Many people reasonably wonder if the growing interest in cloud computing is a just a short term phenomenon – the latest hype destined to join other fads in the tech market trash bin. As we’ve discussed before, IDC believes that the rapid emergence of cloud services, and the cloud computing model underpinning those services, are ushering in a fundamentally new era of growth and competition in the IT market.
The main reason we believe this is so, is that the cloud computingshift is being driven not just by the emergence of new products and technologies, but by a “perfect storm” of market forces, along three vectors: 1) the search for growth (money) in important new segments, 2) the shortcomings of traditional approaches in capturing that growth, and – in case those two weren’t enough to drive entrenched market players into action – 3) competitive pressure from disrupters, with little to lose and everything to gain from pushing the new model.
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- The Search for New Market Growth – The search for accelerated revenue and profit growth is the engine driving the whole industry shift toward the cloud. We’ve predicted that, in 2008, the BRIC countries, plus the next 9 emerging markets (”BRIC+”), will grow at 2-1/2 to 3 times the overall IT market. The small and medium business (SMB) sector, in developed as well as developing markets, will grow at 1-1/2 to 2 times the large enterprise segment. Additionally, there are huge new growth opportunities emerging from the existence of the Internet itself: with IT’s traditional customers (as well as start-ups) – in industries such as Media & Entertainment, Consumer Goods, and many others – expanding offerings and creating communities online (we discuss this opportunity to help customers become Cloud Services providers later, in “Framing the Cloud Opportunity for IT Suppliers“). IT suppliers who want to grow faster than the relatively slow overall IT market growth rate, MUST go aggressively after these high-growth segments. The requirement to capture business in these segments is, without doubt, the #1 factor driving the IT industry’s shift toward the Cloud Computing Era.
- The Need for – and Emergence of – New Approaches – Most of the IT industry’s leaders have come to understand that they have zero chance of fully capturing the growth they need – from the BRIC+ markets, SMBs and the growing number of Cloud Services providers – with just the traditional IT models and offerings. The traditional offerings and approaches – while they will continue to adequately serve much of the market – are too costly, and take too much time, skills and effort to adopt to appeal to these emerging opportunity customers. Here’s one bit of proof: the customer portfolios of most of the industry’s leaders are chock full of Global 2000-type customers, and disproportionately few SMBs. And here’s the kicker: in the high-growth BRIC countries, and other emerging markets in Asia, the Middle East, Eastern Europe and Latin America, SMBs account for an especially important share of total business IT spending. Fortunately, Internet-driven models and offerings – which have been developing and maturing for the last ten years – are coming of age, accelerating in terms of: the number of suppliers, the number and richness of offerings, the scale of development and distribution ecosystems around them, and the number of customers who are used to, and comfortable with, solutions from “the cloud”.
- Competitive Pressure - As noted above, if the “pot of gold” of new market growth, and the growing availability of IT offerings that allow IT suppliers to profitably reach those markets, isn’t enough to jar traditional market incumbents toward the cloud, competitive pressure certainly will. The third vector of market force driving the IT industry toward the Cloud Computing Era has been the emergence disrupters: startup IT suppliers like Salesforce.com, who have entered the market in a conventional IT role (software vendor) but with an unconventional approach (software in the cloud), as well as “non-IT” companies like Google, Amazon and eBay, who’ve entered the IT market from decidedly unconventional starting points (online advertising and search, retailing, etc.). As we’ve noted before (Is Google the Next Enterprise Application Platform?), these all-upside players are viewed as just enough of a threat to get even the most conservative IT suppliers moving toward the new model: witness the flurry of major cloud announcements from the top 10-20 IT suppliers just this year.
Put all three of these market forces together, and we’re certain that the Cloud Computing Era will be with us for the next two decades – driven not by technology fad or hype, but by real economic opportunity.