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The Cloud is Eating the World: Cloud Adoption
The Cloud is Eating the World: Cloud Adoption
Cloudy sky. Image Credit: Alex Machado/Unsplash

As we read in the classic piece, Software is Eating the World by Marc Andreessen (2011), major businesses and industries are running on software which is delivered as an online service. On the back end, software programming tools and Internet-based services are enabling software-powered startups to launch products without investing in new IT infrastructure. Large companies are taking steps in adopting Software-as-a-Service (SaaS) in place of purchasing Commercial Off-The-Shelf (COTS) software. What’s more, incumbent technology providers have already implemented some form of SaaS delivery to compete more effectively and to adapt to the new market conditions created by the Cloud. Abode’s Creative Cloud plan, for instance, now allows customers to pay a monthly fee to access such applications as Photoshop while enjoying online-only features like social networking.

Cloud services are growing rapidly, beyond analysts’ estimations as well as incumbents’ imaginations. The global IT services market, of which the cloud services market is the smallest segment, is expected to grow at a CAGR of 11.9% to nearly USD 3,495.5 billion by 2022 from USD 2,229.8 billion in 2018.

Per Gartner, the cloud services market is expected to grow at a compound annual growth rate (GAGR) of 16.1% to USD 331 billion in 2022. SaaS would represent 43% of the overall market. Infrastructure-as-a-Service (IaaS) market will be the fastest-growing segment going forward, at a CAGR of 25.9%.

Growth is headed toward a strong tailwind for cloud services providers in the next three years. In the historical period, enterprises’ increasing preference for shifting in-house IT infrastructure to cloud computing boosted growth, taking advantage of faster processing speed, better network connections and lower operational costs. During the past ten to five years, most cloud demand came from small and middle-sized startups, and concerns about security and decisions hindered large firms from turning around. Nowadays, doubts about security remain a top concern, but this has diminished, according to Bain.

Regarding cloud adoption, cloud-savvy ‘leaders’ from regulated companies such as banking, insurance and healthcare are already seeing significant benefits from the use of the Cloud, with faster time-to-market rates, cost reductions and quality improvement, McKinsey states.

Fairly concentrated market and trends

The cloud services industry is highly concentrated: a small number of large firms command significant market shares and a large number of small entities have minor shares. The leading four providers of public cloud services accounted for 62.5% of the worldwide market for IaaS and PaaS. The four players are followed by IBM, Salesforce, Oracle, Tencent and a large group of companies. In the fourth quarter of 2018, Amazon Web Services (AWS) led in the market, but smaller players like Microsoft Azure and Google Cloud continued to grow more quickly and gained ground. Alibaba, steadily gained shares, backed by its large domestic demand. Niche player IBM Cloud has a lower growth rate as well as market share.

Cloud provider revenue is driven by the adoption of the Cloud (percentage of companies using clouds) and the number of workloads or Virtual Machines (VMs) deployed. For enterprises, understanding the benefits is not enough to convince them to move to react to this disruptive technology. We observed some barriers and best practices facilitating cloud adoption.

Using agile approach to embrace changes

Enterprise IT department and CTO are taking a strong position in cloud adoption, as well as advising business units to move workloads to the cloud. The latter leads to an approach commonly known as DevOps, which brings R&D operations and IT organizations together to optimize product design, delivery, quality assurance and maintenance. McKinsey pointed out that the agile/DevOps operational models are proving to be even more applicable in infrastructure than in application development. As the trend of DevOps prevails, the adoption of container and configuration tools increases. Docker and Kubernetes (a container orchestration tool that leverages Docker) skyrocketed this year, as well as the configuration tool Ansible grew shares among SMBs. AWS and Azure are accelerating to provide Container-as-a-Service (CaaS) offerings as a result. CaaS is expected to be the next fast-growing sector.

Enterprises are more open to the public cloud

Back in 2013, when the public cloud was still maturing, defining and grounding a cloud sourcing strategy in a move to a hybrid (private and public) cloud model was a common approach for Fortune 1000 companies. Nowadays, these companies are much more open to the public cloud as cloud providers market their pubic IaaS and PaaS offerings. The economics of public cloud adoption are becoming more comparable with those of some of the most efficient private cloud environments. Security standards are emerging in the public cloud, pushing the awareness of the use of the public cloud. In Rightscale’s the State of Cloud Report 2019, private cloud adoption is increasing slowly. Meanwhile, though the overall share of enterprise workloads running in the public cloud grow in the low single digits, as McKinsey claims, the situation will change significantly in the next few years, with some types of workloads (e.g. communication and collaborations, core operations in public IaaS/PaaS) moving faster than any other (development and testing in public IaaS/PaaS).

Service model: SaaS, PaaS, or IaaS?

Companies will segment existing works and move some to SaaS and move others to a variety of PaaS and IaaS providers, with some remains on-premise. Though SaaS delivers strong benefits, customers and software providers have been cautious about it. Back-office support, communication and collaborations, marketing and sales are three companies’ primary choices when considering moving to cloud-based computing. However, in most sectors, there are no mature SaaS offerings for core business functions such as billing for utilities and core banking for financial services.

As SaaS takes hold in customer’s adoption over the coming years, incumbent software developers are adding SaaS to their product portfolio. On the other hand, Bain said that sometimes using a more complete IaaS cloud can speed up development and improve consistency compared with basic IaaS solutions. It is important for enterprises to think about the existing IT portfolio to determine what is suited for cloud platforms or SaaS alternatives. Selecting the right cloud offerings allows enterprises to capture the value of the cloud best.

What’s next?

Internet of Things (IoT) and Artificial Intelligence (AI) are bringing new opportunities. Large digital natives, such as Google, Amazon and Baidu, are exploring innovations in semiconductors, software and systems. Nvidia makes graphics processing units (GPU) and Xilinx provides field-programmable gate arrays, others offer AI and machine learning abilities to enterprises. One day, automation will increase as enterprises gain increasing access to these cutting-edge technologies. The growth of enterprise IoT will boost demand for hyperscale resources and IoT-specific PaaS solutions. On the other hand, more than USD 5 billion IoT devices will ask for edge computing solutions by 2020 as they collect and process data in real-time, instead of within a cloud or a data center. Edge computing allows data processing at the device or gateway level, which reduces latency and connectivity dependencies.

Editor: Luke Sheehan

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