Cloud Computing: The Road Ahead

Tuesday Aug 2nd 2011 by Damu Kuttikrishnan
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A look at various cloud computing markets by revenue, along with top research firms’ predictions of the trends to watch.

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Not too long ago, one of the leading computer companies filed an application to trademark the term ‘cloud computing’, which was denied by the US Patent and Trademark Office. That was in August 2008 when cloud computing was in its infancy. Yet that act was a kind of starting line: since then, cloud computing has received a lot of attention.

The economic downturn most likely provided an impetus to jumpstart cloud computing. The potential is huge. Cloud computing could transform the IT industry from an asset-centric approach to a services-centric approach. It could change IT from on-premise technology to on-demand services.

The last two years saw tremendous innovation and progress, especially in the ‘Infrastructure-as-a-Service’ realm. Because of the low utilization of servers and the introduction of virtualization layer and related software, server virtualization took off. What started off as a concept concerning the virtualization of servers has extended to include network virtualization, desktop virtualization and application virtualization.

Amazon, a retail giant, has quietly become a big player in the IT industry through innovation. The growth of this industry has not been without some setbacks. There has been the publicized outage of Amazon EC2 and the Sony Playstation network data breach.

More recently, there are allegations about encryption and data security practices followed by an online storage company. Would the IT industry now adopt cloud computing rather cautiously?

Cloud Computing Market Size

Cloud Type

Year 2011

$ B

Year 2020

$ B

Public Cloud

25.5

159.3

Virtual Private Cloud

7.5

66.4

Private Cloud

7.8

15.9

Total

40.7

241

Forrester:  The recent Forrester report "Sizing the Cloud" provides a good idea of the various verticals and horizontals in the cautious, complex and dynamic cloud computing market for the next 10 years. The report says that the cloud computing market will leap from $40.7 billion this year to more than $241 billion in 2020 with a year-to-year growth of over 20%.  It also discusses the market sizes for the three deployment models of cloud computing — the public cloud, the virtual private cloud, and the private cloud.

According to the report, the present $2.9 billion size of Infrastructure-as-a-Service will increase to $5.9 billion in 2014 and then taper off to $4.8 billion. This tapering will happen between 2014 and 2020 because of commoditization, increased automation & efficiencies and reduced margins to compete effectively.

The report estimates explosive growth in Software-as-a-Service  with its market size estimated to be over 80% of the global public cloud market. It’s market size just in the global public cloud space is estimated to grow to $92.75 billion by 2016  and  to $132.57 billion by 2020.

Gartner: By 2014, Gartner predicts worldwide cloud services revenue (both public and private) will reach more than $148 billion. With its latest survey, Gartner received responses from 2,014 CIOs representing more than $160 billion in CIO IT spending and covering 38 industries across 50 countries. The survey found that only 3% of CIOs today have more than half of their infrastructure and applications operating in the cloud. But that number is expected to grow to 46% by 2015, making cloud transformation the hallmark of many CIOs at their current companies.

"By the end of 2011, the battle for leadership in PaaS and the key PaaS segments will engulf the software industry," said Yefim Natis, vice president and distinguished analyst at Gartner. "Early consolidation of specialized PaaS offerings into PaaS suites will also be evident.

IDC: According to IDC, spending on IT cloud services would grow fourfold, reaching $4.6 billion by 2014. By 2012, nearly 85% of net-new software firms coming to market will be built around SaaS service composition and delivery; by 2014, about 65% of new products from established ISVs will be delivered as SaaS services. SaaS-derived revenue will account for nearly 26% of net new growth in the software market in 2014

Ovum: The next big growth area in cloud computing will be the rise of platform-as-a-service (PaaS) technology, which will step out from the shadow of infrastructure-as-a-service (IaaS). IaaS has become an important cloud success story in the past three years, spearheaded by Amazon and the uptake of virtualization technology, which has given rise to an army of Amazon clones.

However, this year PaaS will make its mark, not just because of the efforts by Microsoft, Google and Salesforce.com but also because of the launch of new offerings. PaaS services were launched by VMware and Red Hat in late 2010 and IBM is expected to enter the fray in 2011. This will give rise to a strong PaaS ecosystem to rival IaaS.

PaaS pioneers Google, Microsoft and Salesfore.com adopted the PaaS as fabric approach. The next wave of PaaS offerings could be with a compute instance-based approach rather than a compute fabric one.

451 Market Monitor: The market for software that enables cloud computing will grow from $4.5 billion in 2010 to more than $11.6 billion by 2014, according to a new report from 451 Group, a leading independent IT research and analyst organization.

Grail Research: The report ‘Navigating the Cloud’ says that there is little doubt that cloud computing is here to stay. Initial apprehensions about security, vendor lock-in, and data privacy are subsiding and new debates, such as public versus private/hybrid deployment, are taking center stage. The question is no longer “What is the cloud?” but “How can I assess cloud opportunities for my business to gain competitive advantage?”

MarketsandMarkets: The global 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 in 2010.

Federal government: Office of Management and Budget (OMB) predicts that of the $80 billion federal IT spend, $20 billion can potentially move to the cloud.

Amazon: UBS analysts estimate a revenue figure of $500 million in 2010, and predicts this to rise to $750 million in 2011 and a massive $2.5 billion in 2014. Citigroup’s prediction for 2010 revenue was $650 million.

Rackspace: The 451 Group conservatively estimates that revenue from Rackspace’s cloud services was $100 million in 2010.

 

Recent Cloud Computing Trends and Views

When other companies secretly guarded information pertaining to their huge data centers, Facebook surprised the world recently by sharing all specifications of their data center in Oregon through their open compute initiative. They claimed that the innovations in its new data center have enabled it to use 38% less energy than other facilities that perform similar functions

The company said the new data center costs 24% less to run than an equivalent data center.  The data center has a power usage effectiveness (PUE) ratio of 1.07. Is it possible for anyone else to provide infrastructure services cheaper than this? Is their intent to spur innovation by creating open source hardware and an ecosystem just like Google’s Android ecosystem?  

Cloud storage-as-a-service was a hot topic of discussion about a year ago. This section of the industry, once considered promising, is running into trouble. Companies like Iron Mountain, VaultScape and Cirtas have closed their storage service offerings.

One of HP’s VP had laid out some points on his LinkedIn public profile which talks about having different services such as object storage, compute, networking, block storage and other common/shared services. He mentioned an innovative and highly differentiated approach to cloud computing – a declarative/model-based approach where users provide a specification and the system automates deployment and management. Its platform could play nice with Java, Ruby and other open source languages. HP may release specifics of their overall cloud strategy at VMworld conference later this month.

Siki Giunta, VP of Cloud Computing at CSC, says that in the future, professional services firm would provide a set of standardized cloud services that the clients would pick up from the firm’s services catalog. The client would sign appropriate SLAs with the firm to meet their business needs. IT services would become more commoditized. Half of all IT workloads, she says, will become cloud services by 2016.

On the other hand, Diane Bryant - CIO of Intel, talks not about IT as providing standalone IT services but strategically enabling and enhancing business services and being central to the overall corporate strategy.

An article by Phil Wainewright (blogger, analyst, consultant) clearly identifies the crux of the enterprise strategy that cloud players should be mindful of: “If an enterprise is focusing on the infrastructure layer to build its cloud strategy, then it’s looking in the wrong direction.” 

Last, but not the least, there is a flurry of acquisitions taking place in the cloud computing sector. The year 2010 saw major players positioning themselves by acquiring companies mostly in the infrastructure and platform domain. Early this year, Verizon purchased Terremark for $1.4 billion in a move to accelerate its "everything-as-a-service" cloud strategy. Time Warner Cable (TWC) announced that it will acquire managed hosting and cloud services provider NaviSite for $230 million.  In April, CenturyLink acquired Savvis Inc. for $2.5 billion. VMware acquired Sliderocket, a cloud-based online presentation application that produces slide shows that rival PowerPoint – perhaps to provide Presentation-as-a-service. VMware most recently acquired IT management firm Shavlik.

The Road Ahead

Joe Tucci (Chairman and CEO of EMC) in his keynote address at EMC World on May 10, 2011 said, "I've never seen in my 40 years (in IT) infrastructure transformations, application transformations, and user transformations going on at the same time."

Here are some important points to be considered by every organization at this juncture, as this cloud computing  journey moves forward with twists and turns, with innovations and acquisitions.

       .   Cloud computing is here to stay despite its recent problems.

       .   So far, a majority of the talk has been about IaaS. This will shift to PaaS and SaaS shortly.

       .    Cloud strategy with focus on IaaS is no strategy. PaaS and SaaS should be important for the overall strategy.

       .    SaaS market is huge compared to PaaS and IaaS.

       .    Every organization should take initial steps to educate employees about cloud computing.

       .    Get on to the bandwagon now – ensure your organization has a cloud computing strategy integrated into your IT and business strategy.

       .    Ensure that you have an architecture updated regularly encompassing all the three layers (IaaS, PaaS, SaaS) and the different deployment models (private, public, hybrid).

       .    Adopt workloads which need limited security. Security is still an area of concern especially with public clouds.

       .    Implementation should start with a pilot and a clear understanding of ROI and scaling for the next 2-3 years. Present changes prevent planning longer than that.

Forrester projects that a massive 80% of spending on public cloud IT next year will be spent on SaaS. A far smaller 11.5% share will be IaaS, and while PaaS is growing fast, it is still set to remain a small proportion of total cloud expenditure relative to SaaS. 

Whatever the numbers maybe from all the different sources, sliced and diced by various categories and sub-categories, one thing is clear. Every category in this cloud ecosystem can claim to grow substantially as compared to almost all of the other non-IT markets.

There will be growing pains, security issues and many instances of ‘cloud-washing’ reducing the credibility of cloud computing during this journey, like any other macro trend. Does it matter whether it is the shadow IT in an organization or CIO or business unit promoting and embracing cloud computing?

There would be tremendous opportunity for innovation and change in this area for years to come before another such wave takes over the market due to constraints and needs of that time. Federal Cloud Computing Strategy released by US CIO earlier this year summarizes it beautifully, paraphrasing Arthur Eddington: Cloud computing will not just be more innovative than we imagine; it will be more innovative than we can imagine.

About the author: Damu Kuttikrishnan has over 20 years of experience  in various areas of IT including  project, program & portfolio management; operations; strategy; planning and change transformation. He is a six sigma lean black belt with experience in developing, streamlining and managing strategic programs. He is a strategic thinker and facilitator with focus on collaborative leadership to accomplish organizational goals. He can be reached by email at maildamu@gmail.com

Disclaimer: The opinions expressed herein are my own and do not in any way represent the thoughts, intentions, plans or strategies of my employer.

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