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Posts tagged ‘IDC SaaS Forecasts’

Deciding Which Applications Belong on SaaS

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

Sizing the Public Cloud Services Market

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.

Key Take-Aways

  • 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%).

Roundup of Cloud Computing Forecasts and Market Estimates, 2011

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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

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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

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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.

Analyzing SaaS Revenue Forecasts and Market Growth by Segment

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A recent report published by Standard & Poor’s Equity Research Services on the computer software industry makes for interesting reading.

Zaineb Bokhari, Application Software Analyst authored the 47-page report.  He has shown how the software industry is going through a fundamental restructuring due to the impact of SaaS, open source, and the many variations in licensing programs.

His analysis also shows how these factors taken together form a powerful catalyst of long-term disruption to business models.  At one point, the study predicts the end of perpetual licensing due to the time-to-value contributions of SaaS-based applications.  The report is available for download to Equity Research Services clients, including many college and university online libraries that have Standard & Poor’s subscriptions.

Here are the key take-aways from reading this report:

  • IDC expects the market for global packaged software to grow at a compound annual growth rate (CAGR) of 5.8% from 2009 to 2014. Over the same period, IDC projects software-as-a-service will grow at a 25.3% CAGR.

  • Standard & Poor’s reports that the SaaS category is still dwarfed by traditional packaged software, which IDC sized at $272 billion in 2009 (versus $13.1 billion for SaaS).
  • According to IDC’s forecasts, the size of the SaaS will rise from just under 5% of the size of the packaged software market in 2009 to more than 11% by 2014.
  • Standard & Poor’s expects corporate spending on enterprise software and related maintenance to grow in the low to mid-single-digit range (i.e., 3%–6%) in 2010, with some segments expanding at above-average levels.
  • Overall revenues from SaaS delivery models reached $13.1 billion in 2009, a growth rate of 34.2% from 2008 according to IDC. IDC expects this revenue to rise to $40.5 billion by 2014, a compound annual growth rate (CAGR) of 25.3%. This is dwarfed by the $272 billion that IDC believes was spent globally on software in 2009.
  • Application development and deployment is projected to have the most rapid growth of all segments, attaining a 39.2% CAGR from 2009 – 2014. Please see the table below, Worldwide Software-as-a-Service Revenues Forecast by Segment for a year-by-year breakout of this category.
  • Infrastructure software is forecasted to grow at a 27.4% CAGR through 2014, totaling 11,345 instances by 2014 according to IDC.  The year-by-year breakouts are also included in the following table.
  • Applications are expected to have 20.4% CAGR through 2014 based in units and attain a 50.8% market share of all SaaS segments by 2014.

Bottom line: Enterprise software pricing models must change to stay in step with customers’ expectations of more value for their maintenance and licensing fees. The evolving economics of cloud and SaaS-based application deployment are in the process of permanently re-ordering enterprise software.

Flickr attribution: http://www.flickr.com/photos/8011986@N02/2964298027/in/photostream/#/

IDC Predicts SaaS Will Re-Order Software Landscape by 2012

Bottom line: The economics of enterprise software are about to go through a major shift, forcing software vendors to be more focused on how to deliver value at the business strategy level than ever before.

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