The latest round of cloud computing forecasts released by Cisco, Deloitte, IDC, Forrester, Gartner, The 451 Group and others show how rapidly cloud computing’s adoption in enterprises is happening. The better forecasts quantify just how and where adoption is and isn’t occurring and why.
Overall, this year’s forecasts have taken into account enterprise constraints more realistically than prior years, yielding a more reasonable set of market estimates. There still is much hype surrounding cloud computing forecasts as can be seen from some of the huge growth rates and market size estimates. With the direction of forecasting by vertical market and process area however, constraints are making the market estimates more realistic.
I’ve summarized the links below for your reference:
- According to IDC, by 2015, about 24% of all new business software purchases will be of service-enabled software with SaaS delivery being 13.1% of worldwide software spending. IDC further predicts that 14.4% of applications spending will be SaaS-based in the same time period. Source: http://www.idc.com/getdoc.jsp?containerId=232239
- The cloud computing marketplace will reach $16.7B in revenue by 2013, according to a new report from the 451 Market Monitor, a market-sizing and forecasting service from The 451 Group. Including the large and well-established software-as-a-service (SaaS) category, cloud computing will grow from revenue of $8.7B 2010 to $16.7B in 2013, a compound annual growth rate (CAGR) of 24%. https://451research.com/
- Forrester forecasts that the global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020. The total size of the public cloud market will grow from $25.5 billion in 2011 to $159.3 billion in 2020. Link to report excerpt is here.
- Deloitte is predicting cloud-based applications will replace 2.34% of enterprise IT spending in 2014 rising 14.49% in 2020. The slide below is from an excellent presentation by Deloitte titled Cloud Computing Forecast Change downloadable from this link.
- Gartner predicts Small & Medium Business (SMB) in the insurance industry will have a higher rate of cloud adoption (34%) compared to their enterprise counterparts (27%). Gartner cites that insurance industry’s opportunity to significant improve core process areas through the use of technology. The following figure from the report, 2011 SMB Versus Enterprise Software Budget Allocation to Annual Subscriptions indicates the differences in software budget allocation for annual subscriptions by vertical market from the report:
2011 SMB Versus Enterprise Software Budget Allocation to Annual Subscriptions
- Gartner is predicting that the cloud system infrastructure (cloud IaaS) market to grow by 47.8% through 2015. The research firm advises outsourcers not moving in that direction that consolidation and cannibalization will occur in the 2013 – 2014 timeframe The providers named most often by respondents were Amazon (34%), SunGard (30%) and Verizon Business (30%). Of the global top 10 IT outsourcing market leaders, only CSC appears on the list. Source: User Survey Analysis: Infrastructure as a Service, the 2011 Uptake Claudio Da Rold, Allie Young.
External Service Providers Being Considered for IaaS (or Cloud IaaS)
A good friend of mine recently became CIO of a financial services firm and was given his first major project last month: make the complete accounting, financial, and loan provider data and applications available 24/7 on any iPad or Android-based tablet from any office, at any time.
The majority of loan provider applications are cloud-based and his company is running NetSuite. His corporate office is in Asia and cloud-based applications made it possible for the company to launch and operate in California within months. He’s been given six months to transform this mobile vision into reality.
Another CIO of a major A&D manufacturer I recently visited wants vendors to challenge him more to get greater value from his investments in legacy data and ERP systems. Using ERP to run batch reports alone has nearly caused project schedules to slip, so the focus internally is on real-time system integration of project management and accounting systems. He’s also been given the task of revamping accounting and financial systems by October, 2012, and they just started late last year.
Gartner’s Hype Cycle for ERP
Considering these two extremes in the context of the Gartner Hype Cycle for ERP (shown below) and the recent report SaaS and Cloud ERP Trends, Observations, and Performance 2011 (free for download until January 9, 2012) published by Aberdeen last month several take-aways emerge.
- CIOs are under increasing pressure in 2012 to enhance, modify even replace existing ERP systems while standardizing technology across the enterprise at the same time. The most risk-averse way around this is to add applications to single instance ERP backbone systems, with analytics and Business Intelligence (BI) being the among the most in demand.
- Cloud-based ERP in the Enterprise and Small & Medium Businesses (SMB) are accelerating along the Hype Cycle faster than Gartner indicates. Enterprises are using Cloud-based ERP systems as part of their two-tier ERP system strategies due to the Total Cost of Ownership (TCO) and time-to-deploy advantages, and the flexibility of tailoring everything from user interfaces to workflows to their specific requirements. Highly specialized Cloud-based ERP suites including those from Plex Systems are gaining traction due to their expertise in specific industries and the compliance-related challenges inherent within them. In SMBs, the cost and time-to-deploy are two major drivers with concerns over security being the biggest impediment to growth. Gartner reports that they are seeing Cloud-based ERP adoption fastest in companies with fewer than 200 users overall.
- Cloud-based ERP systems most often considered in industries that have high variable costs, rapid transaction cycles and tend towards higher Return on Invested Capital (ROIC). Based on the research SaaS and Cloud ERP Trends, Observations, and Performance 2011 the industries who are the most willing to consider Cloud-based ERP versus on-premise are Financial Services (22% SaaS versus 44% on-premise); Healthcare (42% SaaS versus 58% on-premise); and Professional Services (56% SaaS versus 58% on-premise).
- Large companies (over $500M in annual revenue) using Cloud-based ERP systems are opting for hosted deployments managed by their ERP vendor (10%) or an independent 3rd party (11%), with just 2% relying on a SaaS platform. Aberdeen defined small organizations as those with annual sales under $50M, midsize organizations having annual sales of $50M – $500M. The following is from SaaS and Cloud ERP Trends, Observations, and Performance 2011:
- ERP mobility will be a dominant force from the shop floor to each sales call where quotes, orders and contracts deliver real-time order and pricing updates. How a given manufacturer chooses to sell is even more important than what they sell in many industries. Equipping manufacturing, quality assurance, production scheduling, procurement and sales to have immediate data on what’s going on with orders, customers and suppliers is critical. For the sales and service teams, real-time data is the fuel they run on. There’s a chronic time shortage in many, many companies right now, and bringing greater ERP mobility from the shop floor to the sales call will increasingly be seen as a means to lessen the time crunch. 2012 is the year where mobility gets real across the enterprise with solid performance numbers being generated as a result. For companies with large sales forces and service organizations, integrating to key ERP systems to gain real-time data will quickly lead to increased sales and higher gross margins on service and warranty repairs.
- Gartner predicts that by 2015 enterprises who are successfully using extreme information management strategies (Big Data) will outperform competitors in their industry sectors by 20% in every available financial metric. The following is the Priority Matrix for ERP, 2011 showing what Gartner believes to be transformational technologies and strategies in ERP.
During the last few weeks of completing a research project on buyer personas, a key finding of of just how quickly enterprises are switching out legacy reporting apps for SaaS-based analytics and Business Intelligence (BI) is emerging.
I’ve been interviewing sales VPs, sales operations directors, contract managers and CIOs. Of all these groups, the CIOs are providing valuable insight into the transition SaaS is going through in their enterprises.
Throughout this post I’ll correlate the interviewed CIOs’ comments back to a recent report Forrester published titled Understanding The Business Intelligence Growth Opportunity by Holger Kisker, Ph.D. Dr. Kisker’s findings support many of the insights gained from the research on personas completed to date.
Key Points from Persona Interviews and Forrester Study
- Forrester predicts the market for BI SaaS software will be $529M in 2011 growing to $2.4B in 2014. The report mentions that by 2012, up to 30% of companies will have some SaaS-based BI services. From the conversations with CIOs, I think this is actually low. The urgency to get off of legacy reporting systems and onto a unified reporting platform is quickly changing this market.
- 80% of enterprises will complement on-premise analytics and BI systems with SaaS-based applications by 2014 according to Forrester. From the persona study I am working on, the cut-over is going to be much more abrupt. 50% or less of companies will most likely have on-premise applications in place by 2014, as SaaS-based analytics and BI applications provide business users with the information they need when they need it.
- iPads running analytics and BI apps with lenders’ data in real-time are the new bling in financial services. One CIO who recently was recruited to a financial services firm told me he quickly picked out the other C-level execs in the room – they all had iPads running analytics apps with live customer data. One of his first projects: make that happen for the sales teams with a policy app. Everyone I’ve spoken with on this research study tells me being able to get to their analytics data on an Android or Apple iOS device is critical for their build-out plans.
- The greatest concerns the CIOs continue to have with SaaS are data integration to legacy systems and lack of security standards. Despite these concerns one CIO summed it up well and said “We really don’t have a choice, the legacy reporting apps are too high maintenance, don’t integrate to our new workflows well – we need a new reporting platform, so we are piloting a SaaS-based analytics app right now.”
- The high cost of maintaining legacy reporting applications, integrating them to the latest Microsoft, Oracle or SAP databases, and preserving tribal knowledge are factors pushing CIOs to adopt SaaS-based analytics and BI apps. One of the CIOs is with a government subcontractor who has Airbus, Boeing, Sikrosky Aircraft as their largest clients explained how dashboards are manually generated in Excel, taking weeks and often being inaccurate. To comply with contracts they must move to a faster reporting process. Using SaaS-based analytics in pilots have trimmed the time for creating dashboards from weeks to hours.
- Cloud integration and security are the skill sets these CIOs are hiring for right now. A quick analysis from Google Insights shows the rapid ascent of cloud integration as a search term. While Insights doesn’t provide demographics, the persona interviews underscore this trend.
- Analytics and BI data integration wins are setting the foundation for more complex system migrations in the future. Bank of America, Citibank and other financial institutions have client-side systems that are outpacing legacy systems’ ability to analyze and make use of the massive amount of inbound data they provide. Implementing cloud integration projects successfully, in conjunction the successful launch of more scalable SaaS-based analytics and BI applications sets the foundation for migrating even more complex systems. The Forrester Report Understanding The Business Intelligence Growth Opportunity included the following graphic with further underscores this point.
Bottom line: The lessons learned from migrating analytics and reporting from legacy to SaaS-based analytics and BI applications, combined with the need to have customer and market intelligence on mobile devices, is leading to rapid changes in this market.