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In our previous posts on the IT industry’s shift to the Cloud Services era, we’ve provided definitions, market context, user adoption trends, and user views about cloud services benefits, challenges and suppliers.

In this post, We offer our initial forecast of IT cloud services delivery across five major IT product segments.we offer our initial forecast of IT cloud services delivery across five major IT product segments that, in aggregate, represent almost two-thirds of enterprise IT spending (excluding PCs).  This forecast sizes IT suppliers’ opportunity to deliver their own IT offerings to customers via the cloud services model (”opportunity #1“, as described in our recent post Framing the Cloud Opportunity for IT Suppliers).

The development of this forecast involved a team of over 30 IDC analysts, led by Robert Mahowald (Business Applications/SaaS), Tim Grieser (Infrastructure Software), Steve Hendrick (Application Development & Deployment Software), Matt Eastwood (Servers) and Rick Villars (Storage), with additional contributions from David Tapper (Outsourcing/Hosted Services) and John Gantz (Global Research).

An Opportunity In Its Infancy – But, Even Conservatively, Poised to Drive Big Marginal Growth

Of the $383 billion customers will spend this year within the five major IT segments noted above, $16.2 billion – or a mere 4% – will be consumed as cloud services.  By 2012, customer spending on IT cloud services will grow almost threefold, to $42 billion.By 2012 – based on a conservative forecasting approach (see “fine print” below) – customer spending on IT cloud services will grow almost threefold, to $42 billion, accounting for 9% of customer spending.

What does that mean?  On one level, one could argue that – in spite of the all the buzz about Cloud Computing and Cloud Services – this model will not even crack 10% of IT spending four years from now. And therefore, one could reasonably ask: why all the fuss?

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One reason IT suppliers are sharpening their focus on the “cloud” model is its growth trajectory, which – at 27% CAGR – is over five times the growth rate of the traditional, on-premise IT delivery/consumption model.  Spending on IT cloud services is growing at over five times the rate of traditional, on-premise IT.As noted in our recent user survey, this rapid growth is being driven by the ease and speed with which users can adopt these offerings, as well as the cloud model’s economic benefits (for users and suppliers alike) – which will have even greater resonance in the current economic crisis.

Even more striking than this high growth rate, is the contribution cloud offerings’ growth will soon make to the IT market’s overall growth.  By 2012 – even at only 9% of user spending – cloud services growth will account for fully 25% of the industry’s year-over-year growth in these five major segments.  In 2013, if the same growth trajectories continue, IT cloud services growth will generate about one-third of the industry’s net new growth in these segments.

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[NOTE: Minor data typo corrected 01Apr09.  The main message - that Cloud IT growth will account for 25% of overall growth - remains unchanged.]

The implication for IT suppliers is clear: during the next several years, IT suppliers must position IT suppliers must position as leaders in IT cloud services or forfeit an ever-expanding portion of the industry’s growth.themselves as leaders in IT cloud services or forfeit an ever-expanding portion of the industry’s growth.  Cloud services’ accelerating impact on IT industry growth is consistent with the key insight from our cloud services user survey data: that IT cloud services are at a “crossing the chasm” moment, the point at which suppliers must step up their commitment to the new technology or model, and the point at which failure to do so starts to exact harsher penalties on supplier performance.

Applications Are Leading the Way – and Will Continue To Do So

Among the five enterprise IT segments we analyzed, Business Applications dominate cloud services spending, both in 2008 (57%) and in 2012 (52%).

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This should not be very surprising: Software-as-a-Service (SaaS) is the most mature and widely deployed form of IT cloud services, in contrast to the more nascent cloud infrastructure offerings.  And Business Applications – in which, for this forecast, we include Collaboration offerings - have consistently been the largest portion of the SaaS market.

Further, as we noted in IT Cloud Services User Survey, pt.1: Crossing the Chasm, Geoffrey Moore identifies applications (vs. component technologies) as the most successful offerings for crossing the chasm: they appeal to the line-of-business constituencies outside the IT department, who are most frustrated by the old model, and are most open to embracing new approaches.

Another reason for the dominance of applications in One reason for the dominance of applications in IT cloud services spending is the role that SMBs will play.IT cloud services spending is the role that SMBs will play in this IT industry transformation.  As we’ve noted many times, the opportunity to open up under-served SMB segments, in both developed and emerging markets, is the primary motivation driving many IT suppliers toward the cloud model.  And SMBs’ IT investments are driven – much more than large enterprise investments – by applications.

The implication of the application-centricity of the current The most direct path to becoming a successful player in the cloud is to have strong links to the application world.and near-term IT cloud services market is also clear: the most direct path to becoming a successful player in the cloud is to have strong links to the application world.  This means, for example, becoming a SaaS provider, becoming a SaaS platform provider, or – for those in non-application parts of the IT market – becoming a key partner of SaaS application or platform players.  (More on this in later posts.)

One other item of note in the IT cloud services spending shown above is the rapid growth in cloud storage.  Our storage analysts believe – and I concur – that the explosive growth of information in the cloud (and outside it) will, more than in any other infrastructure category, drive direct end user demand for storage in the cloud.

“Fine Print”:  Important Notes About This Forecast

Forecasts about emerging models and offerings are rarely perfect predictions of the future.  Here is some “under the covers” information about this forecast that will be useful in thinking more deeply about this forecast and its implications:

  • An  ”End-User-Centric” View: These figures represent enterprise end-user demand for IT products and solutions, through both on-premise and cloud services models. By “end users” we mean businesses that consume these IT products and solutions either for their internal use, or as an “under-the-covers” ingredient within their offerings to the marketplace. Excluded from this forecast is spending by cloud services providers who are simply reselling the product/solution, without value-add other than the delivery model transform; we consider such services providers as resellers – the true “end-users” are their customers. In contrast, cloud services providers who are not explicitly reselling the forecasted IT product/solution as a service, but are using it as a supporting ingredient within their offerings, are considered end-users (e.g., Salesforce.com, a cloud services provider of CRM software, is counted as an end-user within the storage, server, and other IT segments outside of its own primary product/service segments [business applications, application development/deployment]).
  • A Conservative Approach and Track Record: This forecast is on the conservative end of the spectrum. Our goal, as usual, is to be “anti-hype” – to recognize and highlight the disruptive trends in the market, but to avoid a forecast “bubble”. That was our track record in forecasting Internet adoption in the late 1990s, and our Internet forecasts have held up extremely well – through, and beyond, the Internet Bubble period. We have also had a conservative track record in forecasting the SaaS market, for which we have traditionally underestimated growth, and increased our forecast significantly each of the past several years. If you have a more aggressive view of IT Cloud Services adoption, the other end of the spectrum – a more aggressive forecast – could well be 1.5-2 times the spending level in the forecast above.
  • Watch “Conditions On the Ground”: The ramp-up scenario for IT cloud services is very fluid – the forecast will be greatly impacted by: 1) major vendors’ degree of aggressiveness in developing and promoting cloud offerings, 2) the rate at which partner ecosystems morph to adapt to – and drive – the cloud model, and 3) macroeconomic factors – such as impact of the current global economic crisis.  In our view, while the economic crisis could negatively impact the growth of this market, it is more likely that it will accelerate the roll out and adoption of Cloud IT services, because of the model’s greater affordability (vs. traditional IT offerings), and IT’s critical role in supporting much-needed innovation and economic growth.
  • IT Cloud Services Adoption Will Drive (but Shift) On-Premise Demand: It is important to note that while end-users certainly consider “on-premise” vs. “cloud services” as alternative (and competitive) options for specific solutions, the cloud services delivery model for those solutions will not, for the most part, subtract from on-premise IT demand. In fact, end user IT cloud services demand will actually drive demand for on-premise IT products and solutions – but it will shift that demand to cloud services providers. This makes it extremely important for suppliers of IT products and solutions to develop detailed understanding of the changing routes to market, including the role of cloud services providers, both as end-users and as a new and growing channel.
  • Some Definitional Details:  Here are the submarkets we included in each of the five major IT segments in the forecast:
    • Business Applications:  includes Collaborative applications (such as Messaging, Conferencing and Team collaboration software), and Business applications (such as CRM, ERP, Financial, HCM, PLM and SCM).
    • Application Development & Deployment Software:  includes Application Development software, Application Lifecycle Management software, Enterprise Mashup & Portal software, Information Management & Data Integration software, and Middleware & Business Process Management software.
    • Systems Infrastructure Software: includes System and Network Management software, Security software, Storage Management software, and System software.
    • Storage: includes Disk Storage.
    • Servers: includes all classes of Servers.


[The following IDC analysts contributed to this IT Cloud Services analysis and forecast: Michelle Bailey, Darren Bibby, Ray Boggs, Jean Bozman, Brian Burke, Chris Christiansen, Laura DuBois, Matt Eastwood, Mike Fauscette, John Gantz, Frank Gens, Al Gillen, Tim Grieser, Steve Hendrick, Martin Hingley, Mark Levitt, Robert, Mahowald, Stephen Minton, Chris Morris, Henry Morris, Brad Nisbet, Melanie Posey, Dave Reinsel, Christina Richmond, Sandy Rogers, Jed Scaramella, Rona Shuchat, Will Stofega, David Tapper, Vernon Turner, Rick Villars, Janet Waxman, Melissa Webster.]

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35 Responses to “IT Cloud Services Forecast – 2008, 2012: A Key Driver of New Growth”

[...] there have been some more analyses released about the possibilities for the cloud market, one a cloud computing spending forecast from IDC and the other is an analysis of the barriers to cloud entry by Gregory Ness for Seeking [...]

I find it hard to believe that there is a $1.2 Billion dollar market for cloud storage today. If you look at Amazon’s annual report, they don’t even break out the S3 service. Its part of $100 million dollar number called “other”.

If you assume that cloud storage is 50% of that, which is doubtful, then Amazon, the leader in the marketplace, accounts for maybe $50 million.

Where are the other $1.15 Billion coming from?

On-Premise is grammatically incorrect.
Premise = Thought, Idea arguement
Premises = Physical Location

On-Premises.
:)

[...] center, with a credit card and a few minutes online. Read The Big Switch if you want to know more. IDC (no, I’m not affiliated with them) talks about the role of smaller- and mid-sized businesses [...]

[...] report goes on to cite that spending on IT cloud services will triple in the next 5 years, reaching $42 billion and capturing 25% of IT spending growth in [...]

[...] an October 2008 IT forecast IDC predicted that over the next five years spending on IT cloud services will grow almost [...]

[...] recent report from IDC forecasts that spending on IT cloud computing services will triple in the next 5 years, reaching a [...]

Can someone explian why there is a discrepancy in the Worlwide IT spending figures for 2012? In one place the total IT spending is $493 billion (diagram 1) and in another the same is $479.9 billion (diagram 2). Anyone else noticed this difference?

Yes – my error. For the incremental growth chart, I incorrectly copied the source data to the charting software – 2012 total should be $493B, and the 2011 total should be $462. The total net groth in 2012 should read $31B. The portion of that $31B coming from Cloud Services growth is 25% ($7.8B). So the story is correct (25% of new growth from Clou Services), but the underlying numbers should be corrected. I post a corrected chart in the next few days. Thanks for catching that.

- Frank

I updated the “incremental growth” chart above with the corrected data. Thanks again for the heads ups.

I’m wondering if the research reported here can be broken out by size of firm? I’m mainly interested in the trends in the SMB moving to the cloud and wondering if they differ materially from the “enterprises” that are discussed.

Great stuff!

[...] The Cloud Computing market will hit USD $42 Billion by 2012 [...]

[...] that IDC predicts that cloud computing will become a $42 billion market by 2012, rival IBM announced its own Blue Cloud initiative earlier this year and in April opened its first [...]

[...] the Minton survey strongly suggested to Gens that the cloud computing model – which IDC forecasted last October would account for about 9% of enterprise IT spending in 2012 – is on a pace to drive closer [...]

…in terms of Business Applications, do you know witch part is about email services like google apps or microsoft on-line and colaboration services?

do you have some study about latin market ?

thanks a lot

alex

[...] is expected to grow almost threefold over the next few years, reaching $42 billion by 2012 (IDC), it remains an elusive term for many IT professionals. According to a survey by document [...]

[...] gli early techology adopters acquisteranno il 40% delle loro infrastrutture IT come servizi, mentre IDC stima che nel 2012 il mercato mondiale dei cloud services varrà complessivamente circa 43… (ripartiti come mostra la figura [...]

[...] 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. [...]

Insightful! What would be the opportunity size for -hardware- cloud acceleration servers/appliances? Typically the ratio in today’s deployments is 1 to 4, meaning that for every 4 servers, there is one server or dedicated appliance doing the task of accelerating services which can be cache acceleration, proactive data fetch, etc.

Interesting. Can you give examples of vendors considered in application development and deployment segment?

[...] не совсем точны, аналогия очень удачна. Кстати, IDC называет облачные вычисления ключевым драйвером роста в [...]

Informative post, thanks!

[...] is expected to increase significantly in the next few years, estimated by industry analysts IDC to reach over $42 billion by 2012, paving the way for Cloudsoft and its partners to continue to grow as [...]

I agreed that this makes it extremely important for supplier of IT product and solutions to develop detailed understanding of the changing routes to market.

[...] as-needed basis you have the perfect environment to process your data. No wonder that by 2012, customers are expected to spend $42 billion on cloud computing [...]

[...] By 2012, customers are expected to spend $42 billion on cloud computing (source) [...]

[...] all 15,000 of its employees to Gmail and Google Apps. The continued expanded use of the cloud is anticipated to grow in leaps and bounds in the years [...]

[...] services spending, blogs.idc.com [...]

[...] 云计算可能是最近炒得最火热的概念之一了。各大厂商从2010年的口水战开始到今年大家都开始脚踏实地地做技术。有预测云计算的市场份额到2012年可能能够达到420亿美元之巨。当然这么大的蛋糕苹果自然不会眼看着就放过。但是秉承着Think Different的传统,苹果的云之路可能也要跟别人走的不太一样一些才符合身份一些。 [...]

Storage data systems products will increase in demand in the present as well as the future as businesses seek for ways to go paperless. Also reaching rural areas by kvh satellite tv products will be another business opportunity.

Excellent post. I like the data you provided. I believe cloud computing will witness more growth then projected in this post.

Moreover, I believe a part of revenue and sales growth, we will see more and more cloud service providers moving towards managed cloud service offering that will fasten the pace of cloud adaption. Plus we will see cloud providers offering more automation and scalability to make cloud quick and reliable as highlighted in this post i read, http://www.cloudways.com/blog/cloud-computing-trends-in-2012

2012 would be interesting. Lets see how the coming year ends up!!

Here it is in a nutshell: You need to learn more in respect to.

[...] almost threefold, to $42 billion.By 2012 – based on a conservative forecasting approach (see “fine print” below) – customer spending on IT cloud services will grow almost threefold, to $42 billion, [...]

Apologies for reading this blog four years on… However, could I ask a big (and urgent) favour: does anyone have any data from pre-2000 as to Cloud Adoption forecast for 2010? Second question, I assume that the lion’s share of this revenue stream is SAAS (as opposed to Infrastructure which is increasingly a commodity [as per Dipasqum's comment above re. Amazon], and, the platform being more difficult to monetise in the short term?). Many thanks!

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