The Covid-19 pandemic has accelerated digital transformation trends. Savvy CIOs and CTOs that were an early adopter of public cloud computing technologies now have a significant strategic market lead over their competitors. Moreover, a few dominant IT platform providers continue to benefit from this trend.
The worldwide public cloud services market — including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS) — grew by 26 percent year-over-year in 2019 with revenues totaling $233.4 billion, according to the latest market study by International Data Corporation (IDC).
Spending continued to consolidate with the combined revenue of the top five global public cloud service providers — Amazon Web Services, Microsoft, Salesforce, Google, and Oracle — capturing more than one third of the worldwide total and growing at 35 percent year-over-year.
Public cloud services market development
“Cloud is expanding far beyond niche e-commerce and online ad-sponsored searches. It underpins all the digital activities that individuals and enterprises depend upon as we navigate and move beyond the pandemic,” said Rick Villars, group vice president at IDC. “Enterprises talked about cloud journeys of up to ten years. Now they are looking to complete the shift in less than half that time.”
The public cloud services market has more than doubled since 2016. During this same period, the combined spending on IaaS and PaaS has nearly tripled. This highlights the increasing reliance on cloud infrastructure and platforms for application deployment, for enterprise IT internal applications, as well as SaaS and web application delivery networks.
IDC expects spending on IaaS and PaaS to continue growing at a higher rate than the overall cloud market over the next several years as resilience, flexibility, and agility guide IT platform decisions.
According to the IDC assessment, economic uncertainty draws fresh attention to the core benefits of IaaS — such as low financial commitment, flexibility to support business agility, and operational resilience.
Cost optimisation and business resilience have emerged as top drivers of IT investment decisions and IaaS offerings are designed to enable both. The COVID-19 disruption has accelerated cloud adoption with both traditional enterprise IT organisations and digital service providers increasing use of IaaS for their technology platforms.
IDC believes that digitising processes are being prioritised by enterprises in every industry segment and that is accelerating the demand for new applications as well as repurposing existing IT applications.
Modern IT application platforms powered by containers and the serverless approach are providing the necessary tools for software developers in meeting these needs. The growth in PaaS revenue reflects the need by enterprises for tools to accelerate and automate the development lifecycle.
That said, SaaS applications remain the largest segment of public cloud spending with revenues of more than $122 billion in 2019. Although growth has slowed somewhat in recent years, the current economic crisis serves as an accelerator for SaaS adoption across primary and functional markets — to address the exponential growth of remote workers within a globally distributed workforce.
Outlook for public cloud services growth
Looking at the segment results, a combined view of IaaS and PaaS spending is relevant because it represents how end customers consume these services when deploying applications on the public cloud.
IDC has been tracking and publishing this view of the market since 2019. In the combined IaaS and PaaS market, Amazon Web Services and Microsoft captured more than half of global revenues. But there continues to be a healthy ‘long tail’ of service providers, representing over a third of the market.
These are typically companies with targeted use case-specific PaaS offerings. The long tail is even more pronounced in SaaS, where nearly three-quarters of the spending is captured outside the top 5 service providers.
I believe that while there will continue to be new opportunities for niche cloud service offerings, the hyperscale provider dominance will make it increasingly difficult for undifferentiated ‘me-too’ cloud services. Niche providers must clearly articulate their unique attributes, and enable their clients to create a compelling business case for an investment that is sure to be scrutinised by enterprise CFOs.
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