Let me say “thank you” for checking out IDC eXchange for the past 5 years.  When we launched this site in 2005, IDC didn’t really “do” blogging, and this was a bit of an experiment.  IDC eXchange has turned out to be a great platform for me to share some thought leadership, supported by IDC research, on the future of the IT industry.

No question, 2005-2010 was an absolutely awesome time to be writing about IT’s future. The good news is that 2011 looks to be every bit as exciting. As I noted in IDC’s Predictions for 2011, we see cloud – along with mobile devices and apps, wireless broadband, big data (and pervasive analytics) and social technologies – shifting from “sandbox technologies” to “the new mainstream platform” for the IT industry’s growth for the next two decades. I look forward to writing more – and interacting with you – about this industry transformation this year and beyond over on the IDC Insights Community (notably in the Cloud Computing discussions)!

– Frank

[The full report - including key assumptions and forecast data for all six years, segmented by five functional categories within eight regions/countries - is available to subscribers on idc.com.]

Scorching Growth and Shifting Category Spend

In total, spending on public IT cloud services (excludes private cloud spending) will grow from $16.5 billion in 2009 – a modest, recession-driven haircut from last year’s forecast – to over $55 billion in 2014. This is scorching fast growth of 27% per year.

CLICK IMAGE to ENLARGE

In our forecast we count spending on five major categories of offerings delivered as cloud services – Applications, Application Development & Deployment (roughly corresponding to what NIST calls Platform as a Service/PaaS), Infrastructure Software (essentially, IT management apps like identity management and desktop management), Server capacity and Storage capacity. [These first three categories, together, equal IDC's definition of Software as a Service (SaaS).]

This forecast is strictly focused on IT industry offerings delivered as cloud services – thus we don’t include online gaming, web advertising, online media/entertainment or other industries’ cloud offerings.  We’ve focused on IT clouds because they are the foundation for all the other industries’ offerings.

Among these five public IT cloud services segments, cloud applications dominated in 2009, accounting for 49% of worldwide spending. This is no surprise, as the first wave of IT cloud services consisted of applications delivered via the software-as-a-service model. Infrastructure categories, such as cloud servers, cloud storage, and cloud systems infrastructure software are newer to the market, as are application development and deployment cloud offerings (also known as platform as a service). However, we forecast a less skewed distribution of spending among these segments by 2014, with applications accounting for a little over one-third of spending, and increased shares in infrastructure and AD&D/PaaS segments.

This does not mean that cloud application demand will be waning — it will still be, by far, the largest segment in 2014. It will be critically important for AD&D/PaaS players to aggressively recruit cloud ISVs in the 2010–2014 time frame, and successful cloud infrastructure players will seek out the most promising PaaS and application players as partners/customers.

Cloud Is Starting Small, But Quickly Gaining On Traditional IT

Looking at the chart below, it’s easy to see that 2009 public IT cloud services spending was modest compared with spending on traditional IT products: cloud offering spending was just 4% (1/25th) of the spending on comparable offerings delivered as traditional products. But, with cloud offerings’ rapid growth, they will gain significantly on traditional IT products — rising to 12% (1/8th) of the size of traditional product spending by 2014.

CLICK IMAGE to ENLARGE

We see 2014 as a “knee in the curve” year for public IT cloud services adoption, particularly in the earlier-adopting markets of the United States and Western Europe. In these markets, we’ll see acceleration in market growth in 2014 as the investments vendors make in 2010–2013 in cloud platforms and the solution and channel ecosystems around them come together with a more educated customer base and better solutions to adoption obstacles such as security and availability. This means that those vendors that haven’t positioned aggressively for cloud in the 2010–2013 time frame will see the market move more quickly away from them in 2014 and beyond.  For more on the impact of cloud solution/application ecosystems growth on public cloud services adoption, see The Single Biggest Reason Public Clouds Will Dominate the Next Era of IT.

Growth Share – Not Spending Share – Should Drive Investment Strategies

As we’ve noted in prior forecast posts, cloud services offerings will have an oversized impact on net-new growth in the IT industry. The chart below illustrates that impact in 2014.

CLICK IMAGE to ENLARGE

While spending on public IT cloud offerings in 2014 will reach only 12% (one-eight) of the size of traditional IT product spending, it will be almost one-third of the net-new growth in IT spending. Growth-oriented IT vendors would be wise to invest in proportion to this net-new growth impact (31%), rather than cloud services’ revenue impact (12%).  As Geoffrey Moore pointed out in Crossing the Chasm (and many others have made the same point), disruptive market transitions require this “growth-share” approach.  Those who take a more conservative “invest in proportion to spending” approach typically falter badly – or completely fail – in the wake of such transitions.

Now that Google has announced the Nexus One – its own version of an Android-based “app phone” (h/t David Pogue) – they have enhanced the likelihood of an even larger and faster-growing base of Adroid apps than we predicted last month.

In IDC Predictions 2010, we forecasted that “Google Android — now on a dozen devices — will emerge as a potent competitor to the iPhone, BlackBerry, Symbian, and Microsoft platforms.”  We went on to say “there are now about 10,000 applications for Android; we predict there will be a strong ramp (albeit slower than the iPhone app ramp) for Android — look for 50,000–75,000 applications by the end of 2010.”

Why, you may ask, did we envision a slower ramp than for iPhone apps?  This is what we said:  ”The advantage of Android — that it’s more “open” than the iPhone platform — creates more compatibility challenges for developers across the different device manufacturers’ hardware.”  And this multiple-manufacturers philosophy has, indeed, created some compatibility/portability frustration for the Android developer community.

But now, with the Nexus One effectively creating a strong reference platform for Android apps, Google is trying to mitigate that issue.  The Nexus One will likely drive other Android handset manufacturers to put more a bit more weight on compatibility with the Nexus One implementation of Android, and less on hacking/modifying Android to adapt to their own unique hardware designs.  And that’s good news for Android developers – and customers.

So – if it’s not too soon to adjust our 2010 predictions (heck, it’s only January 5th!) – we’d like to revise our year-end 2010 Android apps prediction to 75,000-100,000, closer to the iPhone’s year one trajectory.  We’re not quite predicting that Apple’s running for cover; the Nexus One is, after all, a version 1.0 product, and the iPhone continues to have enormous momentum.  But with Google’s strategic move to strengthen (and de-fragment) its mobile apps platform, Apple is certainly looking at a tougher competitor today than they saw yesterday.

Once again, the survey was fielded,  from the IDC Enterprise Panel of IT executives and their line-of-business (LOB) colleagues.

Organizations Are Likely to Consider Cloud Delivery for Many IT Offerings

We asked the panel to rate their organizations’ likelihood – on a 1 (very unlikely) to 5 (very likely) scale – to pursue the cloud model for a variety of IT applications, workloads and services.  The chart below shows the percentage of panelists responding 3, 4 or 5 – that is, neutral to very likely.

CLICK IMAGE to ENLARGE

The most obvious message in the data – with almost 50% or more  respondents in the 3-5 range for all categories – is that there is a general willingness to consider the cloud model for all of these areas.  Of course, there’s a big difference between users answering a survey question and actually making the move to the cloud.  But these responses certainly suggest the door is open for cloud services providers to make the case for cloud versions of all of these IT offerings.

What’s Most Likely to Move to the Cloud?

Diving into the detail, there are six clear takeaways from the survey responses:

• Web Apps/Sites and Collaboration are already there.  It’s no surprise that the most likely areas for cloud model adoption are where it’s already commonplace!
• Data/Content is the next big adoption driver. Three of the next five top cloud adoption areas have to do with data/content – its back-up (#3), distribution (#6) and storage (#7).  The cloud model offers distinct advantages for these IT needs, being: off-site, distributed (close to users), able to scale as content volumes continue to explode, and scalable at affordable costs.
• Business Applications are expanding to the cloud… The fact that Business Applications is #4 isn’t a big surprise – CRM in the cloud has been a viable option for many organizations for several years.  But this strong showing suggests that, in the next several years, we’ll see a steady expansion of business application categories in the cloud, and adoption by wider variety of organization profiles.
• …and so are Personal/Desktop Applications. More of an eyebrow-raiser is the strong showing for Personal Productivity Apps (#5) – this suggests that the low costs and simplicity/speed of deployment of the cloud model will continue to increase traction for cloud-based productivity apps/suites.  The growing use of mobile devices – which typically use lightweight front-end apps that depend on cloud-based apps and services – will certainly drive more personal apps to the cloud.  The leaders in PC-based productivity apps, Microsoft and IBM, have clearly noticed: in 2009, both stepped up their development of competitive cloud offerings in this space, and are already marketing these offerings aggressively, attempting to keep cloud-centric players like Google and Zoho out of key accounts.
• IT Infrastructure offering results reflect earlier stage of maturity. Aside from the data-oriented cloud offerings, infrastructure-related cloud offerings – IT Management (#8) and Server capacity (#9) – ranked low.  In our view, this is not because users consider the cloud model inappropriate for these offerings.  Rather, the responses reflect that these cloud offerings are generally less mature – and less well-understood by users – than, say, Collaboration, Web Hosting and Business Apps (e.g., CRM) in the cloud.  We expect to see these offerings move up the “adoption likelihood” ranks as more cloud infrastructure offerings come to market, especially from long-established enterprise IT suppliers, like HP, IBM, EMC, Cisco, Dell, CSC, Accenture, AT&T and Verizon.
• Business Analytics, App Dev/Test and IT/Information Security – look for these to come up fast in 2010. Right at the bottom of the list are three IT areas – Business Analytics, App Dev/Test and Security – that I actually expect will be very hot areas for cloud services adoption over the next two years.  In all three areas there are already some pretty compelling benefits to the cloud model.  The relatively poor showing could reflect both the need for better market education about these offerings, and the need for customers to see more offerings from the “household brands” in enterprise IT.  In any event, look for these three areas to steadily move up in our next several surveys.  Demand for Business Analytics and Information Security in the cloud will also be boosted as more data/content migrates to the cloud.

]]> http://blogs.idc.com/ie/?feed=rss2&p=843 15 http://blogs.idc.com/ie/?p=730 http://blogs.idc.com/ie/?p=730#comments Tue, 15 Dec 2009 13:34:46 +0000 Frank Gens http://blogs.idc.com/ie/?p=730 This year's IDC IT cloud services survey reveals many of the same perceptions about cloud benefits and challenges as seen in last year's survey. But there are a few interesting shifts this year, driven largely by: 1) budget pressure from the challenging economy, and 2) a growing sophistication in users' understanding of cloud services. This year's survey was fielded, like last year's, from the IDC Enterprise Panel of IT executives and their line-of-business (LOB) colleagues. The respondent population is very similar to that of last year's survey, validating comparisons with last year's results. Economics and Adoption Speed Still Top Benefits; Standardization Moves Up This year's survey shows, once again, that economic benefits are key drivers of IT cloud services adoption. Three of the top five benefits were about perceived cost advantages of the cloud model: pay for use (#1), payments streamed with use (#3) and shift of IT headcount and costs to the service provider (#5).

[...read more...]

This year’s IDC IT cloud services survey reveals many of the same perceptions about cloud benefits and challenges as seen in last year’s survey.  But there are a few interesting  shifts this year, driven largely by: 1) budget pressure from the challenging economy, and 2) a growing sophistication in users’ understanding of cloud services.

This year’s survey was fielded, like last year’s, from the IDC Enterprise Panel of IT executives and their line-of-business (LOB) colleagues.  The respondent population is very similar to that of last year’s survey, validating comparisons with last year’s results.

Economics and Adoption Speed Still Top Benefits; Standardization Moves Up

This year’s survey shows, once again, that economic benefits are key drivers of IT cloud services adoption. Three of the top five benefits were about perceived cost advantages of the cloud model: pay for use (#1), payments streamed with use (#3) and shift of IT headcount and costs to the service provider (#5).

CLICK IMAGE to ENLARGE

While pay-for-use slightly edged out last year’s #1 – easy/fast to deploy – these two are essentially in a tie for #1. It’s pretty safe to ascribe the slight edge for pay-for-use to the enormous pressure that the Great Recession has put on IT budgets, and the consequent increased focus on cloud economics in the minds of customers.  But it’s still clear that speed/simplicity of adoption remains a key driver of demand for cloud services.

One benefit that moved up the list from last year’s survey – from #6 to #4 – was the cloud model’s ability to “encourage standard systems”.  This upward movement reflects a growing sophistication in users’ understanding of the cloud services model, and how it can apply to their environment.  One of the largest sources of IT complexity and cost is the huge sprawl of distinct, yet functionally redundant, systems and applications in most organizations.  It’s an open secret that the lack of standardization – of things that could, and should, be standardized – is perhaps the number one brake on IT’s ability to respond quickly and efficiently to businesses’ changing needs.  Cloud services – by definition – are built on the premise of standard, shared systems.  This survey finding suggests that IT executives increasingly see, and will promote, standardization as an additional – and important – justification for migrating to both public and private cloud offerings.

Security, Availability and Performance Still Lead Challenges;  Cost and Lock-In Worries Rise

This year’s top three IT cloud services challenges – security, availability and performance – also topped last year’s challenges list.  Security is #1 again, and thus remains the top opportunity for IT suppliers to tackle as they position themselves as market leaders in the cloud era.

CLICK IMAGE to ENLARGE

Availability and performance were tied at  #2 last year, and are in the same dead heat again this year.  I wrap these two together under a label of “dependability”.  This survey result is a clear call for suppliers to offer service level agreements, and – more important – service level assurance.  Consequently – as we noted in IDC Predictions 2010 – look for lots of traditional IT suppliers to charge more forcefully into the cloud services business in 2010, with a focus on “enterprise-grade” IT cloud services.

The next two challenges represent very interesting shifts from last year’s survey.  At #4, users’ concerns that the cloud model will actually cost them more, rose from #6 in last year’s survey.  Cost worries may seem counterintuitive, given that economics show up very strongly on the “benefits” side of the ledger, but the reason is simple.  Smart IT executives to ask: “what if my end-users, enabled by the cloud model’s self-service provisioning capabilities, use more than I (or they) have budgeted for?”  This concern opens up an excellent opportunity for suppliers to introduce services/solutions that help customers better anticipate, monitor and manage the real demands (and costs) of cloud services offerings.

Appearing at #5 on the challenges list is “lack of interoperability standards”.  We didn’t offer this as a choice in last year’s survey, but it’s an issue we’ve certainly been hearing a lot more about this year. Customers are wondering whether choosing cloud services will lead to the same kind of lock-in they’ve endured for decades, or whether standards will give them greater freedom of action in the cloud era. Interestingly, this concern about cloud standards is echoed in challenges #6 (bringing back in-house may be difficult) and #7 (hard to integrate with in-house IT).  Even though standards cut against the grain of many leading suppliers’ traditional strategies (at least when it comes to standards that impact their core offerings), this survey suggests that suppliers who take a more aggressive and customer-friendly stance toward cloud standards may be able to grab larger market share at this important “crossing the chasm” stage of the cloud market.

Solving Challenges Will Define Cloud Market Leadership

Besides the specific points we’ve already discussed, there are two other important takeaways from this survey.

First, take a look again at the Benefits and Challenges charts above, and notice the percentage of respondents citing each benefit and challenge.  You’ll see that there are a higher percentage of respondents identifying challenges than  benefits.  The midpoint of the benefits sits around 65%, while for the challenges it’s 81%.  This doesn’t diminish the strong benefits users see in the cloud model; but it does suggest that the hurdles loom just a bit larger in users’ minds, slowing their adoption of IT cloud services.

And that takes us to the second, and concluding, takeaway:  given the very positive benefits users see in the cloud model, it’s obvious that IT suppliers who most directly and effectively mitigate the cloud adoption challenges will be strongly positioned to take market share as the all-important “early majority” customers expand to the cloud. If I were an aspiring cloud services supplier, I’d be putting the “challenges” chart on my wall, and developing and rolling out offerings that start at the top (security), and move right down the list.

]]>

On Thursday’s IDC Predictions 2010 webcast, our line to the On24 service dropped just a few questions into the Q&A session. We captured all the questions, and – as promised – we are posting answers to them here on IDC eXchange.  Many thanks to my IDC colleagues who contributed to these Q&A responses.

Q. Do you expect any growing of PC demand because of cloud computing?

A. [from Frank Gens]…  ”There’s no question that as  more services move into the cloud, and new services emerge in the cloud, the demand for devices that provide access to them will grow dramatically.  We’ve already seen this: the popularization of the Internet, from the mid-90s, has been a big factor expanding PC demand.  The obvious point in this year’s IDC predictions is that non-PC mobile devices will increasingly compete with PCs for those access device dollars.”

[Bob O'Donnell adds another angle, referencing the emergence of "clients in the cloud"]… “We believe moving to virtualized clients in the cloud could open some new growth opportunities for client computing devices overall because of the flexibility of being able to access your from multiple devices. Some of this will come via additional PC sales, but some will also come from increased smart phone sales.”

Q. How do you see WiMAX fitting in? Is this the 4G infrastructure you refer to? How do you see the growth of Wimax infrastructure build out worldwide and Wimax services?

A. [from Godfrey Chua]… “Yes, WiMAX is included in the 4G infrastructure we refer to.  It is particularly applicable to developing countries with underdeveloped broadband infrastructure. The technology will play an important role in helping to bridge the global broadband divide. In the more developed markets, WiMAX stands to compete with both LTE and landline solutions (DSL and Cable). The network execution and go to market strategies of WiMAX service providers will be the key determinants of WiMAX’s success in this type of market.  Longer term, we anticipate LTE will be a bigger market than WiMAX beginning in 2012 and onwards.  No doubt, the positioning of WiMAX vs. LTE will be discussed once again in IDC’s upcoming LTE telebriefing, scheduled for the 3rd week of January.”

Q. What is the opportunity for vendors who offer a hybrid approach (mix of Cloud [including SaaS] and On-Premise) in 2010 than vendors who only offer SaaS or On-Premise options?

A. [from Robert Mahowald]…  ”‘Hybrid’ applies equally to vendors being able to offer application delivery via SaaS or CD, and also being able to support customer implementations in multiple locations with both on-premises, hosted (dedicated) and public cloud (including SaaS) services.  Most larger vendors have either announced a hybrid solution or are working on one.  Buyers increasingly want the option of SaaS delivery either for quick new access to code, fast implementation (”time to value”), or to buy new modules or functionality at their own pace.  Recently we’ve found several cases where customers are using leverage to force key vendors to adopt a hybrid strategy.  For example, last year Epicor found that its ERP customers were unhappy with maintenance, and like many larger ERP vendors, they saw the threat of customer defection to viable SaaS ERP solutions.  So a few months ago Epicor rolled out a new product which is sold and supported either as traditional packaged or delivered as SaaS.   So the opportunity for vendors that have done the hard work and changed their application operations and their business operations to build and sell hybrid, and have a fully-baked hybrid strategy is that they can offer customers choice, retain customers, monetize via new operational models, and potentially displace other, slower vendors in their markets.”

Q. Which vendors do you see become the big “private cloud providers” in 2010 and beyond?

A. [from Frank Gens]…  ”‘Private clouds’ are a natural next step in the evolution of data centers over the last ten years, toward consolidated, virtualized and automated IT service delivery environments.  So I would expect the big IT “platform” suppliers who have been part of that evolution – including IBM, HP and Microsoft – to be major players in private clouds.  But they won’t be alone.  Their systems/service management software competitors – like VMware, CA, BMC, Symantec and Novell  – also have their sites on the private cloud market.  We also expect every major enterprise application supplier – including Oracle and SAP – to offer private cloud versions of their solutions (including as “appliances”).  Also look for Dell, which is coming from a heritage of systems/hardware, to expand into full-fledged private cloud offerings (including appliances), in partnership with key software/solution vendors.  And the newest systems player, Cisco – in partnership with EMC, and without a legacy of traditional systems to protect – is targeting private clouds as a prime opportunity.  It will be interesting to see how long its takes public cloud leaders, like Google and Salesforce.com, to make strong bids in the private cloud market; as we noted in IDC’s predictions for 2010, we suspect not very long.”

Q. What is the level of interest in cloud outside of the US? who will adopt next?

A. [from Frank Gens]…  ”We’re in the midst of developing our regional forecast for public IT cloud services, so we don’t have a definitive quantitative answer.  But, for guidance, I’d recommend you look at IDC’s SaaS forecasts, since SaaS offerings make up a large majority of the public cloud market.  The simple answer is that cloud today is very U.S-centric, with the U.S. making up about 70% of worldwide SaaS spending.  In developing markets, cloud should eventually be a very, very popular model, for obvious reasons (cost, skills, etc.) – but the gating factor is availability of affordable, dependable broadband.  On the private cloud side, we expect adoption to be more evenly distributed – much closer to traditional IT spending distribution.”

Q.  Is SAP a “lost leader” from an innovation perspective? Will it look for a merger in 2010 beyond to avoid extinction?

A. [from Henry Morris]…  ”SAP is in a tough position because it is overly dependent on its on-premise ERP application software for large enterprises.  This is shown in the drop in license revenue this year of 35% — SAP has maintained its margins through growth in maintenance revenue and cost controls.  Major competitors such as Oracle and Microsoft are far more diversified.

“From an innovation perspective, SAP is banking heavily on the use of in-memory technology for accelerated data access — which has value for some types of BI applications (improving dramatically on the slow performance of building cubes in traditional OLAP), but is not positioned in and of itself to solve SAP’s revenue shortfall.   SAP also showed innovative interfaces to its back end business suite via mobile devices at its analyst summit this week.   There are also multiple initiatives to build in analytics within business processes (process extensions) that represent innovation.  SAP is also likely to continue a path of smaller acquisitions of complementary technology, such as for compliance, sustainability, teleco billing, and other areas.  The point is that SAP intends to address the revenue shortfall via a variety of initiatives of SAP products and hybrid SAP-partner products (see, for example, offerings with OpenText that interface content, e.g. scanned invoices, with SAP back end financials and many other such hybrid initiatives).

“Bottom line: SAP needs to sell more to its large enterprise base (products in adjacent areas) while increasing its sales to small and medium enterprises.   It also needs a major offering in the on demand space with BusinessByDesign still not on the market for general (and volume) availability.  A positive note here is that the product is now multi-tenanted and, according to SAP, will be ready for volume delivery next year.   It’s critical that SAP is able to execute here with a volume selling program — as it has done for its BI products, especially the Crystal family.

“SAP’s ability to diversify its revenue mix via successful execution of these innovation initiatives (a critical factor for revenue improvement) impacts whether a merger enters the realm of possibility within the next 1-3 years.”

Q. What’s the exact meaning of “new distribution model”?

A. [from Frank Gens]…  ”I mentioned “new distribution model” twice in Predictions this year.  The first was in reference to Cloud Services APIs, which allow other cloud solutions developers and providers to leverage your cloud services within their offerings (under agreed-upon contractual terms, of course) – in effect, becoming an OEM/partner channel for your cloud offerings.  The second distribution model reference was to wireless telecom providers striking more and more wholesale deals with mobile device and/or online/cloud services providers, like Amazon’s private-labeling of Sprint, and now AT&T, wireless services, as Amazon WhisperNet.  The Cloud API and mobile virtual network operator (MVNO) models are very similar, in that they open up new distribution opportunities for providers; but both also represent a cultural challenge to many providers, who are uncomfortable with their brand being subordinated (or even rendered invisible) by their partners’ brands.  We spoke about the emerging strategic opportunity – and challenge – of embedding of IT offerings (and brands) within well-known consumer and business services brands four years ago in IDC Prediction 2006.”

Q. What do you mean by “design point” particularly in the SMB market?

A. [from Frank Gens]…  ”I was referring to fact that, increasingly, we are seeing enterprise IT vendors create offerings designed, from the beginning, with the ability to scale down and out (in performance, pricing, distribution, etc.) to reach small and medium-sized enterprises, in order to bring those high-growth segments within their addressable market.  Further, many are doing so with the requirements of emerging markets in mind, given the spending growth multiple in those markets.  Some – including me – would argue that for many offerings, it’s becoming more important to scale out further: to compete in the consumer market.  Indeed, it is consumer-oriented cloud players like Google who are creating the greatest competitive stress in the IT market today.  And, obviously, this requirement has already manifested in the PC and mobile devices markets.  This need to conceive an offering with one of the first questions addressed being: “Can this offering reach consumers and SMBs – even in emerging markets?” is in sharp contrast to the IT market of twenty years ago, which was dominated, and driven, by large enterprise spending and requirements.”

On Thursday December 3rd, IDC released its big picture predictions for the IT and Telecommunications industry in 2010. Here are some links for more detail.

The Webcast – The recorded one-hour IDC Predictions 2010 telebriefing (simple registration required):

The Document – The full “IDC Predictions 2010″ document:

• For IDC clients:

• For non-clients (simple registration required):

The Video – And here’s the 5-minute video summary:

Answers to Telebriefing Questions – On Thursday’s IDC Predictions webcast, our line to the On24 service dropped just a few questions into the Q&A session. We captured all the questions, and over the next several days we’ll post answers to those questions here on IDC eXchange. So stay tuned!

]]> http://blogs.idc.com/ie/?feed=rss2&p=647 2 http://blogs.idc.com/ie/?p=543 http://blogs.idc.com/ie/?p=543#comments Mon, 05 Oct 2009 15:27:34 +0000 Frank Gens http://blogs.idc.com/ie/?p=543 Last year, we published IDC's first forecast of IT cloud services, focusing on enterprise adoption of public cloud services in five big IT categories through 2012. For the past several months, dozens of IDC analysts have collaborated to refine, deepen and extend our cloud services forecasts. In this post, we share this year's update of our top-level cloud services forecast, now extended through 2013. [The full forecast, including 2008 as well as 2010-2012, will be published shortly in IDC's Cloud Services: Global Overview subscription program.] The New Forecast Here is the new forecast, segmented by offering category, for 2009 and 2013:

CLICK IMAGE to ENLARGE

Last year, we published IDC’s first forecast of IT cloud services, focusing on enterprise adoption of public cloud services in five big IT categories through 2012. For the past several months, dozens of IDC analysts have collaborated to refine, deepen and extend our cloud services forecasts. In this post, we share this year’s update of our top-level cloud services forecast, now extended through 2013. [The full forecast, including 2008 as well as 2010-2012, will be published shortly in IDC's Cloud Services: Global Overview subscription program.]

The New Forecast

Here is the new forecast, segmented by offering category, for 2009 and 2013:

CLICK IMAGE to ENLARGE

These figures represent revenues for offerings delivered via the cloud services model in five major enterprise IT segments (as defined in IDC’s IT market taxonomies): Application Software, Application Development and Deployment Software, Systems Infrastructure Software, and Server and Disk Storage capacity. These figures do not include spending for private cloud deployments; they look only at public IT cloud services offerings.

The revised figures are still in the same ballpark as last year’s forecast, although they reflect The five year growth outlook remains strong, with a five-year annual growth rate of 26% – over six times the rate of traditional IT offerings.about a six month revenue knock-back from what would have been expected from last year’s forecast, due largely to the global recession and, to a lesser degree, to better market tracking and tightened definitions.

The five year growth outlook remains strong, with a five-year annual growth rate of 26% – over six times the rate of traditional IT offerings. In spite of the challenging economy – or more accurately, because of it – this growth rate advantage expanded from last year’s forecast, in which cloud services were forecast to grow at over five times traditional offerings.

Cloud Services’ Impact on the IT Market: It’s About the Growth

What does this forecast tell us about the real impact of the cloud model on the IT market? Should we think of $17B in 2009 and $44B in 2013 as big or small? How important – financially, and strategically – are IT cloud services for the industry? Here are two ways to look at it.

One way is to look at the percentage of revenue that cloud offerings comprise of these five segments overall:

CLICK IMAGE to ENLARGE

This year, cloud services will total only about 5% of IT revenue. Even with a compound annual growth rate of 26% – over six times that of traditional IT – they will account for just 10% in 2013. Some might look at this, and conclude that cloud services are not very important – after all, in 2013, 90% of IT will NOT be from public clouds.

But, as we noted in last year’s forecast post, this “percent of total revenue” perspective is a very dangerous one. Why? Because it’s a rear-view mirror view: it misses the impact that cloud services offerings will have on net new growth in the IT market. Here is an analysis of net new IT growth in 2013, separated into growth from cloud services vs. growth from traditional IT products:

CLICK IMAGE to ENLARGE

Looked at through a growth-oriented lens, cloud services will certainly have a major impact on the IT market over the forecast’s time frame. Of the $27 billion in net new IT revenue in 2013, 27% will come from IT cloud services. Given the 6X growth advantage of cloud services offerings over traditional ones, that percentage will grow very quickly in subsequent years – meaning that suppliers who don’t position themselves as IT cloud services leaders over the next several years, will forfeit larger and larger portions of the highest-growth markets.Looked at through a growth-oriented lens, cloud services will certainly have a major impact on the IT market.

As we noted last year, IT cloud services adoption is currently in the “crossing the chasm” stage.  This revenue and growth data is very much in sync with this view. As Geoffrey Moore pointed out, in this period, total revenues are small, but – as the market is on the steep part of the adoption curve – growth is extremely high. The lesson of past technology adoption waves is that suppliers who wait to position themselves until revenues get big (e.g., greater than 10%), are too late, and find themselves edged out of the all-important mainstream adoption phase.

]]>

After a full year of discussion and debate among key IDC analysts, We’ve continued to refine our thinking about what defines cloud services, and what makes them new and important.and conversations with hundreds of leading IT users and suppliers, we’ve continued to refine our thinking about what defines cloud services, and what makes them new and important.  The revised definition is very consistent with last year’s definition, with improvements in two areas: 1) minor tweaking of cloud service “key attributes” to improve clarity, and 2) expansion of the definitional scope to accommodate both public and private cloud deployment models.

What Are “Cloud Services”?

As we noted last year, “cloud services” are fundamentally about an emerging delivery/consumption model – one that can be applied to IT industry offerings (e.g., as in software-as-a-service (SaaS), and storage or server capacity as a service), but also much more broadly, to offerings from many other industries, including entertainment, energy, financial services, health, manufacturing, retail and transportation, as well as from government and education sectors.

At a high level, cloud services can be described simply and informally as:

Consumer and business products, services and solutions delivered and consumed in real-time over the Internet

This is a useful simplification for discussing cloud services with non-technical business people, but it is obviously too broad a description to capture what’s important: how the emerging cloud model dramatically differs from prior online offering models in ways that promise to fundamentally expand and transform markets. After all, online services have been around for a very long time – from the timesharing systems of the 1970s through the first generation of transactional Internet commerce sites. Thus, IDC’s formal definition of cloud services includes the following eight key attributes, that – in combination – differentiate cloud services from these other online delivery/consumption models:

CLICK IMAGE to ENLARGE

As we noted last year, the cloud services model, by leveraging all eight of these attributes together, “make business and consumer cloud services easier and cheaper – and often better – to consume than through traditional delivery modes. These attributes lower costs (for customers and suppliers), speed and simplify access, speed and fine-tune provisioning (in line with true demand/usage), greatly increase the number and variety of available services (thanks to lower development and deployment costs, and standards), and improve the potential to integrate.”

As we’ll discuss below, in the more detailed description of each attribute, some of these attributes may manifest to different degrees, or in different ways, in different cloud service categories (e.g., “self-service” for cloud applications vs. cloud storage), but for all categories of cloud service offering, there is an important common thread:  these attributes manifest in ways that offer major customer advantages compared with traditional delivery/consumption models.

Detailing the Eight Cloud Services Attributes

Here’s more detail on what each of these attributes means:

• Shared, standard service – this is the most fundamental attribute of a cloud service, an attribute that is shared with the wide variety of previous-generation online services, and  the one that differentiates cloud services from many traditional, Cloud services are shared, standard services, built for a market, not for any specific customer.customer-unique outsourced or hosted offerings. Cloud services are shared, standard services, built for a market, not for any specific customer.  These services present themselves to users as “multitenant” offerings, although our definition – focused on the customer-facing aspects of cloud services – leaves room for service providers to use a variety of underlying deployment and architectural options.  The shared service model offers customers and suppliers both enormous operating efficiencies and upgrade/enhancement velocity. In a private cloud deployment, the IT department can be viewed as the cloud service “vendor”, offering a standard service within a single enterprise, or across an extended enterprise. [Last year, we referred to this attribute as "shared resources/common versions".]
• Solution-packaged – one of the most obvious user benefits of the cloud service model is that it is “turnkey”: the customer can access the offering without the need to own, manage or understand any underlying resources required to support the offering. The Cloud Service Provider (Cloud SP) bears that burden, offloading it from the customer, making it much simpler and faster to adopt for customers. [Last year, we referred to this attribute as "minimal/no IT skills to implement".]
• Self-service – cloud services allow customers self-service capabilities for service provisioning and administration. In the IT cloud services world, the range of self-service capability varies widely up and down the stack: in the infrastructure area (e.g., cloud storage, cloud servers), “click-to-buy” provisioning is widely available today, whereas much of the SaaS community lags here. While most SaaS vendors provide a lot of self-service administration, there is little “click-to-buy” provisioning simplicity and speed; some on-boarding and more complex customization functions typically require human intervention from the provider’s staff. IDC believes we’ll see SaaS vendors evolve in this area, providing more automation around self-service provisioning. Customer self-service is a key tool for providing greater operating efficiency, deployment speed and customer satisfaction.  [Last year, we referred to this attribute as "self-service requesting, near-realtime provisioning". This year we've expanded to address administration.]
• Elastic scaling – another of the key benefits users often cite in the cloud services model is the ability to quickly scale resources to need – delivering speed and cost-efficiency benefits. This is an area, like self-service, where the way in which the attribute is manifested varies by type of offering. We can easily see the elasticity of compute and storage cloud services, but what about SaaS? SaaS offerings – while typically less “instantly scalable” than the infrastructure services – still look much more elastic to customers than the traditional on-premise model.We would argue that SaaS offerings – while typically less “instantly scalable” than the infrastructure services – still look much more elastic to customers than the traditional on-premise model, since increasing/decreasing resources (seats/subscriptions, and associated supporting resources – CPUs, storage, bandwidth) can happen much faster than traditional on-premise offerings. Once an application is provisioned on-premise, those resources/costs are on the balance sheet; scaling down is not easy at all, given the portion of capital remaining on the balance sheet, and increasing (beyond a marginal change) usually takes significant time to provision. [Last year, we referred to this attribute as "dynamic and fine-grained scaling".]
• Use-based pricing – customers not only want services scaled to need, they also want them priced to use, whether that’s in proportion to usage, or to the number of users. As we noted last year, as a convenience to some customers, providers may mask this pricing granularity with long-term, fixed price agreements, but – to meet the cloud service definition – the supplier must design their offering so they have the capability to do fine-grained metering and pricing for customers who wish that. In a private cloud setting, some IT shops may take advantage of the fine-grained metering to support more detailed, usage-based chargebacks. [Last year, we referred to this attribute as "pricing model = fine-grained, usage-based (at least available as an option)".]

The last three cloud service attributes are related to the same thing: leveraging the power of de jure and de facto Internet standards – to reduce costs, increase reach and maximize interoperability and combinatorial value creation.

• Accessible via the Internet – this means that cloud services are designed to leverage the most ubiquitous public network on the planet. For public clouds, this is a no-brainer:  it means services must be accessible to (authorized) users who have access to the Internet. The core benefit to both the service provider and customers is broad, simple and low-cost access.  Obviously this doesn’t mean that a public cloud service is unsecured and unreliable; Cloud offerings take advantage of the huge marketplace of security and QoS offerings that are building up around the public Internet.rather that the service provider (and customers) leverage security and QoS/availability mechanisms that are Internet-based (e.g. SSL, IP VPN, CDNs, etc.), and take advantage of the huge marketplace of security and quality-of-service (QoS) offerings that are building up around the public Internet. For most private clouds (see Public vs Private Cloud discussion below), this attribute will still be a key one, especially where employees are mobile; but we could envision very secure private clouds where access is restricted only through private IP networks.  We will also certainly see interesting use cases where public cloud SPs offer customers with high-bandwidth and/or security needs the ability to access the public cloud via private lines – one example of what will be many “mash-ups” of public and private cloud services.  [Last year, we referred to this attribute as "accessed via the Internet". We've expanded with the notion that a user may access a private cloud service over their organization's private IP network.]
• Standard user interface (UI) technologies – to clarify, we’re talking here about the client and underlying technologies, not the visual layout of elements on the screen (or a device). Like the network access attribute above, this attribute is about leveraging Internet-related de jure and de facto standards and technologies that are widely-deployed – and typically service/application-independent – to give cloud SPs and their customers maximum reach and access to leading-edge innovation, at a very low cost. SPs should leave the client choice for users as “open” as possible, for both their own, and customers’, benefits.In the case of UI technologies, we are talking about Web browsers, as well as supporting technologies such as Ajax (asynchronous JavaScript, Dynamic HTML, XML), Flash, HTML, JavaScript, SVG, etc. Other service/application-independent clients – such as AIR – that sit outside the browser, but leverage the same de jure and de facto standard technologies, could also fit the bill as they become widely deployed on users’ devices. We are including de facto standards, so this attribute obviously has some degree of subjectivity to it. The core thought behind this attribute is this: SPs should leave the client choice for users as “open” as possible, for both their own, and customers’, benefits. [Last year, we referred to this attribute as "UI = browser and successors". We've expanded to include other service/application-independent, Internet technologies-based clients that may sit outside a browser.]
• Published service interface/API – The ability to combine services with each other, and to integrate them with traditional, on-premise systems, is the foundation for being able to rapidly create – and, importantly, allow others to create – new solutions and value, and therefore a core element of modern cloud services. Published cloud service APIs transform online services from “islands” to high-leverage building blocks within large innovation communities and marketplaces. It’s already obvious that cloud SPs who do not offer open/published, programmatic interfaces – and thus fail to develop large ecosystems of solution developers around their services – will simply not be competitive. These APIs, and the ecosystems around them, will be the foundation for expanding suppliers’ market power.In our view, this is the brightest red line that separates first-generation online Internet offerings and cloud services. It’s no surprise that the first-generation Internet businesses that have become cloud leaders – Amazon, Google and eBay – were among the first of the first generation online/ecommerce providers to open up their services with APIs, and recruit huge developer communities. In the IT industry, many SaaS vendors have published services APIs (SOAP, REST, et al.) that allow customers and other vendors to access functionality within their offering; some expose a minimal number of controls, while others publish many. But it’s hard to imagine any successful SaaS (or any –aaS/Cloud) vendors not providing a way for their offerings to be leveraged for greater value by customers, and by their own ecosystems. These APIs and the ecosystems around them will be the foundation for expanding suppliers’ market power. The successful Cloud SPs will have APIs in some form as the market matures, while “walled gardens” will have a hard time being competitive in the cloud services space – think “AOL vs. the Internet”. [Last year, we referred to this attribute as "system interface = web services APIs".]

It’s worth repeating: the reason the cloud services model is worth defining (and researching) is that the combination of these attributes delivers a unique and powerful set of benefits (in bold above) for the industries and organizations that deploy and use these services.

Deployment Models: Public vs. Private Clouds

A major market development in the last 12 months has been the emergence of the idea that the very same eight attributes above – which have given public cloud providers like Amazon, Google, Salesforce.com and others great advantages in cost, speed , simplicity and value-creation velocity – can be applied to corporate data centers within a private (single-, or extended-, enterprise) setting. “Private clouds”, by definition, don’t have nearly the same reach and scale as public clouds, but they do offer significant improvements over traditional private deployment models.

And so our definitional framework for Cloud Services is now expanded to include these two deployment models:

CLICK IMAGE to ENLARGE

As noted in the Cloud Services definition chart above, Public and Private models represent two ends of a deployment continuum, which we expect will frame a growing variety of models that mix aspects of both.

It’s important to note that the notion of private clouds didn’t just arise suddenly from public clouds, Private clouds are an evolutionary next step in CIOs’ decade-long efforts to transform their organizations into service-oriented IT delivery providers.but is really an evolutionary next step in CIOs’ decade-long efforts to transform their organizations into service-oriented IT delivery providers – what IDC has referred to for almost ten years as the journey toward “dynamic IT”.  Private clouds (and public clouds, for that matter) are built on the key elements of that transformational roadmap – consolidation, standardization, virtualization and automation – and add important new ingredients: turnkey packaging, self-service provisioning and administration, more granular and elastic scaling, granular usage metering and leverage of Internet standards and technologies.  For the past ten years, many CIOs have found the journey to dynamic IT, based on conventional offering approaches, very slow, difficult and costly.  We believe these new ingredients that private clouds add will help CIOs move much faster down the dynamic IT path.

Putting It All Together

Wrapping up, here’s a chart that puts these three elements – simple meaning, key attributes and the public/private deployment models – together into a single figure.

CLICK IMAGE to ENLARGE

CLICK IMAGE to ENLARGE

This survey finding, from the IDC Leasing and Financing Survey Results (IDC#218599, June 2009) report, shows user interest in a number of acquisition options, as alternatives to leasing.  Two things stand out:

• Users rated cloud computing as the top alternative to traditional IT leasing. Cloud computing garnered the highest average rating (2.7 out of a maximum 4), as well as the highest percentage of respondents (27%) indicating an interest level of 4 (”very interested”).  It’s notable that the third highest-rated alternative was “utility-type computing”, which is synonymous with cloud computing.
• Cloud computing edged out outsourcing as a leasing/financing alternative. In tough times, as CIOs are squeezed, they’ve traditionally looked to outsourcing as a method for lowering costs, and spreading them out.  No doubt this finding will be particularly interesting – and challenging – to outsourcing services providers, most of whom are currently trying to determine just how serious they should be in adding cloud services options to their services profolios.

It’s clear that cloud computing is of growing interest, not just to the technologists, but to the money people – the CFOs, CEOs, Procurement VPs, as well as senior IT execs – who think about the capital and cost implications of IT.  And from these ratings, it looks like their initial impressions are positive.  The implications for the IT leasing and finance players, as well as traditional IT outsourcers is obvious:  they need to quickly determine how they will get their share of the growing cloud opportunity.