Cutting through the hype of cloud vendors starts by evaluating how ready their Cloud Services, enabling technologies and Professional Services are to serve customers today.
That’s one of the key take-aways from a recent webinar I attended titled How Cloud Computing Changes the Vendor Landscape by David Mitchell Smith, VP and Gartner Fellow last week. The slides are available for download here (Free for download after Gartner registration if you are not a Gartner client).
What made this webinar unique and worth mentioning is the framework that was presented for evaluating vendors. Beginning with the well-known Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) structure, Gartner added in a Business and Information Systems layer that includes brokerages, management and security. This is the layer where Gartner says they are seeing enterprise clients most concentrate on emerging technologies.
The cloud vendor landscape is defined by Cloud Services, Professional Services for Consumption, Enabling Technologies and Professional Services for building and running applications. Green designates a vendor area of emphasis, yellow are those areas serviced by partners and white areas are not addressed by the vendor’s strategy at all.
Using this framework, nine different companies were analyzed including Amazon, Google, HP, IBM, Microsoft, Oracle, Salesforce.com, SAP and VMWare.
- Microsoft has the most ambitious cloud strategy of the nine companies profiled, and their cloud-first design initiative shows they have faith in Azure performing in the enterprise. Microsoft Dynamics AX 2012 will first be released on Azure, then on-premise is a case in point. Microsoft is impatient to move into a subscription model with its evolving cloud platform. Gartner’s analysis of Microsoft’s cloud strategy is shown in the following graphic.
- Oracle is one of the most persistent cloud washers according to Gartner, often bending the definition of cloud computing to align with their strengths. Their continual efforts to redefine the cloud are also designed to get their formidable customer base to upgrade to the latest generation of their applications. Of the vendors compared they also have the greatest strength in enabling technologies, evidenced by their Exalogic and Exadata systems, Oracle Linux and Solaris operating systems.
- SAP’s cloud strategy looks to make the most of the large, highly profitable R/3 installed base while partnering with IaaS vendors to build out their cloud platform according to Gartner. The point was made that of the vendors in the comparison, SAP prioritizes enabling technologies over owning the entire cloud stack as Oracle aspires to.
Bottom line: If you want to know the truth about a given cloud vendor evaluate their Cloud Services, Professional Services track record and how well they transform enabling technologies into successful products. The following graphic provides a summary of the vendors included in the webinar:
As public cloud computing gains greater adoption across enterprises, there’s an increased level of spending occurring on infrastructure-related services including Infrastructure-as-a-Service(IaaS). Enterprises are prioritizing how to get cloud platforms integrated with legacy systems to make use of the years of data they have accumulated. From legacy Enterprise Resource Planning (ERP) to Customer Relationship Management (CRM) systems, integrating legacy systems of record to cloud-based platforms will accelerate through 2016. I’ve seen this in conversations with resellers and enterprise customers, and this trend is also reflected in Gartner’s latest report on public cloud computing adoption, Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update Published: 8 February 2013. Below are the key take-aways from the report:
- Global spending on public cloud services is expected to grow 18.6% in 2012 to $110.3B, achieving a CAGR of 17.7% from 2011 through 2016. The total market is expected to grow from $76.9B in 2010 to $210B in 2016. The following is an analysis of the public cloud services market size and annual growth rates:
- Gartner predicts that Infrastructure-as-a-Service (IaaS) will achieve a compound annual growth rate (CAGR) of 41.3% through 2016, the fastest growing area of public cloud computing the research firm tracks. The following graphic provides insights into relative market size by each public cloud services market segment:
- Platform-as-a-Service (PaaS) will achieve a 27.7% CAGR through 2016, with Cloud Management and Security Services attaining 26.7% in the same forecast period. Software-as-a-Service’s CAGR through 2016 is projected to be 19.5%. The following graphic illustrates the differences in CAGR in the forecast period of 2011 – 2016:
- Gartner is projecting the SaaS market will grow at a steady CAGR of 19.5% through 2016, having increased the forecast slightly (.4%) since its latest published report. Global SaaS spending is projected to grow from $13.5B in 2011 to $32.8B in 2016.
- CRM will continue to be the largest global market within SaaS, forecast to grow beyond $5B in 2012 to $9B in 2016, achieving a 16.3% CAGR through 2016. The highest growth segments of the SaaS market continue to be office suites (49.1%), followed by digital content creation (34.0%). The following graphic rank orders CAGRs across all public cloud services segments from the forecast period:
- 59% of all new spending on cloud computing services originates from North American enterprises, a trend projected to accelerate through 2016. Western Europe is projected to be 24% of all spending. A graphic comparing total spending by geography and corresponding growth rates is provided below:
- The following tables provide insights into each category of public cloud computing spending throughout the forecast period. Please click on the tables to expand them for easier reading.
Source: Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update Published: 8 February 2013.
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)
It is ironic that a framework meant to define the relative level of hype associated with new technologies adds in seven new ones, an increase of 20% within just a year.
Are all those technologies really significant enough to be included in a framework whose purpose is to cut through hype? With less than 1% adoption throughout enterprises for over 50% of these technologies, it may be time for a more rigorous screening process.
After reading this Hype Cycle several dominant themes emerge. They include modernization of IT infrastructure to support greater scalability and security, consolidation of IT hardware investments, recognition of hybrid clouds being a central part of networking strategies, and location-based technologies having the potential to re-define logistics, supply chain and customer service strategies. That’s a lot of ground to cover in a single Hype Cycle, and to be fair, Gartner says this is an aggregated view of the market. Yet there is still the issue of technologies being included that have not shown any real value to enterprises yet.
Presented below is the Hype Cycle for Networking and Communications, 2011 and key take-aways.
Source: 2011 Gartner, Inc. Hype Cycle for Networking and Communications, 2011 David A. Willis, Publication Date: 24 August 2011 ID Number: G00216400
- Gartner is predicting the technologies that will experience the fastest growth include Virtual I/O, Gigabit Ethernet, Long-Distance Live Virtual Machine Migration, Energy Efficient Ethernet, Context Delivery Architecture, and Video Telepresence.
- Hosted Virtual Desktops, OpenFlow (technology also known of as software-defined networking (SDN), Transcoderless and Software-Based Videoconferencing Infrastructures, Mobile Enterprise Applications via SaaS, 802.11ad (Wi-Fi at multi-Gigabit speeds) , 802.16-2009 (consolidates dated WiMAX standards) and Mobile Satellite Services are the latest technologies Gartner has added to this Hype Cycle. Of these, Mobile Enterprise Applications with SaaS have the most significant potential effect on Total Cost of Ownership (TCO) on CRM and customer-facing enterprise applications. None of these have greater than 1% adoption in the enterprise today however.
- Gartner is projecting over 1B smartphones and media tablets will be sold globally by 2015. This explosive growth is forcing enterprises to react much faster than they initially expected to mobile security, mobile device management, and application support is an essential services. A recent survey completed by Gartner indicates that CIOs fully expect to support up to three mobile operating systems by 2012 and that 20% of devices will be employee-owned by that year. Presented below is their forecast for smartphones and media tablets through 2015. The following forecast is from their report, Emerging Technology Analysis: Mobile Business Intelligence, 13 July 2011, ID:G00214124 by Bhavish Sood, Andreas Bitterer, James Richardson.
Worldwide Smartphone and Media Tablet Shipments, 2010-2015
- Mobile Enterprise Applications via SaaS will see the greatest growth in vertical or specialized and Small & Medium Business (SMB) segments. It is evident from their analysis that TCO estimates may confuse enterprise buyers into thinking initial set-up costs for SaaS will lead to a lower price than licensed, premise-based applications. This will not always be the case despite the hype around SaaS economics today. This Hype Cycle could have been stronger and more prescriptive for enterprise IT buyers by discussing SaaS economics in greater detail.
- Gartner goes into great depth on location-aware technology yet doesn’t make that convincing of a connection to enterprise-level strategies, initiatives and programs. There is much technological discussion on GPS, assisted GPS (A-GPS), Wi-Fi, Enhanced Observed Time Difference (E-OTD) and Enhanced GPS (E-GPS) yet hardly any analysis of how this fits into the enterprise.
- Gartner sees the majority of enterprise cloud-based systems being hybrid. The Hype Cycle provides a glimpse into private and public clouds being integrated together for workload sharing. There needs to be more focus on how this will work for a business process standpoint to be of value however.
- Mobile consumer application platforms (MCAPs) will increasingly become multi-platform based. Gartner is predicting that Messaging-Based, Browser-Based, Thick Clients/Rich Clients and Streaming Audio/Video will dominate consumer application platforms within the next two years. They also see this area as the most transformational of all technologies analyzed in the Hype Cycle.
Bottom line: The best way to deflate hype in any industry is to insist on real, measurable results. From choosing communications and networking solutions to including nascent technologies in a research framework, results attained by real customers are all that really matter.
The debate is getting louder by the week about which applications should move to SaaS versus be kept on-premise. Wanting to it both ways, more and more companies are offering both SaaS and on-premise versions.
A recent report from Forrester, What CEOs Of Small Software Companies Need To Do In 2011 How To Find The Best Opportunities In A High-Growth Market, underscores the debates at enterprise software companies facing this dilemma.
A graphic from the report is shown below and served as the catalyst of the points show here:
- Decide if your company can afford the revenue and potential profit hit of switching business models. Vendors selling licensed on-premise systems often have annual maintenance revenue streams that contribute 60% or more of their annual revenues. This revenue stream gives companies a cushion to wait out long sales cycles and spend years developing new products. Enterprise vendors in this position need to set aggressive goals for new sales, development and cultivate a culture of accountability so complacency doesn’t take hold. With more than 50% of revenues gained often in the first year of the license, this model is very challenging to migrate off of in favor of SaaS. Conversely, SaaS-based licenses have been known to generate only 20% of contract value the first year. That’s why many investors tell SaaS start-ups and companies making the transition to get customers to pay multiple years ahead if at all possible.
- SaaS is ideally suited for highly collaborative, distributed applications that need to match how your customers work. CRM, Social CRM and its many related segments of the software market, along with enterprise collaboration, knowledge management and communication all fit here. Reducing churn through greater loyalty to CRM and related applications, in addition to creating vertical market extensions have proven to be great strategies. SaaS-based ERP, Supply Chain Management (SCM), Warehouse Management and other enterprise applications are gaining traction because the companies offering them are doing the hard work of simplifying very complex processes before moving the to SaaS.
- Upgrade paths for both licensed and SaaS applications can force your company into being all things to all people. Customers of SaaS applications are going to expect incremental updates every three months or more at the least, while licensed customers are content with interim releases every six months and a major release every three to four years.
Bottom line: Migrating to SaaS from licensed applications often leads to sales and profits dropping for two to three years due to the change in maintenance and renewal revenue streams. Being smart about which applications get moved when and not deviating from the plan can mean the difference between being profitable or not.
Source: What CEOs Of Small Software Companies Need To Do In 2011 How To Find The Best Opportunities In A High-Growth Market by Andrew Bartels with Christopher Mines, Peter Burris, Sarah Musto. July 7, 2011
Gartner’s latest forecast of the public cloud services market predicts that by 2015, this worldwide market will be worth $176.8 billion, achieving a five-year compound annual growth rate (CAGR) of 18.9%.
Their latest forecast is based on defining the public cloud services market from revenue generation, not an IT spending perspective. This is in contrast to the public cloud services forecast IDC also released this week, stating that public IT cloud services spending would reach $72.9B by 2015. Of the two approaches, the one that is revenue-based delivers a more granular, detailed look at Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) challenges and opportunities for growth (see tables below for details). The Gartner report, Public Cloud Services, Worldwide and Regions, Industry Sectors, 2010-2015, 2011 Update, was published on June 29, 2011.
Gartner’s decision to base their methodology on revenue generated versus pure IT spending opens up the potential to evaluate entirely new business models based on services growth. The forecast is based on revenue either directly or indirectly generated from the sales of services and from sales to enterprise or consumers. Business process services are defined in this forecast as any process that can be delivered as a service over a scalable, elastic and secure connection over the web. This includes advertising, payroll, printing, e-c0mmerce, in addition to applying applications and systems infrastructure. Presented below are key take-aways and analysis from the reports.
- By 2015, the total market will be worth $176.8 billion, which represents a five-year compound annual growth rate (CAGR) from 2010 of 18.9%. The largest part of this is revenue derived from advertising that is used to provide IT services ($77.1 billion in 2015), which represents an addition to the total size of the IT market.
- The transition of software from licensed to service models continues, but it has yet to reach breakthrough proportions (9.6% in 2010, rising to 13.8% in 2015). Traditional outsourcing services also continue to transition to cloud delivery models, involving a high degree of service standardization. Gartner continues to take a conservative view of revenue recognition in terms of SaaS adoption compared to other research firms as is shown in the following table.
- Application and systems infrastructure are projected to grow the fastest in terms of revenue generation through 2015, with advertising-related revenue being a significant proportion of the total public cloud services market through the forecast period. The following table breaks out public cloud revenue globally by business process services, applications, application infrastructure and systems infrastructure.
- The high-tech, manufacturing and financial services sectors and the public sector will continue to be the most-aggressive adopters of cloud services through 2015. Presented below is a table comparing cloud services revenue by industry sector.
- The North American market continues to be, by far, the largest regional market representing 60% of the global market currently, but growth in China remains of interesting potential.
- Financial services organizations in aggregate represent the largest users of public cloud services.
- Some smaller countries will demonstrate very high growth (more than 25%) in e-commerce cloud services, because of high growth in underlying retail e-commerce. The Census Bureau of the U.S. Department of Commerce estimates that e-commerce sales in the fourth quarter of 2010 accounted for 4.3% of total U.S. retail sales.
Bottom line: Taking a revenue-based approach to defining cloud services shows how critical the application and system infrastructure is to overall market growth. Gartner predicts the fastest growing revenue generating segment of public clouds will be storage services (89.5%) followed by Compute Services (47.8%) and supply management (39.5%).