IDC forecasts big growth for public cloud services

This is a story for all the cloud services vendors out there, though it will no doubt interest (in an unnerving way), many Chief Financial Officers as well.

According to the latest forecast from tech industry analyst and research firm IDC, worldwide spending on public IT cloud services will reach $47.4 billion in 2013 and is expected to be more than $107 billion by the end of 2017. Over that period, public IT cloud services will have a compound annual growth rate (CAGR) of 23.5%, five times that of the IT industry as a whole.

The `Worldwide and Regional Public IT Cloud Services 2013-2017 Forecast’ suggests there are signs that cloud services are starting to shift into a phase where the scale of cloud adoption will not only be much bigger, but also more user and solution driven. Here, cloud and its related technologies – mobile, social, and Big Data – will become even more interdependent as they continue to drive growth and innovation across all industries that depend on IT.

A major factor driving this growth is the expanding variety of cloud deployment options. IDC sees a growing richness of options that should accelerate cloud services adoption. The emergence of virtual private cloud (VPC) offerings has helped to shift momentum from dedicated private cloud services toward public (shared/multi-tenant) cloud offerings.

By combining the attributes of public cloud, such as economics, scale, and pace of innovation, with some of the privacy and control features associated with private cloud, VPCs are effectively addressing many of the objections that have held customers back from the cloud model.

"The first wave of cloud services adoption was focused on improving the efficiency of the IT department," said Frank Gens, Senior Vice President and Chief Analyst at IDC. "Over the next several years, the primary driver for cloud adoption will shift from economics to innovation as leading-edge companies invest in cloud services as the foundation for new competitive offerings. The emergence of cloud as the core for new 'business as a service' offerings will accelerate cloud adoption and dramatically raise the cloud model's strategic value beyond CIOs to CXOs of all types."

IDC also see growing commoditisation and competition bringing greater consolidation in basic cloud services, which will force vendors to expand their offerings toward higher value services. While commoditisation will inevitably lower pricing and mean tighter vendor profit margins, the competition will greatly expand the addressable market of solutions and customers. In order to survive, vendors and service providers will have to scale their offerings "up and out" toward a broader range (and dramatically larger number) of customers.

The growing focus on cloud services as a business innovation platform will help to drive spending on public IT cloud services to new levels throughout the forecast period. By 2017, IDC expects public IT cloud services will drive 17% of IT product spending and nearly half of all growth across five technology categories: applications, system infrastructure software, platform as a service (PaaS), servers, and basic storage.

Software as a service (SaaS) will remain the largest public IT cloud services category throughout the forecast, capturing 59.7% of revenues in 2017. The fastest growing categories will be PaaS and Infrastructure as a service (IaaS), with CAGRs of 29.7% and 27.2%, respectively.

The United States will remain the largest public cloud services market, although its share will decline from 56.9% in 2013 to 43.9% in 2017 while Western Europe, Latin America, and Asia/Pacific will each gain share throughout the forecast. Cloud spending in emerging markets is expected to experience a CAGR of 37.3% for the 2013-2017 period, a rate almost twice that of developed markets.

"In this second phase of cloud development, it will be essential for cloud services providers to re-examine their cloud strategies, preparing for a marketplace focused intensely on business innovation, industry transformation, and increasingly pressured pricing and operating models," noted Gens. "How suppliers navigate the next two years will tell us a lot about who the IT market leaders will be for the next two decades."