Cloud Market Sizing – Factoids for Business Case
“Predicting the future is pointless, but it is possible to identify trends that have significant effects.” Peter Drucker
The increasing adoption of cloud computing and penetration of mobile devices are the two inter-related trends transforming the IT industry today.
We’re in the midst of a “once-a-decade” technological transition where the Cloud has become a new platform for delivering resources such as computing and storage to tethered and untethered customers on demand.
So the question facing managers and strategists — What does cloud trend (IT-as-a-service) mean to our organization? What is the current penetration of cloud computing and how is it expected to change in the next one to three years?
Cloud Enabling IT-as-a-Service
Computing is going the way of a power utility. This evolution parallels other big shifts like manufacturers, business and households moving to the electric grid from dedicated powerplants (i.e., windmills and waterwheels).
Today, similar shifts are happening in computing as dedicated (expensive) data centers are giving way to a computing and storage grid model. The maturation of the Internet, Web and networks are the ultimate catalysts.
Rather than being a new technology in itself, the cloud is a new business model wrapped around new technologies such as server virtualization that take advantage of economies of scale and multi-tenancy to reduce the cost of using IT resources.
Cloud is simply the manifestation of a broader transformation trend: “IT-as-a-Service.” The services (applications, platforms and infrastructure) simply reside in the cloud and are consumed as a service. The “IT-as-a-Service” trend in its infancy and will take a decade to play out similar to e-commerce. Early adopter companies are making their move to the cloud today, and they’re doing it aggressively to get a performance advantage.
Cloud computing is more of a service and business model shift than a technology. It is my belief that the cloud is, at its very essence, a service delivery and consumption model shift. The value migration is clear and stark. We will see a steady erosion in value migrating from the previous “behind-the-firewall” business model to a new outside-the-firewall” business model. A cloud landscape view is shown below.
IBM’s Big Corporate Bet on the Cloud
Cloud Computing (IT-as-a-Service) Market Sizing
Here is some data to help you navigate this fast changing landscape.
Global Cloud-computing Market Size: Expected to reach $241 billion in 2020, up from $41 billion in 2010 (Forrester Research)
Cloud Infrastructure: The transition from the PC Era to the Cloud Era is expected to fuel a massive build out in cloud infrastructure, creating a new market projected to exceed $11 billion by the end of 2013 (IDC’s Public IT Cloud Services Forecast: New Numbers, Same Disruptive Story, July 2010)
Storage in the Cloud Size: The market for storing and backing up files in the cloud is expected to be close to $1 billion by 2014, up from $451 million in 2011 (Gartner)
Virtualization Software Market Size: the overall market for virtualization software will grow from $2.7 billion this year to $6.3 billion in 2014 (Gartner)
Public cloud Growth Rate: Migration to public cloud has reached an inflection point. Public workloads may increase at a 50% CAGR in the next three years—about twice as fast as the market currently anticipates (Morgan Stanley, May 2011)
Storage in the Cloud Growth Rate: To prepare for storage in the cloud, 9.8 Exabytes of capacity bought by Cloud Service providers in 2010 (IDC) — implies that storage commodity providers like Western Digital, Seagate and storage companies like Hitachi, EMC, NetApp and others have done very well under this trend.
Apple iTunes ID — As of May 2011, 200 million people now have Apple ID (iTunes) cloud accounts. These are accounts tied to credit cards with one-click purchase access. According to Steve Jobs, “Amazon doesn’t publish their numbers. But it’s very likely that this is the most accounts with cards anywhere on the Internet.”
Apple App Store — Over 350,000 apps in the App Store (of which, 65,000 are specifically built for the iPad).
Infrastructure Cloud – Where the Big Spend is in 2012
Data Center Infrastructure is where the money is going to be spent in 2012. Private and Public Cloud Infrastructure enablement is the pre-cursor to everything else.
The increased need for 24×7, global connectivity, replication, and increasing amount of data and traffic has led many providers and in particular data centres to employ larger infrastructures with dynamic load and access balancing. Resource utilization improvement by distributing and replicating data across servers on demand is the objective. This is shown in figure below.
Cloud Computing Companies and their Revenue
| Company | 2011 Cloud Revenue |
| SalesForce.com | $2 billion |
| Amazon Web Services | $1 to 1.5 Bln |
| Apple Cloud Services | ~5 Bln |
(Apple is in many ways a major beneficiary of the cloud business model (iTunes, iCloud, App store – all run in the cloud feeding the devices – iPhone, iPads)).
Recent interest in Cloud Computing has been driven by new offerings of computing resources that are attractive due to per-use pricing and elastic scalability, providing a significant advantage over the typical acquisition and deployment of equipment that was previously required.
The effect has been a shift to outsourcing of not only equipment setup, but also the ongoing IT administration of the resources as well.
As a result some market leaders companies are taking advantage of this business model shift and therefore commanding higher valuations. On Wall Street, every dollar a cloud company brings in for a new contract is now considered to be worth six times as much as the dollar brought in by a company that gets most of its money the old way –- upfront. The customers of cloud companies tend to stay and pay recurring fees for six years.
Bottom-line
Cloud computing has all the earmarks of being a potential disruptive innovation that all infrastructure and operations professionals should heed.
Additional Notes:
- For more on the historical corollary between the cloud and electrification see Nicholas Carr’s book: The Big Switch. According to Carr, we’re in the midst of a transition in computing, moving from our own private data centers to the computer as access portal to the grid. Soon all companies and individuals will outsource their computing systems, from programming to data storage, to companies with big hard drives in out-of-the-way places. Carr posits that the social and economic consequences of this transition into the utility age will cause certain industries to collapse (personal computers, print publishing etc.) and new ones to emerge.
- Evidence of industry value migration is starting to become clear: PC industry is moving to tablets and mobile (cloud devices); print and content publishing is moving to a combination of digital, self-publish or self-produced content (YouTube) models.
- Value of Cloud Revenue– On Wall Street, every dollar a cloud company brings in for a new contract is now considered to be worth six times as much as the dollar brought in by a company that gets most of its money the old way –- upfront. The customers of cloud companies tend to stay and pay recurring fees for six years.
- Merger and Acquisition Growth Rate: The move to cloud computing — a trend that allows remote access to computing power and data over the Internet — is also spurring merger activity. Technology giants Hewlett Packard , Dell Inc and IBM have been on a buying spree to boost their presence in cloud computing and services, and several deals have involved unlisted companies.
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