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Roundup of Cloud Computing and Software-as-a-Service (SaaS) Forecasts, June 2011

The gap is beginning to close between the value SaaS-based applications have the potential to deliver and what customers are achieving.

While SaaS-based software vendors are making major strides in integration, reliability, system performance and usability, it is the enterprise buyer’s skepticism and high standards forcing the market to move forward.  The latest series of market forecasts and surveys reflect greater use of actual customer results and a quickening pace of progress.

Performance-Driven Cultures and SaaS Adoption

Measuring business outcomes using industry standard and company-specific metrics typifies companies getting the best results.  A lack of clarity or confusion around strategy based goals leads to low adoption and eventual abandonment of SaaS initiates.  Sales and sales operations VPs are winning the debates against home-grown or internal system development based on speed of deployment, usability and integrated analytics of SaaS applications.  Based on the surveys and research completed this year, the best SaaS implementations are designed on a firm foundation of measurable results including quantifying risk.

Performance-driven cultures have a higher success rate with SaaS pilots, are more thorough in defining their own infrastructure (IaaS) and platforms (PaaS), and also know what success looks like from a metrics-driven standpoint.   The graphic, Performance-Driven Culture: The Metrics Continuum, shown to the left, was originally published in Gartner’s Predicts 2011: Enterprise Architecture Shifting Focus to Business Value Outcomes Report, November, 11, 2010 Philip Allega, et.al supports this point.  Please click on the graphic to expand it for easier reading.

Hype is Prolonging the Peak of Inflated Expectations

The bottom line is all really matters is measurable, repeatable performance when enterprises evaluate their SaaS strategies.  Many marketing, sales, sales operations and service VPs must defend their choice of SaaS over legacy system upgrades or internal system development.  Resistance to change and complacency in IT is slowly killing many companies who must step up and keep pace with their customers to survive. People are betting their jobs on this technology.  Many in marketing, sales and service want to know how to improve and measure business strategy performance.  That’s one of the main inflexion points in SaaS marketing today.

 The reality for enterprise users is that nothing gets purchased, no matter how wonderful the claims, unless there are strong metrics that link them back to business performance.  That’s what is deflating hype in this market faster than any other factor.  You can download the Gartner Hype Cycle for Cloud Computing 2010 from the link (no opt-in).  Please click on the graphic to download the Gartner Hype Cycle for Cloud Computing 2010.

Here are short summaries of the latest cloud computing and SaaS forecasts published recently:

  • Gartner is forecasting enterprise-based spending for Software-as-a-Service (SaaS) applications  will grow at a 16.3% compound annual growth rate through 2015. SaaS will grow at nearly double the pace of licensed enterprise applications during the forecast period.  Licensed applications will grow at a n 8.5% CAGR during the same period. The following  table, Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015 (Millions of U.S. Dollars) compares enterprise software spending by application category for the forecast period. Source: http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=3460702&id=1728009&ref=

     Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015  (Millions of U.S. Dollars) 

     

  • The Asia-Pacific (APAC) Software as a Service (SaaS) market is expected to grow from $390M in 2008 to $4.3B in 2015, at an estimated CAGR of 41.0% from 2008 to 2015. The appeal and reach of software as a service (SaaS) continue to grow rapidly among enterprises in Asia Pacific. Australia & New Zealand (ANZ) is the largest regional SaaS market in Asia Pacific. SAAS is gaining momentum in ANZ because of the markets resemblance to the North American market with better broadband penetration, availability of applications getting delivered in SaaS mode and overall greater adoption of IT in general. Source: http://professional.wsj.com/article/TPMTPW000020110214e72e002k2.html
  • Cloud middleware systems markets at $1.5B in 2010 are forecast to reach $4.3B, worldwide by 2017.  Cloud computing middleware represents the base for development of all cloud computing infrastructure as it supports systems integration and systems self-provisioning.  Market leaders are predicted to be Akamai, IBM, Google, Microsoft, and Oracle. Source: http://wintergreenresearch.com/
  • Infonetics Research forecasts the overall managed security services market, including CPE, SaaS, and cloud services, to reach just under $17B by 2015.  SaaS and cloud-based security services are expected to make up close to half of the overall managed security services market opportunity by 2015 Worldwide SaaS revenue is forecast to grow dramatically over the next few years, with a compound annual growth rate (CAGR) of 23% from 2010 to 2015.  Source: WSJ Journal 
  • Cloud service adoption is up 61% from 2010 and 45% of multinational corporations (MNCs) already use cloud sourcing for at least some elements of key IT services.  Cable & Wireless and Ovum partnered to create this white paper, full of excellent insights and research data: http://www.cw.com/assets/content/pdfs/resource/ovum-cloud-wp.pdf
  • 60 percent of companies worldwide said cloud computing is a top IT priority for the next year, the sentiment is even higher in the C-suite with three in four (75 percent) C-level executives reporting cloud computing as top of mind.  According to an Avanade Research and Insights’ Global Survey: Has Cloud Computing Matured? Third Annual Report, June 2011, there is also significant purchasing of cloud services without the IT department’s knowledge, with nearly 20% of all purchases never reviewed with the CIO. Source: Avanade Research Report  
  • By 2014, cloud computing services will grow to a $45B industry a year (IDC) and SaaS to grow at 21% CAGR to touch $17.6B.  Microsoft recently published the following presentation, Grow Your Business with Cloud – Are You Ready?  You can download a copy of the presentation by clicking on the presentation to the right.
  • The global cloud computing market is expected to grow from $37.8B in 2010 to $121.1 B in 2015 at a  CAGR of 26.2% from 2010 to 2015 according to Yankee Group. SaaS is the largest segment of the cloud computing services market, accounting  as it did for 73% of the market’s revenues in 2010. The IaaS and PaaS markets are still at a nascent stage and  currently hold a small share of the Cloud computing services market. However, these are expected to witness  moderate growth due to their flexibility and cost effectiveness.Source: CSS Corp. Analysis.
  • Project and Portfolio Management (PPM) software emerged in 2009 as a fast-growing market for SaaS, with a compound annual growth rate (CAGR) of more than 40% projected for the next five years according to Gartner. PPM software consumption environments are changing radically, with hosted and SaaS options — as a result, most traditional on-premises vendors are forced to provide SaaS alternatives to counter new entrants and SaaS-only PPM vendors.  Source:  Competitive Landscape: SaaS Project and Portfolio Management Software, Worldwide, 2011 published 6 April 2011.

Inside Windows Azure, the Cloud Operating System with Mark Russinovich

Mark Russinovich, Technical Fellow on the Windows Azure team, explains how Azure continues to be developed as an OS for the data center including support for shared compute, disk and network resources and distributed application services.  He also covers SQL Server integration and process management, support for queuing, structured storage and SQL storage.

The following video was recorded May 19th at the Microsoft Tech-Ed held in Atlanta, GA and runs just over an hour.  It’s a great briefing on how Windows Azure is evolving to support configurable Platform-as-a-Service (PaaS) architectures.  You can also download the slides from this session here Inside Windows Azure, the Cloud Operating System with no opt in from the Microsoft Channel 9 website.

Infographic of Cloud Computing Outlook 2011

Today Cloud.com, Zenoss and BitNami released the results of a recent survey to determine the key IT objectives and obstacles to cloud adoption.  The survey respondent base consisted of the development communities from BitNami, CloudStack and Zenoss Core, all open source projects, and included more than 500 IT professionals.  For an analysis of the results see Cloud Computing Survey Finds Scalability and Cost Savings Driving Cloud Adoption on CloudTweaks.com.  The following Infographic is based on the survey results.

Gartner Search Analytics Shows Spike in Platform as a Service (PaaS) Inquiries in 2011

Trends of search terms from user accounts and topics of their inquiries form the catalyst of research agendas in many IT advisory firms.  At Gartner these two factors and others like them are commonly regarded as leading indicators of future IT spending.

Gartner has been delivering short analyses of these subject areas to clients in the form of reports, with the latest being Search Analytics Trends: Platform as a Service published on June 9, 2011.  This report covers user search activity from April, 2009 to March, 2011. For purposes of the report, Platform-as-a-Service (PaaS) is defined as cloud application infrastructure services delivered as a service.  Gartner makes the point that PaaS includes no traditional software license and is expensed on a metered or utility basis.  Presented below is the time series of searches by month from the report.

A few key take-aways emerge from the report, and they are presented below:

  • Cloud Middleware Services including Platform-as-a-Service (PaaS) are still unknown to many Gartner IT user clients.  As a result this area is seen with skepticism by many of their clients.  In studies of PaaS adoption from other analysts at Gartner and Forrester, it is evident that internal software development will make or break the credibility of PaaS initiatives for the long-term.
  • When Gartner IT users search for PaaS on the website and throughout online research, the four most common secondary terms are IaaS and SaaS (7.05%), Magic Quadrant (6.12%) and cloud (5.72%).  Clearly Gartner IT user clients are looking to define their own technology stack in this area and looking for a framework of reference of where PaaS fits into their own IT plans and architectures.  The competitive intensity across the analyst community will most likely go up as a result of the uncertainty many IT buyers have over PaaS.
  • The top three vendors that Gartner IT users search for are Microsoft (18%), Amazon (13%) and Tata (11%).  Additional vendors include IBM (11%), Salesforce.com (11%), SAP (7%), Google and Oracle (4%).

Bottom line: The key to PaaS adoption in larger enterprises, many of which are IT user clients of Gartner, is how successfully Independent Software Vendors (ISVs) clarify their value proposition and how their apps add value to the platform layer.

SaaS Start-up Metrics from an Investor’s Point of View: SaaS Math

Mark MacLeod, General Partner, Real Ventures is a frequent advisor and contributor to the efforts of the Canadian-based Medical and Related Sciences (MaRS) .  He often presents during their best practices speaking series and contributes to the organizations’ related incubator programs.

His latest presentation, SaaS Math, given on May 24th, is a pragmatic and hands-on look at which metrics are most relevant and valued by SaaS investors. I’ve included both the slides and video below.

Using Metrics to Define a Profitable SaaS Business Model

In this presentation Mr. MacLeod covers the key pricing decisions and metrics that need to be used for managing a recurring revenue business.  He also explores the most important customer metrics for new ventures including Average Revenue Per User (ARPU), Cost of Acquisition (CAC) and Customer Lifetime Value (CLTV).  Related metrics on acquisition, conversion, churn and referrals are also mentioned throughout the presentation and slides. He covers the specifics of SaaS pricing and how freemium can be effectively used in a SaaS business model.   He ends the discussion with an analysis of early stage valuations.

Bottom line: The presentation SaaS Math provides a useful framework of analytics for software companies looking to attain recurring revenue targets while still investing heavily to grow their businesses.

Open APIs – State of the Market 2011

John Musser of ProgrammableWeb.com presented the following results of his latest research on API development and adoption trends at the Glue Conference, 2011 held May 25th and 26th, 2011 in Broomfield, Colorado.  The following presentation has many excellent insights and analysis regarding the direction of API development.

 
Here are a few of the take-aways from the presentation:

  • Fifteen of the most popular segments of the software market now have over 100 APIs available in each, with Internet (252) and Social (225) applications and platforms leading all categories.
  • REST-based protocols are now dominating all API protocols and styles, and are projected to continue their growth into 2012.
  • As of 2011, 55% of all APIs support JSON and 20% are entirely JSON-based.
  • Proliferation of business models based on APIs over applications, with Amazon Web Services, Retailigence, Twilio and others mentioned 
     
     

Sizing the Public Cloud Computing Market

Forecasting the global public cloud market is growing from $25.5B in 2011 to $159.3B in 2020 in the report Sizing the Cloud, Understanding And Quantifying the Future of Cloud Computing  (April, 2011), Forrester Research has taken on the ambitious task of forecasting each subsegment of their cloud taxonomy.   Forrester defines the public cloud as IT resources that are delivered as services via the public Internet in a standardized, self-service and pay-per-use way.   The aggregate results of their forecasts are shown in the attached graphic.

The forecast range is from 2008 to 2020 and I’ve included several of the highlights from the study below:

  • Forrester breaks out Business Process-as-a-Service (BPaaS) in their public cloud taxonomy, not aggregating this area of cloud computing into IaaS or PaaS.  This is unique as other research firms have not broken out this component in their cloud market taxonomies, choosing to include Business Process Management (BPM) as part of either infrastructure-as-a-service (IaaS) or platform-as-a-service (PaaS) subsegments.  Forrester is predicting this category will grow from $800M in 2012 to $10.02B in 2020.
  • SaaS is quickly becoming a catalyst of PaaS and IaaS growth, growing from $33B in 2012 to $132.5B in 2020, representing 26% of the total packaged software market by 2016.  Forrester is predicting that SaaS will also be the primary innovative force in public cloud adoption, creating applications that can be tailored at the user level.  Forrester is bullish on public cloud growth overall, and their optimistic outlook can be attributed to the assumption of cloud-based applications being configurable at the user level, with little to no enterprise-wide customization required.
  • PaaS is forecasted to grow from $2.08B in 2012 to $11.91B in 2020.  Forrester is defining PaaS as a complete preintegrated platform used for the development and operations of general purpose business applications.  The research firm sees the primary growth catalyst of PaaS being corporate application development beginning this year.  By the end of the forecast period, 2020, up to 15% of all corporate application development will be on this platform according to the report findings.
  • IaaS will experience rapid commoditization during the forecast period, declining after 2014.  Forrester reports that this is the second-largest public cloud subsegment today globally, valued at $2.9B, projected to grow to $5.85B by 2015.  After that point in the forecast, Forester predicts consolidation and commoditization in the market, leading to a forecast of $4.7B in 2020.
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