Cloud definitions and market opportunities


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Cloud definitions and market opportunities

  1. 1. P ARTNER INSIGHT Cloud Transition Series: (1) Cloud Definitions and Market Opportunities Sponsored by: Microsoft Corp. Paul Edwards Darren Bibby July 2011 CLOUD TRANSITION SER This is the first in a series of eight Partner Insight reports created specifically for partners by IDC on behalf of Microsoft. See Figure 1 for an overview of these reports. This first Partner Insight contains IDCs definitions of cloud computing and software as a service (SaaS), as well as forecasts that show the tremendous opportunity inF.508.935.4015 these growing areas. The second report covers changes across a partners business models in the areas of sales, marketing, and business strategy as a partner takes on cloud computing, while the other reports in the series cover changes in each of the six key revenue activities any IT solution provider may undertake.P.508.872.8200 FIGURE 1 Reports in the IDC Cloud Transition SeriesGlobal Headquarters: 5 Speen Street Framingham, MA 01701 USA Cloud Definitions and Market Opportunities Sales, Marketing, and Business Strategy IT Consulting and Hosting, Outsourced, Resale Integration Services and Managed Services and Referral Business Consulting Training and Support Software Product Services Services Development Source: IDC, 2011 CLOUD DEFINITIONS AN D MARKET OPPORTUNITIES Cloud services represent an emerging model for online delivery of a host of business The cloud model goes well beyond prior offerings that will eventually have a significant impact on partners of all types, online delivery including VARs, services firms, and ISVs. The cloud model goes well beyond prior approaches to make offerings easier, online delivery approaches to make offerings easier, cheaper, and often more cheaper, and often powerful for customers to consume. For these reasons, partners need to assess how more powerful for their businesses are positioned to take advantage of the cloud opportunity today and customers to consume. to adjust strategy to maximize potential in the future.
  2. 2. This IDC document provides a road map of cloud services for partners, providing atop-line perspective across the following key areas: Cloud services defined: The key attributes and deployment models that define public, private, and hybrid cloud environments, as well as the breadth of end-user functionality provided across SaaS, platform as a service (PaaS), and infrastructure as a service (IaaS) Cloud services value: From cost savings to services revenue — the important benefits for partners in participating in the cloud services opportunity and for customers in adopting this delivery model Cloud services market size: A market that is growing at a double-digit pace in many regions globally and that is making inroads into key industry segmentsCloud Services DefinedAsk a handful of partners to define cloud services and you will get as many differentanswers. The same goes for end users. This is because the term cloud servicesencompasses a wide array of attributes, deployment models, and functionality.To simplify and differentiate the cloud model, IDC first defines it as having importantattributes that distinguish it from other computing architectures, including virtualizationand clustering. Specifically, cloud environments are defined as having the followingattributes: A standardized, shared services model that enables highly automated turnkey service provisioning and operation across shared infrastructure resources Self-service provisioning by end users via browser-based portals using standardized service catalogs and menus Dynamic, elastic scaling of resource consumption based on changing demand and business requirements (frequently enabled by virtualization and automated provisioning and workload migration technologies) Consumption-based metering to support pay-as-you-go pricing models for public cloud services and consumption-based chargeback/showback for private cloudThe second layer IDC uses to define cloud services is deployment models (shown inFigure 2), which include the following: Public shared services: Open to a largely unrestricted universe of potential users and designed for a market, not a single enterprise Private services: Designed for, and access restricted to, an individual company (It is an internal shared resource, not a commercial offering, where the IT organization is the "vendor" of the shared service to its users. Private clouds can be deployed inside a corporate datacenter or can be built and operated by an outsourcer or a hosting provider.)2 #229237 ©2011 IDC
  3. 3.  Hybrid services: Where an enterprise has private and public deployment models, as well as virtual and physical noncloud resources, and where some services may be delivered in a combined public/private model (e.g., private cloud "bursting" to a public cloud service)FIGURE 2Cloud Deployment Models Private Hybrid Public • Designed for, and access • Enterprise’s cloud services • Designed for a market, not a restricted to, a single portfolio includes both single enterprise enterprise (or extended private and public cloud • Open to a largely unrestricted enterprise) services universe of potential users • An internal shared resource, • Some specific services are • Customers buy at specific not a commercial offering delivered in a combination of level of abstraction (server, • IT Org is the “vendor” of the public and private models application, platform) shared/std service to its users (e.g., private cloud ―bursting • Single-vendor or multi-vendor to‖ a public cloud service) Resource Single enterprise/ Virtual and physical (non- Multiple unrelatedSource: Isolation IDC, 2011 extended enterprise cloud) resources and enterprises (shared) (dedicated) applications Control | SLA | Specialization | Security | Agility | Price Advantage | Access | Elasticity D.I.Y.IDCs cloud definition also encompasses an important third layer, which is thefunctional description of the service (see Figure 3). We align our primary marketcategories (e.g., application development and deployment [AD&D]) with the specificcloud service (e.g., platform as a service) and the corresponding function orsecondary market (e.g., structured data management). One explanatory note is thatapplications provided in a cloud services model are defined by IDC as application asa service — the larger category of software as a service includes application as aservice, platform as a service, and the system infrastructure software portion ofinfrastructure as a service.Servers and storage represent the part of cloud services that isnt in the SaaSdefinition. More granularity on definitions in each category is provided in the sectionentitled Cloud Services Market Size.©2011 IDC #229237 3
  4. 4. FIGURE 3IDCs Cloud Services DefinitionSource: IDC, 2011Cloud Services ValueIDC is continually conducting executive interviews and focus groups with a cross-section of partners worldwide to understand the potential value of cloud services topartners and their end customers. The following are the distilled results of thoseefforts to define cloud services through end benefit across all customer (e.g., size andindustry) and partner (e.g., VAR, SI, ISV) types.Customers Cost Savings  Project/solution cost can be amortized over time with up-front capital costs reduced or defrayed in favor of a shift to operating expenses.  Customers pay only for the services/functionality being used.  Cloud services require fewer in-house staff and skills and involve fewer costs. Reduced Complexity  Onsite hardware infrastructure requirements are lessened in support of key cloud-based business applications and overall business operations.  The use of cloud services encourages more standard IT systems.4 #229237 ©2011 IDC
  5. 5.  EfficiencyCloud services provide:  Faster deployment of services/functionality to end users  Faster realization of business and/or operational results  The latest functionality  Automated upgrades and solution management  Continuous improvementsPartners Market Expansion  Partners managing complex on-premise assets (i.e., software and hardware) at customer sites are constrained to work within geographical boundaries. The ability to manage cloud services remotely, with little or no responsibility for the underlying assets, positions partners to expand into other regions.  The capability of cloud-based solutions to address both simplistic and The capability of cloud-based solutions complex customer requirements allows partners to serve across customer to address both size segments (small, medium sized, and large) and industries. simplistic and complex customer Recurring Revenue requirements allows partners to serve across customer size  Although cloud-based fees are typically lower in terms of total dollars but are segments (small, higher in margin than on-premise software license deals, they are important to medium sized, and large) and industries. partner businesses in establishing ongoing revenue and combining with their own recurrent services, even after any initial, one-time services are complete. Customer Loyalty  The ongoing fee structure of cloud-based solutions helps partners maintain regular contact with customers to build long-term relationships and capitalize on upgrade and cross-sell opportunities. Leverage Existing Skills  Taking advantage of cloud opportunities often requires partners to acquire new skills (e.g., business domain expertise), but there are still underlying technologies in cloud solutions for which partners can leverage existing knowledge, skills, and experience. Leveraging Vendor Investment  Vendors such as Microsoft are committing to driving higher cloud revenue and market share and using all partner types to help achieve those goals. Leveraging a vendors available cloud-based attributes (e.g., development platform, resale/referral fees, business and technology training, hosted assets) is an important factor in partners participating in, and growing their business from, the cloud economy.©2011 IDC #229237 5
  6. 6.  Services Revenue  Cloud provides the potential for growth in partner services, including integration of hybrid environments, environment assessments, business consulting, etc.Cloud Services Market SizeThe market for cloud services is growing globally and represents an opportunity forpartners to get on the front end of this expansion, whether for services, resale, ordevelopment. In addition, there are clear areas in the market where high growth isoccurring and on which partners will be required to set their sights in order tomaximize revenue opportunity and margin.IDCs forecast for public cloud services is segmented by five major categories, as follows: Applications. This category includes collaborative applications (e.g., messaging, conferencing, and team collaboration software) and business applications (e.g., CRM, ERP, financial, HCM, PLM, and SCM) delivered via the cloud services model. Examples include Microsoft Office 365, Microsoft CRM Online, IBM LotusLive,, and more. Application development and deployment. This category includes application development software, application life-cycle management software, enterprise mashup and portal software, information management and data integration software, and middleware and business process management software delivered via the cloud services model. Examples include Microsoft Windows Azure, Salesforce.coms, and more. System infrastructure software. This category includes system and network management software, security software, storage management software, and system software delivered via the cloud services model. Examples include Microsoft Windows Intune, Symantec cloud security or backup offerings, and more. Basic storage. This category includes storage delivered via the cloud services model. The "basic" qualifier is used to include only raw storage capacity delivered as a cloud service. Advanced storage cloud services (e.g., backup and archiving) are in the system infrastructure software category. Examples include Microsoft Windows Azure Storage. Servers. This category includes server computing capacity delivered via the cloud services model. Good examples of basic storage and servers are Microsoft Windows Azure and Amazon Web Services.IDC believes that public cloud services will be an oversized contributor to IT industry IDC believes that public cloud servicesgrowth, with rates over five times those of traditional IT products. Worldwide revenue will be an oversizedfor public cloud exceeded $16 billion in 2009 but is forecast to reach $55.5 billion in contributor to IT industry growth, with2014, representing a compound annual growth rate of 27.4% (see Table 1). rates over five times those of traditional ITAmong the five primary cloud services categories in Table 1, cloud applications products.dominate, representing close to 50% of worldwide public IT cloud services revenue in2011. However, by 2014, a less skewed distribution of revenue will occur amongthese segments, with applications accounting for a little over one-third of marketrevenue and increased revenue shares in the infrastructure and AD&D segments.6 #229237 ©2011 IDC
  7. 7. TABLE 1 Worldwide Public IT Cloud Services Revenue by Segment, 2009 –2014 ($M) 2014 2009–2014 Share 2009 2010 2011 2012 2013 2014 CAGR (%) (%) Applications 8,118 10,431 13,040 15,332 17,470 20,580 20.4 37.1 Application 1,647 2,264 3,130 4,325 6,075 8,618 39.2 15.5 development and deployment System 3,385 4,381 5,676 7,194 8,877 11,345 27.4 20.5 infrastructure software Servers 1,974 2,958 3,890 4,960 6,000 7,548 30.8 13.6 Storage (basic) 1,424 2,140 2,998 4,098 5,414 7,366 38.9 13.3 Total 16,549 22,173 28,734 35,911 43,837 55,457 27.4 100 Source: IDC, 2011In addition, worldwide adoption growth will shift away from U.S. dominance. As shownin Figure 4, revenue from public cloud services in 2011 will be heavily concentrated inthe United States (63%), but by 2014 this share will drop to 51.4%. Otherregions/countries — notably Western Europe (30.2%) and Asia/Pacific (excludingJapan) (8.9%) — can be expected to grow share rapidly.FIGURE 4Public Cloud Services Revenue Share by Reg ion, 2011 Middle Central/Eastern East/Africa Europe (2.0%) Asia/Pacific (1.0%) Latin America (excluding Japan) (1.0%) (6.0%) Japan (2.0%) Western Europe (24.0%) United States (63.0%) Canada (1.0%)Source: IDC, 2011©2011 IDC #229237 7
  8. 8. Lastly, the opportunity for cloud services in industries is also growing, but itsimportant to isolate those that are growing the fastest. The largest public cloudservices market is in the United States, which provides a good context forunderstanding the opportunity for cloud across industries worldwide.The largest industries in 2010 (in order of magnitude) for public cloud wereprofessional services, communications and media, and discrete and processmanufacturing. All of these industries are also expected to grow at healthy rates.Professional services, for example, is a sweet spot of public cloud services due to themultitude of information-dependent midsize companies that will adopt SaaS as wellas the large services companies that will be customers of wholesale basic storageand AD&D tools. This industry will have the highest rate of growth in public cloudthrough 2014 (see Figure 5), followed by communications and media, education, andhealthcare.IDC expects that industries that are highly regulated or have serious privacy andsecurity data concerns, such as government and banking, will be limited in theirspending on public cloud services beyond certain applications like email, messaging,and collaboration. However, IDC also believes that industries that are typicallyassociated with the highest levels of IT spending (e.g., banking, manufacturing, andgovernment) will spend proportionally more on private cloud IT services for reasons ofcontrol, security, compliance, and privacy.FIGURE 5U.S. Public IT Cloud Services 2009–2014 CAGR byFastest-Growing Verticals Prof essional services 27.9 Communications and media 24.8 Education 23.4 Healthcare 22.9 Total 21.6 0 5 10 15 20 25 30 (%)Source: IDC, 20118 #229237 ©2011 IDC
  9. 9. CONCLUSION AND NEXT STEPSCloud services represent an emerging opportunity for partners of all types, includingVARs, services firms, and ISVs. The opportunity for partners resides in a wide arrayof activities across resale, services, and development. However, its of keyimportance that partners have a whole understanding of the what, where, how, andwhy of cloud services prior to embarking on wholesale business strategy change.This document has made clear what cloud services are, the potential value derived bycustomers and partners, and where market growth is occurring. Partners areencouraged to use IDCs cloud definition to present a standardized view to currentand potential customers for clarity of communications. The key potential benefits ofcloud computing for end customers and partners are meant to provide partners withan informal benchmark when building customer value propositions and in planningcloud-focused strategy. Lastly, partners should use the public cloud services forecastto identify customer markets and/or cloud categories that represent their bestopportunity for success.Your next step is to understand how moving to cloud computing will affect your ownbusiness model. Review the next report in the series, Cloud Transition Series: Sales,Marketing, and Business Strategy, and then consider reviewing the practice-specificPartner Insight reports on one or more of the six practice areas.Copyright NoticeExternal Publication of IDC Information and Data — Any IDC information that is to beused in advertising, press releases, or promotional materials requires prior writtenapproval from the appropriate IDC Vice President or Country Manager. A draft of theproposed document should accompany any such request. IDC reserves the right todeny approval of external usage for any reason.Copyright 2011 IDC. Reproduction without written permission is completely forbidden.©2011 IDC #229237 9