by IHS Markit analysts Clifford Grossner, PhD and Devan Adams
To grow market share, many cloud service providers (CSPs) are introducing specialized compute instances, which target data-intensive workloads and ease the integration of artificial intelligence (AI) and machine learning (ML) into enterprise business applications as a strategy to capture market share. This type of activity is expanding the high-growth cloud-as-a-service (CaaS) and platform-as-a-service (PaaS) segments. The off-premises cloud service market is expected to reach $374 billion in 2022, at a five-year compound annual growth rate (CAGR) of 17.7 percent.
Innovative service offerings by CSPs are multiplying, including the introduction of blockchain technology in PaaS service offers. They are also introducing new services focused on enterprise verticals, including the following: healthcare, to aid diagnosis; energy, for oil and gas exploration; financial services, for transaction monitoring; and supply chain efficiencies in retail and government, for smart city infrastructure. These services package expert domain knowledge acquired by CSPs and make it available to enterprises.
“Amazon made a smart move when it integrated Alexa into Amazon Web Services business applications — and by launching several machine learning services, further expanding its breadth of intelligent solutions,” said Clifford Grossner, Ph.D., senior research director and advisor, cloud and data center research practice, IHS Markit. “Google and Cisco also upped their AI and ML game, targeting hybrid cloud deployments with a collaboration aimed at running these tasks, both on-premises and from Google Cloud.”
As certain market segments mature, consolidation continues for two reasons: buying competitors for access to their client base and expanding service portfolios. Some recent notable mergers and acquisitions include the following: Equinix announced its intention to buy Infomart Dallas, GTT Communications is planning to acquire Interoute, INAP acquired SingleHop, Google agreed to acquire Xively and Microsoft agreed to acquire Avere Systems.
The types of partnerships CSPs are striking evolved from partnerships with enterprise software vendors, as a way to gain a foothold in on-premises data centers, to establishing relationships between providers for cross selling. Some recent noteworthy partnerships include the following: SAP and Microsoft announced a partnership to integrate SAP’s S/4HANA ERP suite with MS Azure; China Unicom plans to expand its reach across various industry verticals, by partnering with YonYou; British Telecom partnered with IBM, to extend its BT Cloud Connect Direct multi-cloud platform; and Salesforce also partnered with IBM, to enhanced its go-to-market strategy.
- The CaaS category is expected to grow 56 percent in 2018, with a five-year CAGR of 29 percent; PaaS will grow 55 percent, with a five-year CAGR of 31 percent.
- North America, the birthplace of off-premises cloud services, will remain the lead market through 2022, delivering approximately 53 percent of all global off-premises cloud service revenue.
- IBM continued to lead the market for software-as-a-service (SaaS) in 2017, with 18 percent of revenue; Amazon led infrastructure-of-a-service (IaaS), with 41 percent of revenue; Microsoft topped the list for PaaS, with 26 percent of revenue; Microsoft’s lead in CaaS continued, with 21 percent revenue; and Equinix led the physical facility market, with 15 percent of revenue.
The biannual IHS Markit Cloud Services for IT Infrastructure and Applications market research report tracks public or private network delivered services offered by a third party (cloud service provider or telco); cloud brokering is not tracked. The research service provides worldwide and regional market size, cloud service provider (CSP) market share, forecasts through 2022, analysis and trends. CSPs tracked include Amazon, Alibaba, Baidu, IBM, Microsoft, Salesforce, Google, Oracle, SAP, China Telecom, Equinix, Digital Realty, Deutsche Telekom Tencent, China Unicom and others.
Synergy Research Group said that the global cloud computing and storage market grew 24% annually for the period ending September 2017. The market research firm said that of the six cloud services and infrastructure market segments, operator and vendor revenues, IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) had the highest growth rate at 47%, followed by enterprise SaaS (Software as a Service) at 31%, and hosted private cloud infrastructure services at 30%.
Data suggested that 2017 widened the gap between cloud services spending vs. hardware and software used to build public and private clouds. Synergy noted that 2016 was the year in which spending on cloud services overtook spending on cloud infrastructure.
John Dinsdale, a chief analyst and research director at Synergy Research Group, noted that in 2015 cloud became mainstream and by 2016 it started to dominate many IT market segments.
“Major barriers to cloud adoption are now almost a thing of the past, with previously perceived weaknesses such as security now often seen as strengths. Cloud technologies are now generating massive revenues for cloud service providers and technology vendors and we forecast that current market growth rates will decline only slowly over the next five years,” he concluded.
The researcher noted eight cloud services vendors were among the 2017 market segment leaders.
Figure 1: Movers and shakers in 2017 cloud market
Over the period Q4 2016 to Q3 2017, total spend on hardware and software to build cloud infrastructure approached $80 billion, split evenly between public and private clouds, though spend on public cloud is growing more rapidly.
Infrastructure investments by cloud service providers helped them to generate over $100 billion in revenues from cloud infrastructure services (IaaS, PaaS, hosted private cloud services) and enterprise SaaS – in addition to which that cloud provider infrastructure supports internet services such as search, social networking, email, e-commerce and gaming.
Meanwhile UCaaS (Unified Communications as a Service), while in many aspects is a different market, is also growing strongly and is driving some radical changes in business communications.
Carriers, for their part, are not standing still. According to Gartner Group, communications service providers (CSPs) worldwide face profound challenges related to traditional telco network-based to cloud-based service delivery across several functional and technical domains.
Gartner research director Martina Kurth said “CSPs are embarking upon an evolutionary path that unifies cloud instances of SDN/NFV, OSS/BSS (e.g. Paas/SaaS/Iaas) and enterprise IT. Coupled with microservices, container based service design principles and cloud integration services, CSPs endeavor to create synergies between their various cloud domains and drive flexibility and agility across their cloud deployments.”
Gartner predicts that vendors which are well positioned in the end-to-end Telco Cloud stack market, are also likely to take market share in corresponding future network and/or IT technology markets such as digital technology platforms and ecosystems, Data/AI, IoT and 5G.
Gartner Group says that a fully integrated, interoperable, cloud and virtualied telco protocol stack will pave the evolutionary technology adoption path from SDN/NFV to network slicing to 5G and IoT in the future. But no time frame was given for that to be realized.