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Is the cloud market approaching saturation?

The next wave of cloud users has different needs from the early adopters, but their CIOs share some common characteristics.

Par Michael Heric, Ron Kermisch and Abdulrahman Addas

First published on décembre 11, 2012
min


The early adopters in technology's advance guard enthusiastically pushed revenues for cloud services to $27 billion last year. But this tech savvy market, including smaller firms using public cloud services, is approaching saturation. Over the next three years, growth will come from companies that make little or no use of cloud today. The new users in industries such as retail, transportation, industrials, and financial services will demand more private and hybrid cloud offerings. That's good news for CIOs and other IT users who have waited on the sidelines of a frothy market while vendors created solutions that didn't always solve the right problems. More cautious, price sensitive and concerned about security, these users should now find vendors more receptive to collaborative relationships that give them a voice in shaping the products and services they need in order to realise big improvements in their IT performance. The next wave of cloud users has different needs from the early adopters, but their CIOs share some common characteristics. For example, CIOs who have moved into the position within the past year are twice as likely to use cloud (or consider it) compared with leaders who have been on the job more than six years, based on Bain & Company's survey of IT executives at nearly 500 North American companies. New IT leaders often take the job with a mandate to make major changes. IT leaders with business experience—for example, those who have also run non-IT department or who have an MBA—also say they're more willing to move to the cloud. The same is true for companies where the buyer isn't the head of IT but someone else in the organization—the leader of a business division, for example. Experience with outsourcing is another important factor. At companies where the CIO has extensive experience outsourcing, 20% of their IT was in the cloud by 2011 compared with only 9% for CIOs with none. Even among early adopters, CIOs recognise that some jobs are better suited to the cloud than others. We looked at 14 workloads and analysed them along seven dimensions, including service-level requirements (how much uptime needs to be guaranteed), security needs and the value of innovation. When we asked more than 500 CIOs about the relative importance of these dimensions and how ready they were to move specific tasks to the cloud, they told us that five workloads were better suited to the cloud than the rest: team collaboration, development and testing, email, web site hosting, and custom web application development. At the other end of the spectrum, those apps that CIOs were least likely to put in the cloud were business intelligence, enterprise resource planning, supply chain management, and database. Five categories of cloud users In a related study last year, we found that cloud users fell roughly into five groups based on their technology needs and preferences. So far, nearly half the market for cloud solutions has been purchased by what we call transformational users, companies that are using cloud-based operations to change the way they do business or, in some cases, to transform whole industries. Streaming media companies are one example. Three other groups, which make up the majority of potential users, will begin to shift to cloud as soon as it makes sense for their organisations: safety-conscious, price-conscious, and companies with diverse IT demands that we labeled heterogeneous companies. (The fifth and final group was late adopters—including those that face regulation or other barriers to using the cloud.) Price-conscious users are moving to the cloud rapidly, our survey indicates. The economics of cloud computing have quickly become more favorable in many instances. In the next three years, we see a 30 percent to 40 percent price advantage opening up between the costs of deploying a public cloud and that of running your own server on site. Beyond realising these expected internal savings, what should CIOs demand from cloud providers? First, they can use their growing market clout to continue pushing vendors to improve security, service-levels and uptime. Those are table stakes for most IT departments, and until the cloud can nearly match the levels of traditional IT environments, many CIOs simply cannot switch. Second, they should expect cloud vendors to gain a better understanding of their businesses in order to develop products that create new value. Finally, as with any new market, they should expect prices to continue falling as vendors gain scale advantages. If solutions providers step up to meet these demands—and frankly they have little choice if they want to keep growing—the new wave of adopters will fuel the cloud market's continued rapid ascent reaching $150 billion—more than five times its current size—by the end of this decade.

The early adopters in technology's advance guard enthusiastically pushed revenues for cloud services to $27 billion last year. But this tech savvy market, including smaller firms using public cloud services, is approaching saturation.

Over the next three years, growth will come from companies that make little or no use of cloud today. The new users in industries such as retail, transportation, industrials, and financial services will demand more private and hybrid cloud offerings.

That's good news for CIOs and other IT users who have waited on the sidelines of a frothy market while vendors created solutions that didn't always solve the right problems. More cautious, price sensitive and concerned about security, these users should now find vendors more receptive to collaborative relationships that give them a voice in shaping the products and services they need in order to realise big improvements in their IT performance.

The next wave of cloud users has different needs from the early adopters, but their CIOs share some common characteristics. For example, CIOs who have moved into the position within the past year are twice as likely to use cloud (or consider it) compared with leaders who have been on the job more than six years, based on Bain & Company's survey of IT executives at nearly 500 North American companies. New IT leaders often take the job with a mandate to make major changes.

IT leaders with business experience—for example, those who have also run non-IT department or who have an MBA—also say they're more willing to move to the cloud. The same is true for companies where the buyer isn't the head of IT but someone else in the organization—the leader of a business division, for example.

Experience with outsourcing is another important factor. At companies where the CIO has extensive experience outsourcing, 20% of their IT was in the cloud by 2011 compared with only 9% for CIOs with none.

Even among early adopters, CIOs recognise that some jobs are better suited to the cloud than others. We looked at 14 workloads and analysed them along seven dimensions, including service-level requirements (how much uptime needs to be guaranteed), security needs and the value of innovation.

When we asked more than 500 CIOs about the relative importance of these dimensions and how ready they were to move specific tasks to the cloud, they told us that five workloads were better suited to the cloud than the rest: team collaboration, development and testing, email, web site hosting, and custom web application development. At the other end of the spectrum, those apps that CIOs were least likely to put in the cloud were business intelligence, enterprise resource planning, supply chain management, and database.

Five categories of cloud users

In a related study last year, we found that cloud users fell roughly into five groups based on their technology needs and preferences. So far, nearly half the market for cloud solutions has been purchased by what we call transformational users, companies that are using cloud-based operations to change the way they do business or, in some cases, to transform whole industries. Streaming media companies are one example.

Three other groups, which make up the majority of potential users, will begin to shift to cloud as soon as it makes sense for their organisations: safety-conscious, price-conscious, and companies with diverse IT demands that we labeled heterogeneous companies. (The fifth and final group was late adopters—including those that face regulation or other barriers to using the cloud.)

Price-conscious users are moving to the cloud rapidly, our survey indicates. The economics of cloud computing have quickly become more favorable in many instances. In the next three years, we see a 30 percent to 40 percent price advantage opening up between the costs of deploying a public cloud and that of running your own server on site.

Beyond realising these expected internal savings, what should CIOs demand from cloud providers? First, they can use their growing market clout to continue pushing vendors to improve security, service-levels and uptime. Those are table stakes for most IT departments, and until the cloud can nearly match the levels of traditional IT environments, many CIOs simply cannot switch.

Second, they should expect cloud vendors to gain a better understanding of their businesses in order to develop products that create new value. Finally, as with any new market, they should expect prices to continue falling as vendors gain scale advantages.

If solutions providers step up to meet these demands—and frankly they have little choice if they want to keep growing—the new wave of adopters will fuel the cloud market's continued rapid ascent reaching $150 billion—more than five times its current size—by the end of this decade.