes the strongest growth rates will happen in India, Indonesia and China, with 79 percent of the buildup coming from US and Western European spending.

Whichever way one looks at the numbers, it’s obvious from this set of reports and many others that analyst firms are confident about the future of public cloud computing. This will be welcome news for established providers and it may highlight the way for newcomers. Given how large the market is expected to grow, there’s still room for more companies to either enter the cloud space or move up (or down) the stack. China-based Web giant Baidu made a big cloud play last week, who’s to say that Yahoo and eBay won’t be next?

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