Last week IDC announced availability of our new forecast for public IT Cloud services spending. The new forecast replaces last October’s forecast. In this post, I’ll share some highlights of the new forecast, which extends to 2014.
[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.
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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.
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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.
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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.