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.
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. “fine print” below) – customer spending on IT cloud services will grow almost threefold, to $42 billion, accounting for 9% of customer spending.By 2012 – based on a conservative forecasting approach (see
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. 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 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.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
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 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.IT cloud services spending is the role that SMBs will play in this IT industry transformation. As we’ve
The implication of the application-centricity of the currentand 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.
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.]