Evangelizing development on any cloud computing or enterprise platform is challenging, costly and takes a unique skill set that can educate, persuade, sell and serve developers at the same time.
The companies who excel at this exude technical prowess and as a result earn and keep trust. For Cloud Infrastructure as a Service (IaaS) platform providers, getting developers, both at partner companies and at enterprise customers to build applications, is a critical catalyst for future growth.
Assessing Cloud Infrastructure as a Service Providers with Inquiry Analytics
From 4th quarter 2011 to 4th quarter 2012, Amazon Web Services showed just over 10% inquiry gain against the other vendors listed as leaders in the quadrant. Only five vendors can be compared at once using the Gartner Inquiry Analytics tool so the leaders were included in the comparison first.
A second pass through the Inquiry Analytics was done comparing Amazon Web Services to the other vendors in the quadrant. AWS had 63.6% of inquiries in the application development category during the 4th quarter of 2012 compared to non-leader vendors in the quadrant who were listed in the Inquiry Analytics database. It was surprising to find that a few of the vendors listed in the Cloud IaaS Magic Quadrant don’t have data available in the Inquiry Analytics Statistics: Topic and Vendor Mind Share for Software, 4Q12 indicating inquiries. During this pass, Rackspace share of inquiries between the 4th quarter of 2011 to the 4th quarter of 2012 declined just over 5% and Dell declines approximately 2%.
Bottom line: The land grab for developers is accelerating on IaaS and will be a major factor in who establishes a long-term cloud platform for years to come.
When the CEO of a rust-belt manufacturer speaks of cloud computing as critical to his company’s business strategies for competing globally, it’s clear a fundamental shift is underway.
Nearly every manufacturing company I’ve spoken with in the last ninety days has a mobility roadmap and is also challenged to integrate existing ERP, pricing and fulfillment systems into next-generation selling platforms.
One of the most driven CEOs I’ve met in manufacturing implemented a cloud-based channel management, pricing, quoting and CRM system to manage direct sales and a large distributor network across several countries. Manufacturers are bringing an entirely new level of pragmatism to cloud computing, quickly deflating its hype by pushing for results on the shop floor.
There’s also been an entirely new series of enterprise software and cloud computing forecasts and market estimates published. I’ve summarized the key take-aways below:
Enterprise sales of ERP systems will grow to $32.9B in 2016, attaining a 6.7% CAGR in the forecast period of 2011 to 2016. CRM is projected to be an $18.6B global market by 2016, attaining a CAGR of 9.1% from 2011 to 2016. The fastest growing category of enterprise software will be Web Conferencing and Team, growing at a 12.4% CAGR through the forecast period. The following graphic compares 2011 actual sales and the latest forecast for 2016 by enterprise software product category. Source: Gartner’s Forecast Analysis: Enterprise Application Software, Worldwide, 2011-2016, 4Q12 Update Published: 31 January 2013
IDC is predicting Cloud Services and enablement spending will hit $60 billion, growing at 26% through the year and that over 80% of new apps will be distributed and deployed on cloud platforms. Their predictions also are saying that 2.5% of legacy packaged enterprise apps will start migrating to clouds. Source: Top 10 Predictions, IDC Predictions 2012: Competing for 2020 by Frank Gens. You can download a copy of the IDC Predictions here: http://cdn.idc.com/research/Predictions12/Main/downloads/IDCTOP10Predictions2012.pdf
Enterprises are beginning to change their buying behaviors based on the deployment speed, economics and customization that cloud-based technologies provide. Gartner cautions however that enterprises are far from abandoning their on-premise models and applications entirely for the cloud.
Based on an analysis of the Gartner Hype Cycle for Cloud Computing, 2012, the best results are being attained by enterprises that focus on a very specific strategy and look to cloud-based technologies to accelerate their performance. Leading with a strategic framework of goals and objectives increases the probability of cloud-based platform success. Those enterprises that look to cloud platforms only for cost reduction miss out on their full potential.
While the hype surrounding cloud computing may have peaked, cloudwashing continues to cause confusion and inflated expectations with enterprise buyers. This just slows down sales cycles, when more straightforward selling could lead to more pilots, sales and a potentially larger market. Cloud vendors who have the expertise gained from delivering cloud platforms on time, under budget, with customer references showing results are starting to overtake those that using cloudwashing as part of their selling strategies.
Additional take-aways from the Gartner Hype Cycle for Cloud Computing include the following:
Cloud Email is expected to have a 10% adoption rate in enterprises by 2014, down from the 20% Gartner had forecasted in previous Hype Cycles. This represents modest growth as the adoption rate of this category had been between 5 and 6% in 2011.
Big Data will deliver transformational benefits to enterprises within 2 to 5 years, and by 2015 will enable enterprises adopting this technology to outperform competitors by 20% in every available financial metric. Gartner defines Big Data as including large volumes processed in streams, in addition to batch. Integral to Big Data is an extensible services framework that can deploy processing to the data or bring data to the process workflow itself. Gartner also includes more than one asset type of data in their definition, including structured and unstructured content. The Priority Matrix for Cloud Computing, 2012 is shown below:
Master Data Management (MDM) Solutions in the Cloud and Hybrid IT are included in this hype cycle for the first time in 2012. Gartner reports that MDM Solutions in the Cloud is getting additional interest from Enterprise buyers as part of a continual upward trend of interest in MDM overall. Dominant vendors in this emerging area include Cognizant, Data Scout, IBM, Informatica, Oracle and Orchestra Networks, are among those with MDM-in-the-cloud solutions.
PaaS continues to be one of the most misunderstood aspects of cloud platforms. The widening gap between enterprise expectations and experiences is most prevalent in this market. Gartner claims this is attributable to the relatively narrow middleware functions delivered and the consolidation fo vendors and service providers in this market.
By 2014 the Personal Cloud will have replaced the personal computer as the center of user’s digital lives.
Private Cloud Computing is among the highest interest areas across all cloud computing according to Gartner, with 75% of respondents in Gartner polls saying they plan to pursue a strategy in this area by 2014. Pilot and production deployments are in process across many different enterprises today, with one of the major goals being the evaluation of virtualization-driven value and benefits.
SaaS is rapidly gaining adoption in enterprises, leading Gartner to forecast more than 50% of enterprises will have some form of SaaS-based application strategy by 2015. Factors driving this adoption are the high priority enterprises are putting on customer relationships, gaining greater insights through analytics, overcoming IT- and capital budget-based limitations, and aligning IT more efficiently to strategic goals.
More than 50% of all virtualization workloads are based on the x86 architecture. This is expected to increase to 75% by 2015. Gartner reports this is a disruptive innovation which is changing the relationship between IT and enterprise where service levels and usage can be tracked.
Bottom line: Gartner’s latest Hype Cycle for Cloud Computing shows that when cloud-based platforms are aligned with well-defined strategic initiatives and line-of-business objectives, they deliver valuable contributions to an enterprise. It also shows how Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) are the catalysts of long-term market growth. The following slide from the presentation High-Tech Tuesday Webinar: Gartner Worldwide IT Spending Forecast, 2Q12 Update: Cloud Is the Silver Lining (free for download) also makes this point.
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.
It’s impressive how quickly the teams evaluating CRM cloud-based applications are learning how to deflate the hype surrounding multitenancy.
One gets the impression that hype-hunting has now become a sport in these teams. In engineering-centric companies it’s a badge of honor to find out just how multitenant a cloud-based application or platform is. Multitenancy isn’t the only area they are looking at, but given the massive amount of hype surrounding this issue on the part of vendors, it generates more attention because evaluation teams are skeptical.
Teams evaluating CRM applications aren’t satisfied with an easily customized and used graphical interface or series of workflows, they are getting more interested in the architecture itself . In some cases they’ve been burned by claims of an application being SaaS-based when in fact the architecture is a glorified series of Citrix-like sessions running in the background or worse. I have seen a healthy amount of skepticism in the evaluations going on right now and recently completed of SaaS applications and entire cloud platforms. Gartner’s inquiry calls from corporate accounts must be accelerating as their clients look for guidance on how to sort out the multitenancy hype.
CRM, Multitenancy and the Hype Cycle for Cloud Computing
Gartner’s search analytics show that cloud computing and related terms had 29,998 searches in the last twelve months with cloud computing alone generating 10,062 searches. SaaS and related terms had a search volume of 19,000. These terms are among the most popular across all Gartner search terms for the last twelve months. In comparison, CRM had over 42,000 searches in the same period.
It’s in this area of CRM applications where multitenancy has gone into hype overdrive. Looking for differentiators, some CRM vendors are claiming not just multitenancy – but their specific brand of it. This confuses their prospects, which immediately energizes evaluation teams to do a more thorough job than they have ever done before. By claiming their own type of multitenancy, CRM vendors are ironically not just slowing down their own sales cycles, they are making the entire industry slow down. No wonder Gartner places multitenancy along the Peak of Inflated Expectations in the latest Hype Cycle for Cloud Computing which is shown below.
Making Sense of Elasticity and Multitenancy
It’s paradoxical that enterprise software vendors, especially those selling SaaS-based CRM applications, are attempting to turn multitenancy into a differentiator. What is needed is a greater focus on usability, flexibility in aligning workflows to specific needs, and better enterprise integration technologies. Sell the value not the product features.
Given the confusion differentiating on multitenancy is creating and the calls Gartner is getting on this issue, they published Gartner Reference Model for Elasticity and Multitenancy. It includes what Gartner believes a cloud services provider must implement in terms of a multitenant service in addition to what SaaS-based applications need to provide. Here are their checklists for each area:
Multitenancy Service Requirements for Cloud Services Providers
Isolation of tenant data
Isolation of the tenant workspace (memory)
Isolation of tenant execution characteristics (performance and availability)
Tenant-aware security, monitoring, management, reporting and self-service administration
Isolation of tenant customizations and extensions to business logic
Continuous, tenant-aware version control
Tenant-aware error tracking and recovery
Tracking and recording of resources use per tenant
The ability to allocate resources to tenants dynamically, as needed and based on policy Horizontal scalability to support real-time addition/removal of tenant resources, tenants or users without interruptions to the running environment
Multitenancy in Cloud Application Services (Software as a Service) Applications
Be available 24/7, because of the potential global user base
Adopt new versions without disrupting the continuous operations of tenants, and preserve usercustomizations
Scale up or down on demand
Allow individual rollback and restore for each tenant
Not allow a “noisy neighbor” tenant to affect the performance of other tenants, or increase their costs
Be accessible from various locations, devices and software architectures to meet potentially global demand
Offer tenant-aware self-service
Gartner also released their Reference Architecture for Multitenancy, which is shown below. One of the key assumptions of this model is that multitenancy is a mode of operation where multiple, independent and secured instances of applications run in a shared environment. The model includes the seven different models of multitenancy Gartner has seen in their research. These seven models, listed across the top of the model beginning with Shared Nothing and progressing to Custom Multitenancy are across the top of the model.
The majority of enterprises I’ve worked with are looking to the Shared Hardware approach in an attempt to create backward compatibility to their legacy applications via Virtual Machines. Another area of interest is the Shared Container approach which relies on a separate logical or physical instance of a DBMS, and often isolates its own business logic. This is ideal for distributed order management systems and SaaS-based ERP systems for example. Yet the legacy application support in this type of multitenancy can get expensive fast.
Shared Everything Multitenancy is ideal for quickly on-ramping and off-ramping applications, tenants and individual system users and is what nearly all enterprise vendors claim to do. In reality only a handful do this well. This approach to multitenancy is based on the Shared Container approach including support for shared DBMS sessions. Salesforce.com’s Force.com platform, VMWare WaveMaker and Zoho Creator are all examples of companies who have successfully delivered Shared Everything multitenancy.
With so much to gain by positioning an application or solution suite in the 6th and 7th models, vendors are rushing to define their own versions of Shared Everything and Custom Multitenancy. The land grab is on in this area of the multitenancy market right now. IBM, Microsoft and Oracle are all expected to endorse and eventually have many of their cloud-based applications in the Shared Everything model. Each of these companies and many others will have a multi-model based approach to selling multitenancy as well.
Gartner Reference Model for Elasticity and Multitenancy
Bottom line: Enterprise software vendors can accelerate evaluation cycles and sell more by differentiating on the user experience and value delivered instead of trying to create fear, uncertainty and doubt (FUD) by creating their own definition of multitenancy.
Calling the hype around cloud computing “deafening”, Gartner released their annual hype cycle for the 34 different technologies in a 75 page analysis today. You can find the Hype Cycle at the end of this post and I’ve provided several of the take-aways below:
The industry is just beyond the Peak of Inflated Expectations, and headed for the Trough of Disillusionment. The further up the Technology Trigger and Peak of Inflated Expectations curve, the greater the chaotic nature of how technologies are being positioned with widespread confusion throughout markets. The team of analysts who wrote this at Gartner share that conclusion across the many segments of the Hype Cycle.
Gartner states that nearly every vendor who briefs them has a cloud computing strategy yet few have shown how their strategies are cloud-centric. Cloudwashing on the part of vendors across all 34 technology areas is accelerating the entire industry into the trough of disillusionment. The report cites the Amazon Web Services outage in April, 2011 as a turning point on the hype cycle for example.
Gartner predicts that the most transformational technologies included in the Hype Cycle will be the following: virtualization within two years; Big Data, Cloud Advertising, Cloud Computing, Platform-as-a-Service (PaaS), and Public Cloud computing between two and five years; and Community Cloud, DevOps, Hybrid Cloud Computing and Real-time Infrastructure in five to ten years.
There continues to be much confusion with clients relative to hybrid computing. Gartner’s definition is as follows ”Hybrid cloud computing refers to the combination of external public cloud computing services and internal resources (either a private cloud or traditional infrastructure, operations and applications) in a coordinated fashion to assemble a particular solution”. They provide examples of joint security and management, workload/service placement and runtime optimization, and others to further illustrate the complex nature of hybrid computing.
Big Data is also an area of heavy client inquiry activity that Gartner interprets as massive hype in the market. They are predicting that Big Data will reach the apex of the Peak of Inflated Expectations by 2012. Due to the massive amount of hype surrounding this technology, they predict it will be in the Trough of Disillusionment eventually, as enterprises struggle to get the results they expect.
By 2015, those companies who have adopted Big Data and extreme information management (their term for this area) will begin to outperform their unprepared competitors by 20% in every available financial metric. Early use cases of Big Data are delivering measurable results and strong ROI. The Hype Cycle did not provide any ROI figures however, which would have been interesting to see.
PaaS is one of the most highly hyped terms Gartner encounters on client calls, one of the most misunderstood as well, leading to a chaotic market. Gartner does not expect comprehensive PaaS offerings to be part of the mainstream market until 2015. The point is made that there is much confusion in the market over just what PaaS is and its role in the infrastructure stack.
SaaS performs best for relatively simple tasks in IT-constrained organizations. Gartner warns that the initial two years may be low cost for any SaaS-based application, yet could over time be even more expensive than on-premise software.
Gartner estimates there are at least 3M Sales Force Automation SaaS users globally today.
Bottom line: The greater the hype, the more the analyst inquiries, and the faster a given technology ascends to the Peak of Inflated Expectations. After reading this analysis it becomes clear that vendors who strive to be accurate, precise, real and relevant are winning deals right now and transcending the hype cycle to close sales. They may not being getting a lot of attention, but they are selling more because enterprises clearly understand their value.
From conservative, single digit adoption rates to hockey-stick projections of exceptional growth, analyst firms, venture capitalists and government ministries are weighing in on how they see cloud adoption progressing.
While each of the adoption rate predictions vary significantly in terms of their methodologies and results, all rely on the assumption that SaaS applications including CRM will continue to gain momentum. The user adoption rates vary on how fast the momentum is, yet all share this assumption. Speed, increased user adoption rates, and the ability to more closely align software to business goals are cited most often as the biggest benefits.
Where the projections vary most is whether enterprises will eventually migrate the majority of their applications to the cloud or not. Forrester, Gartner and others see a hybrid cloud architecture emerging in the enterprise and forcing the issue of legacy systems migration by 2015. As would be expected, vendor-driven research sees an “all or nothing” world in the near future.
Wanting to see how reliable the figures were showing rapid cloud adoption in the enterprise, I did a quick sanity check. Taking the distribution of sales by segment for Salesforce.com and their annual revenue growth rate, then normalizing it across all segments, enterprise emerges as their strongest segment by a wide margin in 2015. It had a 15%+ compound annual growth rate (CAGR) from 2011 – 2015 just taking their current sales by segment distribution of sales and extrapolating forward. Data points like this and the market factors behind them is why SaaS is often used in these studies as a leading indicator of broader cloud adoption.
Forrester found that SaaS will outgrow all other cloud services, achieving 37% adoption in 2011 growing to 50% by 2012. In previous studies Forrester has shown that SaaS is a major growth catalyst of ongoing investment in IaaS and PaaS in enterprises. Source: Source: Forrsights: The Software Market In Transformation, 2011 And Beyond Shifting Buying Preferences Lead To New Software Priorities by Holger Kisker, Ph.D. with Pascal Matzke, Stefan Ried, Ph.D., Miroslaw Lisserman Link: http://bit.ly/ijJy70 The following table is from the report:
Microsoft Global SMB Cloud Adoption Study released in March, 2011 is one of the most comprehensive done this year on this topic. Of the many findings, the study predicts 39 % of SMBs expect to be paying for one or more cloud services within three years). One of the best studies on cloud adoptions done this year Source: Study Results Document (PDF (22 pages): http://bit.ly/gN8yTx
North Bridge Venture Partners, GigaOM PRO and over a dozen research partners completed the study The Future of Cloud Computing 2011. The study found 13% expressed high level of confidence in cloud computing for enterprise applications, with 40% experimenting and 10% saying they will never use cloud-based platforms as they are too risky. A presentation of the results can be found here:
Springboard Research (Forrester) completed a study of cloud computing adoption in Asia finding 31% of companies with 50 or fewer PCs will adopt cloud-based applications in 18 months, 56% with up to 500 PCs. The key findings are available for download from the source URL below the infographic.
TechTarget published their analysis of virtualization and cloud computing adoption in the study, State of virtualization and cloud computing: 2011. Of the many findings, a few of the most significant is how pervasive VMware ESXi 4 and later (vSphere) is throughout enterprises today. The study also shows that 7% of those interviewed had implemented cloud computing in 2010, growing to 9% in 2011 – quite conservative compared to many of the other adoption rate analyses completed. You can find the results here: http://searchdatacenter.techtarget.com/feature/State-of-virtualization-and-cloud-computing-2011
Yankee Group has found that in 2011, 41 percent of very large enterprises (more than 10,000 employees) have already deployed or are considering deployment of platform as a service (PaaS) within the next 12 months, compared to just 32 percent in 2010. They have also found that mobility is most significant factor driving cloud adoption in the enterprise. Source: http://professional.wsj.com/article/TPCHWKNW0020110722e77q0004d.html
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.
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.
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.