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Forecasting Public Cloud Adoption in the Enterprise

The economics of public cloud computing are accelerating the pace of change occurring in enterprise software today.

Many of the scenarios that Clayton Christensen insightfully describes in The Innovator’s Dilemma are playing out right now in many sectors of this industry, shifting the balance of purchasing power to line-of-business leaders away from IT.  True to the cases shown in the book, new entrants are bringing disruptive innovations that are being successfully used to attack the most price-sensitive areas of the market.  Winning customers at the low-end and making their way up-market, new entrants are changing the customer experience, economics and structure of the industry.  Salesforce.com is a prime example of how the insights shared in The Innovator’s Dilemma are alive and well in the CRM market for example.  This is an excellent book to add to your summer reading list.

Defining The Public Cloud

The National Institute of Standards and Technology (NIST) have defined the public cloud in their latest definition of cloud computing in their September, 2011 brief you can download here (The NIST Definition of Cloud Computing). The NIST defines public cloud as “the cloud infrastructure is provisioned for open use by the general public. It may be owned, managed, and operated by a business, academic, or government organization, or some combination of them. It exists on the premises of the cloud provider.”   In addition the NIST defines three models including Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).  Gartner’s definition of public cloud computing is comparable yet includes Business Process as a Service (BPaaS) and Cloud Management and Security.

A quick check of the term public cloud on Google Insights shows the rapid ascent of interest in this area.  A graphic from Google Insights is shown below:

Public Cloud Adoption in the Enterprise 

In the many conversations I’ve had with CIOs and CEOs of manufacturing companies the role of cloud computing comes up often.  There’s a very clear difference in the thinking of CIOs who see their jobs as selectively applying technologies to strategic needs versus those who are focused on compliance and risk aversion.  The former see their enterprises moving to public and hybrid clouds quickly to better integrate with dealers, distributors and suppliers at a strategic level.

The public cloud’s pervasiveness in the enterprise is growing rapidly.  This market dynamic is reflected in the report, Forecast: Public Cloud Services, Worldwide, 2010-2016, 2Q12 Update (ID:G00234814).  Gartner breaks out forecasts into the areas of Cloud Business Process Services/Business Process as a Service (BPaaS), Application Services/Software as a Service (SaaS), Application Infrastructure Services/Platform as a Service (PaaS), System Infrastructure Services/Infrastructure as a Service (IaaS) and Cloud Management and Security Services.  Highlights from the report are presented in the following five areas:

Cloud Business Process Services/Business Process as a Service (BPaaS)

  • Gartner is predicting that BPaaS will grow from $84.1B in 2012 to $144.7B in 2016, generating a global compound annual growth rate of 15%.
  • Of the eight subsegments Gartner is tracking in their BPaaS forecast, Cloud Payments (17.8%) Cloud Advertising (17.1%) and Industry Operations (15.1%) are expected to have the greatest compound annual growth rates (CAGR) in revenues generated by 2016.
  • In terms of revenue generated, Cloud Advertising is projected to grow from  $43.1B in 2011 to $95B in 2016, generating 17.1% CAGR in revenue growth through 2016.
  • Cloud Payments are forecast to grow from $4.7B in 2011  to $10.6B in 2016, generating a CAGR of 17.8% worldwide.
  • E-Commerce Enablement using BPaaS-based platforms is expected to grow from $4.7B in 2011 to $9B in 2016, generating a 13.6% CAGR in revenue globally.

Application Services/Software as a Service (SaaS)

  • SaaS-based applications are expected to grow from $11.8B in 2012 to $26.5B in 2016, generating a CAGR of 17.4% globally.  Gartner tracks ten different categories of SaaS applications in this latest forecast with CRM, ERP, and Web Conferencing, Teaming Platforms, and Social Software Suites being the three largest in terms of global revenue growth.
  • The three fastest-growing SaaS areas include Office Suites (40.7%), Digital Content Creation (32.2%) and Business Intelligence applications (27.1%) having the highest CAGRs from 2011 through 2016.
  • SaaS-based CRM will see the largest global revenue growth of all categories, increasing from $3.9B in 2011 to $7.9B in 2016, achieving a 15.1% CAGR worldwide.
  • Web Conferencing, Teaming Platforms, and Social Software Suites will grow from $2B in 2011 to $3.4B in 2016, generating an 11.2% CAGR.  Gartner is including Enterprise 2.0 applications in this category.
  • SaaS-based ERP is forecasted to grow from $1.9B in 2011 to $4.3B in 2016, achieving a 17.3% CAGR.
  • Supply Chain Management (SCM) is an area that Forrester, Gartner, IDC and others have predicted significant growth in.  Gartner’s latest forecast for SaaS-based SCM is $1.2B spent in 2011 growing to $3.3B in 2016, representing a 21.1% CAGR.

Application Infrastructure Services/Platform as a Service (PaaS)

  • Gartner forecasts the worldwide enterprise market for PaaS platforms will grow from $900M spent in 2011 to $2.9B in 2016, representing a 26.6% CAGR.
  • Growth rates by PaaS subsegment include the following: Application Development (22%), Database Management Systems (48.5%), Business Intelligence Platform (38.9%) and Application Infrastructure and Middleware (26.5%).
  • Application Infrastructure and Middleware is expected to be the largest revenue source in PaaS for the next four years.  Gartner reports this subsegment  generated $649M in 2011, projected to grow to $2.1B in 2016, generating $1.5B in revenue and a 26.5% CAGR.

System Infrastructure Services/Infrastructure as a Service (IaaS)

  • With a projected CAGR of 41.7%, this segment is the fastest growing of the five Gartner included in their public cloud forecast.  From $4.2B in revenue generated in 2011 to $24.4B in 2016, IaaS is expected to grow by just over $20B in the forecast period globally.
  • CAGR by IaaS segment from 2001 to 2016 include Compute (43.2%), Storage (36.6%) and Print (16%).
  • The Compute subsegment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR.

Cloud Management and Security Services

  • Comprised of Security, IT Operations Management and Storage Management, Cloud Management and Security Services generated $2.3B in 2011 with a forecast of $7.9B in 2016, generating a 27.2% CAGR.
  • IT Operations Management (38.2%), Storage Management (30.6%) and Security (23.7%) each have relatively high CAGRs through 2016.

Bottom line:  Of the five areas Gartner includes in their forecast, BPaaS  and its subsegments show trending towards greater support for enterprise-wide transaction and e-commerce management. With 76% of the entire 2012 public cloud forecast being in the BPaaS segment, it is clear Gartner is seeing strong interest on the part of enterprise clients to spend in this area.

Enterprise Software as a Service Market Forecast: The Future is Already Here – It’s Just Not Evenly Distributed

The prescient quote by William Gibson aptly describes the worldwide Software as a Service (SaaS) market today, especially in the enterprise.

Global adoption and growth of SaaS within enterprises is unevenly distributed yet growing rapidly.  One of the primary catalysts moving this forward are Amazon Web Services, Google, Microsoft, Salesforce and other platform providers lowering the barriers to creating new applications, continually investing in security technologies, and streamlining rapid prototyping, testing, and release of SaaS applications.

This week Salesforce showed how extensive the momentum is in their global base of developers during Dreamforce ’11.  The Developer Zone had the most innovation per square foot of any venue at this conference.  Insights gained from visiting the sessions at Dreamforce, speaking with Force evangelists and tech staff, and also with attendees form the basis of the following analysis and insights.  On Friday of last week Gartner also released the report, Forecast: Software as a Service, All Regions, 2010-2015 by Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart, which validated several of the trends seen in the Developer Zone at Dreamforce ’11.

Forecasting the Growth of SaaS in the Enterprise, 2015

In speaking with developers, vendors and after reviewing the Gartner report, here are several insights gained that illustrate how SaaS adoption will vary by region over the next four years:

  • APIs are getting more adept at managing multi-party transactions across all platforms.  Marc Benioff and Chuck Phillips alluded to this when Infor announced Inforce this week at Dreamforce.  It was also evident in how partners in the Developer Zone were demonstrating frameworks for supporting more advanced enterprise software application development.  These included supply chain management, the ability to manage complex project plans more effectively using apps based on these APIs, and greater control over collaboration development.  Gartner published their total software revenue forecast for SaaS delivery, 2007 – 2015 back in June, and a table from that analysis is shown below.  Their forecast reflects in large part depth of REST APIs which are part of Web Services.   This table is from the report, Forecast: Software as a Service, Worldwide, 2010-2015, 1H11 Update, 22 June 2011, ID:G00213816, Sharon A. Mertz, Chad Eschinger, Tom Eid, Chris Pang, Laurie F. Wurster.
  • Graphical interface flexibility, usability options, localization, and local language support dominate EMEA concerns about SaaS.  In Dreamforce sessions attended and in the Gartner report, it’s clear Salesforce is struggling to make localization work more effectively via their programming platforms and tools in EMEA.  This came out during many of the discussions in the Developer Zone as well.  All platform providers are facing this challenge, yet the pace of new API enhancements shows significant potential.  As a result the forecast for SaaS revenue in Western Europe is forecasted to be $2.66B in 2011 growing to $4.8B in 2015, achieving a compound annual growth rate (CAGR) of 17% according to Gartner.
  • Total Cost of Ownership (TCO) is aggressively pushed by Salesforce in the U.S. yet is most effective in EMEA.  This became evident in discussions and presentations, and also was validated by the recent Gartner report.  Salesforce also has extensive TCO calculators on its Force developer sites for the U.S. yet ironically they are finding they are most effective in EMEA sales cycles.
  • Based on my informal poll 20% of iPad-to-Salesforce account demos failed at Dreamforce.    Dozens of companies were hyping their iPad clients at Dreamforce, yet I found nearly one in five failed to deliver reliable performance. While the sample is hardly scientific, it does show that the iPad to Salesforce integration so heavily hyped by so many vendors is still nascent.  It’s as if these companies invested so much on iPad clients they ran out of time to make the back-end integrations work reliably.  Gartner found that lack of integration is the single greatest inhibitor to SaaS growth in North America.
  • Ease of speed and deployment, limited capital expense, and lower TCO are the most critical factors driving SaaS growth in U.S. enterprises today.  This became evident from listening to customer testimonials during the many vendor sessions in Moscone West, in addition to discussions with developers.  The impact of these factors is also evident in the total software revenue forecast for SaaS delivery within enterprise application software markets by region, 2008 – 2015.   This is from the Gartner report, Forecast: Software as a Service, All Regions, 2010-2015. Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart.

  • CRM continues to dominate SaaS usage across all enterprise applications, closely followed by Web conferencing and e-learning in North America and Northern Europe.  Both North America and Northern Europe have comparable adoption trends regarding these SaaS applications, with Western and Southern Europe lagging in terms of adoption and spending.
  • Asia/Pacific continues to be the most fragmented of all regions when it comes to SaaS adoption in the enterprise.  Countries with greater stability of their Internet infrastructures including Australia, Hong Kong, Singapore and South Korea are experiencing greater SaaS growth, and also contributing to Salesforce’s success in these regions.  Salesforce has 14.5% CRM share in this region, third behind SAP and Oracle. Emerging countries are the most rapid adopters of SaaS-based accounting, e-mail and collaboration-based apps.
  • China, India and Malaysia are experiencing the most rapid adoption of SaaS-based enterprise applications in the Asia/Pacific region.  WiPro’s decision to invest so heavily in Dreamforce as a promotional event is a case in point.  The Developer Zone had  several companies from this region offering their programming and system integration services as well.

Bottom line: SaaS adoption continues to accelerate globally across enterprise software, growing from $12B in 2011 to $21B in 2015, achieving a 16.3% CAGR annually. Platform providers are knocking down the barriers to market growth by using events including Dreamforce to educate, entertain and enable developers to quickly turn concepts into applications.

Roundup of Cloud Computing Forecasts and Market Estimates, 2011

During the last four months of 2010 the pace of published forecasts on cloud computing, IaaS, PaaS and SaaS forecasts quickened, yielding an eclectic and at times conflicting view of this emerging market. From the daily Google Alerts, RSS feeds, e-mail subscriptions and offers to buy research reports on cloud computing received, the pace is being matched by the variety of research being completed.


I did a quick review of the term “cloud computing” on Google Insights for Search, which produced the following graphic.  Google Insights for Search is an excellent analytical tool, as it will render a forecast based on previous results and show geographic concentrations.  Please click on the image to expand it for easier viewing.

Cloud Computing Was Gartner’s Most Popular Inquiry Topic Last Year

Gartner analyst Ben Pring sums it all up when he writes in the report, The Influence of Cloud in Outsourcing, 2010-2011 that cloud computing was the #1 area of inquiry for the advisory firm in 2010. The Google Insights analysis and the proliferation of reports underscore that point.

Before reviewing all these forecasts, it’s good to also take a look at the latest Gartner Hype Cycle for Cloud Computing, 2010.  Back in October 2010, Intel started offering it on their website for free.  You can get a copy of the Gartner Hype Cycle for Cloud Computing, 2010 by clicking here.

2011: When Cloud Computing Customer Results Became King

You can debate which area of the hype cycle the industry is on, yet after reviewing all these forecasts and projections the urgent need for real-world results is clear. As 2011 begins, any software company who has measurable results from customers, not just projections, of their cloud and SaaS-based strategies will be much further ahead of the mainstream.

Hopefully this year the research firms will cite more users than ever before an anchor these forecasts, as varied as they are, back to customer results.  That said, the energy and intensity going into forecasting the cloud computing and SaaS markets is impressive.

Here is the roundup of cloud computing forecasts and predictions for 2011:

  • Experton Group is forecasting that the German cloud computing market is forecast to grow from EUR 1.14 billion in 2010 to EUR 8.2 billion in 2015. This is equal to average annual growth of 48 percent. In 2015, cloud computing will account for around 10 percent of total IT expenditure in Germany. Around half of revenue in 2015 will be generated from cloud services, with a third coming from investment in cloud infrastructure, mainly data centres. The use of so-called ‘private clouds’ by businesses will account for EUR 2.6 billion in revenues by 2015, up from EUR 400 million in 2010. Source: http://professional.wsj.com/article/TPDMEUR00020101007e6a700061.html
  • Gartner analysts write in the report Predicts 2011: New Relationships Will Change BI and Analytics, that by 2013, 33% of business intelligence functionality will be consumed via handheld devices, and 15% of BI deployments will combine BI, collaboration and social software into decision-making environments. By 2014, 30% of analytic applications will use in-memory functions to add scale and computational speed. In addition, 30% of analytic applications will use proactive, predictive and forecasting capabilities and 40% of spending on business analytics will go to system integrators, not software vendors.  All of this is predicated on the security and scalability of cloud-based analytics.
    Source:  Predicts 2011: New Relationships Will Change BI and Analytics
  • TechMarketView predicts the value of the UK cloud computing market will more than double between now and 2014 from £2.4bn to £6.1bn according to the study UK Software and IT Services Market Forecast published in December by the firm.
  • MarketsandMarkets.com in their report, Cloud Computing Market – Global Forecast (2010 -2015) predicts that the global cloud computing market is expected to grow from $37.8 billion in 2010 to $121.1 billion in 2015 at a CAGR of 26.2% from 2010 to 2015. SaaS is the largest contributor in the cloud computing services market, accounting for 73% of the market’s revenues 2010. Source: http://www.marketsandmarkets.com/Market-Reports/cloud-computing-234.html
  • Renub Research has made the following predictions in their latest report titled Cloud Computing – SaaS, PaaS, IaaS Market, Mobile Cloud Computing, M&A, Investments, and Future Forecast, Worldwide.Here are the key take-aways from the summary sent to me of the study:
    • Worldwide Cloud Computing market is growing at a rapid rate and it is expected to cross $25 Billion by the end of 2013
    • Renub predicts the Platform as a Service (PaaS) market size will reach US$ 400 Million by the year 2013
    • Renub also predicts that Infrastructure as a Service (IaaS) market will increase at a CAGR value of 52.53% for the period spanning 2010 – 2013
    • US Federal IT budget devoted to Cloud Computing Spending will reach nearly US$ 1 Billion by 2014

Source: http://www.reportlinker.com/p0293136/Cloud-Computing-SaaS-PaaS-IaaS-Market-Mobile-Cloud-Computing-M-A-Investments-and-Future-Forecast-Worldwide.html

You can also find additional market forecasts in my post from July 19, 2010 titled Sizing the Cloud Computing Market and IDC Predicts SaaS Will Re-Order Software Landscape by 2012.

Happy New Year and I hope you find these links useful.  I’ve been tracking this activity a while and thought this would be a good time to publish the list.

Best Regards

Louis

IDC’s 2011 Predictions for the Cloud

Frank Gens, Senior Vice President & Chief Analyst for IDC, shares insights from his firm’s predictions for 2011 and beyond in the areas of cloud computing, Platform-as-a-Service (PaaS), public and private cloud services.

Here are a few of the many take-aways in this 5 minute video:

  • Public cloud services adoption will grow at over five times the rate of the IT industry to $29B in 2011, up 30% from 2010 reaching $55B by 2014.   E-mail and collaboration will be the foundation, and entirely new application segments will drive incremental growth.
  • Private cloud services will grow to $13B in 2011, growing much faster than public cloud.  IDC predicts that Salesforce.com and Google will partner with infrastructure providers to create private cloud appliances of their public cloud offerings.
  • 15% of industry revenue and 30% of industry growth will be from public and private cloud services in 2011.
  • Cloud management systems and solutions will embrace public and private clouds and will see Accenture, Cisco, CA, IBM, Microsoft, Oracle and others enter this market with enterprise-ready solutions in the next year.
  • On-premise applications will go through a transformation of supporting private cloud integration, providing enterprise accounts with the option of migrating to the cloud if they choose to.
  • The term “cloud computing” as a buzzword will be gone by 2012, as these technologies are expected to become ubiquitous.

Cloud Computing’s Impact on the Channel

IDC’s Chris Ilg, Director of Market Research, Infrastructure, Channels and Alliance discusses the impact the cloud will have on the channel moving forward.

Key points Chris makes during this video include the following:

  • Resellers see private clouds as a great opportunity for value-added services and many are making the shift away from selling purely hardware as a result.
  • Public Cloud Services providers are actively recruiting resellers as there is a land grab for market share right now.
  • Professional Services is the greatest profit opportunity, with the reseller being the trusted advisor to move applications into the cloud and provide legacy system integration.
  • Resellers need to move away from hardware and software margins now to stay financially viable; IDC surveys show a short runway to the move to services before a reseller shakeout begins.
  • Converged architectures and convergent infrastructures are acting to disintermediate resellers in the short term according to IDC.
  • Emerging opportunities for resellers today include unified communications and collaboration, mobile computing including tablets, security services and consulting, and digital signage.
  • Distributors need to get beyond their traditional role of pick, pack, and ship operations and become knowledge leaders for the channel, delivering strategic services in the process.  Providing guidance to resellers on how to make the transition to cloud services is critical.
  • Vendor partner programs can be confusing and difficult to navigate.  Distributors need to be the leaders on these programs, especially on certifications and specializations on behalf of resellers.
  • Solutions Distributor is a term being used more and more as these businesses seek to differentiate from their traditional logistics and pick, pack and ship operations. Ingram Micro and Tech Data investing in advanced technologies divisions that set the foundation for services selling by resellers are cases in point.  The goal of these divisions is to call at high levels in enterprises and sell services and programs that can scale across an entire business instead of just selling hardware or software.
  • M&A activity is picking up in distribution to attain global reach and set the foundation for future Cloud Services selling.

Network Service Providers as Cloud Providers – New Report From Cisco on Cloud Computing Landscape

In August, 2010 Cisco completed a study that included interviews with 80 enterprise IT decision makers (CIOs, CTOs, and infrastructure VPs) from 43 enterprises and public-sector organizations across industries throughout the US, Europe and India.  In addition, Cisco completed one-one-one interviews with 20 subject-matter experts.

The primary focus of the study was on the adoption of the public cloud for enterprise applications.  The report  Network Service Providers as Cloud Providers Survey Shows Cloud Provision Is a Bright Option can be downloaded here.

Key Take-Aways:

Cisco forecasts that the global market for Cloud Computing Service Revenue will be $43.8B by 2013, with SaaS contributing $29.5B, or 6 7%. Workload migration will also be the greatest in that segment as well.  The study provides additional insight into the IaaS and PaaS key success factors and the implications network service providers. (Click on image to expand it for ease of reading).

The study found that in the Business Processing segment, the greatest near-term opportunity is in SaaS-based ERP, which according to this study is predicted to reach a 13% adoption rate by 2013. This is consistent with International Data Corporation estimates of SaaS-based ERP adoption in comparable time periods.  ERP’s growth on the SaaS platform continues to be constrained by lack of Master Data Management (MDM) functionality, lack of a pervasive mobile APIs on the several SaaS ERP systems launched, and concerns over security of costing. ordering, production, and quality management data. (Click on image to expand it for ease of reading).

Sizing the Cloud Computing Market

The pace of cloud computing market forecasts produced and announced is quickening, with several new projections announced this month. In every one of these forecasts, the benefits of operating expense (OPEX) versus capital expense (CAPEX) financing play a role, as does the emerging trust in cloud computing as a viable platform.

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IDC Predictions 2010 and the Cloud Computing Landscape

International Data Corporation (IDC) does a consistently excellent job summarizing their IT predictions and then regularly critiquing them throughout the year.

In the following five minute video, Frank Gens, Senior VP and Chief Analyst, discusses the top10 predictions most impacting IT in 2010. Included is an assessment of cloud computing’s extensive adoption and growth. If you are interested in downloading the predictions please visit the microsite IDC has created for this series. It’s excellent.

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