Martin Hingley's Blog

We’ve posted a full update of our UK Cloud Computing forecasts or Q3 2011. Please note, we’ve made substantial chages to the overall sizing of the UK ITC market since the post below was published. ITCandor has also published sizing of the Dutch and Japanese Cloud Computing markets.

UK Cloud Computing Forecast Highlights

• Spending on Cloud Computing will be worth £76 billion in 2010
• Spending will grow to £119 billion in 2013
• IT Service and Broadband will remain the largest offerings throughout
• Service as the Software will be more successful than Software as a Service
• Consumers and small business will spend more than medium and large companies throughout the forecast period
• UK-base Managed Services and Outsourcing companies are threatened by large international Cloud Computing suppliers
• Issues of compliance, governance, security and data protection will act as a break on spending for medium and large companies
• ITCandor looks forward to addressing worldwide and country level sizing activities for its customers

ITCandor Forecasts Cloud Computing As A Modest Market With Strong Growth

The total spending on ITC in the UK in 2010 will be £500 billion, of which some £76 billion (18%) will be spent on Cloud Computing. By 2013 the total market is expected to grow to £569 billion, of which Cloud Computing will account for 21% (£119 billion). Figure 1 shows a condensed view of quarterly spending for Cloud Computing and Traditional ITC Spending.

IT And Telecom Services Will Account For The Majority Of Cloud Computing Expenditure

When itemising the numerous spending categories for Cloud Computing the two strongest components are IT Service (of which Internet and Other Services account for the largest part) and Telecom (of which Broadband Service predominates). Other categories – in particular SaaS, IaaS and PaaS – account for only a small proportion of current spending and, despite the focus on these areas, they are important for the role they play in developing private and public Clouds from which end-user services are delivered. While these grow faster than the existing large categories, I do not forecast that they will ever play a leading role in the market – at least using the criteria I’ve taken for sizing Cloud Computing. I’ve included a view of the forecast by category in Figure 2.

In fact while analysts have spend much tie talking about ‘Software as a Service;, my view of the future is that it will be Service as the Software (SatS – services suppliers making hands-on activities available through a browser front end) which will be successful over the next few years. Companies such as Salesforce.com, Accenture, CA, Google, IBM and others will make more money by extending their existing portfolios for delivery over the Web than software companies such as Microsoft, Symantec and others will in making their software perform services functions mainly because they understand the complicated issues of governance, compliance, security and data protection.
For the UK market there is a strong threat to existing UK-based Managed Services and Outsourcing suppliers from larger international players, especially if they can persuade government legislators to accept their credentials across national borders. While many countries continue to protect national players, it is probable that the free market ideals will encourage the shift to Cloud Computing as a cost saver for UK businesses and government accounts.

A view of some of the expected mix of components (‘offerings’ in my methodology) in Cloud Computing spending is shown in Figure 3. Between 2010 and 2013 – a time when the market is expected to grow from £78 billion to £119 billion – Internet Services will decline from 42.7% to 33.6% and Broadband from 34.2% to 26.1%. SaaS will not grow as a proportion of spending, although SatS will. Infrastructure Software (and especially IaaS) is expected to grow from a 1.9% share in 2010 to 2.8% in 2013.

Consumers And Small Business Will Invest Most In Cloud Computing In The UK

Consumers are already the majority users of Cloud Computing. The use of free-to-use social networking, Internet email and backup services is naturally being expanded with the introduction of music and television streaming and other paid-for Internet services. Equally small businesses (those with less than 100 employees) have found initial Cloud Computing easier to adopt than those companies which run their own IT infrastructure. I don’t expect the success of companies such as IBM, HP and Fujitsu to help larger organisations build their own private Clouds to lead to those companies spending overtaking smaller organisations and consumers within the current forecast. A view of ITCandor’s forecast for Cloud Computing spending by company size is shown in Figure 4.

ITCandor Cloud Computing Methodology – Extending The Market Model

I’ve spent a lot of time looking at the trends in Cloud Computing over the last couple of years and thought it was about time to focus on sizing the market. It is of course a difficult task – not least because there are many different definitions of the subject and because it’s important to say what it isn’t as well as what it is. Like all good marketing terms in the ITC industry, ’Cloud Computing’ can end up being just synonymous with ‘goodness’ if we’re not careful. In order to produce the following overview I had to do a number of things first. In particular:

• I expanded my market model to include 22 ‘offerings’ as subdivision from the 4 categories of Hardware, IT Service, Software and Telecom Service – specific products and services such as PCs, converged devices and Internet Service
• I expanded my geographic coverage to cover major countries within each of the 3 regions (Americas, Asia Pacific and EMEA)
• I spent a lot of time working on market values – attempting to remove the enormous effects of exchange rate fluctuation from data which I hold on a quarterly basis in current $US

For the UK the results were fascinating, as despite a very bad recession (Financial Services accounts for a larger proportion of UK GDP than in any other major country), the growth rates do not look to have been as bad as in other countries. Or to put it another way, despite a strong decline in $US measured spending, when recalculated in Pounds the ITC market didn’t shrink as much as in other countries.

Cloud Computing Defined For Market Sizing

Once I’d managed to create good sizes for the total ITC spending by quarter and offering I then set about estimating what to count as ‘Cloud Computing’. For this I’ve adopted the following definition:

“For market-sizing purposes Cloud Computing encompasses all ITC offerings (products or services) which are used for the consumption or delivery of remote, browser-accessed applications – the delivery of which comes from data centre resources unknown to the ultimate end-user. Typically Cloud Computing applications are purchased on a pay-as-you-go basis and can be accessed by industry standard client devices such as PCs and Smart Phones. Specifically excluded are applications requiring local processing and storage, client server computing and interactive processing. Single-customer applications are not excluded as long as the delivery mechanisms have been adjusted.”

This is quite a generous definition and I even allowed offerings such as printers, gaming consoles, converged devices to be counted for the time they spend associated with these applications.
I judged a number of offerings to be 100% Cloud Computing. In particular:

• Software as a Service (SaaS), which has been a small, but fast-growing market in the last year
• Broadband (in the Telecom Service area), which I judge to fit with my market sizing definition

I also ascribed large proportions of Cloud Computing to Infrastructure Software (of which Infrastructure as a Service is a growing part) and Other Service, due to music and other streaming from companies such as Apple and Sony. Internet Service (in the IT Service category) also ranked highly, due to the activities of companies such as Google, Amazon, eBay and Yahoo.
Although currently small I took care to calculate the proportion of both Implementation Service and Outsourcing/Managed Service, which can be ascribed to Cloud Computing through the activities of major vendors such as IBM, HP and Fujitsu: while I also thought long and hard about the proportion of Cloud business the smaller companies (such as Datascape Online, Online Storage, Fasthosts, FNZ and others) I have interviewed over the year account for.

Some Conclusions – Cloud Computing Will Be Disruptive In The UK

Overall Cloud Computing is becoming a real measurable market. It is one of the few ITC topics which is growing from the ‘bottom up’, enabling small companies to compete more effectively, with less cost, than ever before. For larger companies there is a struggle going on to catch up – to stop their existing solutions from appearing old-fashioned and sluggish. Many of them are investing in order not to fall behind and to provide better services for their consumer customers and citizens.
The disruption of Cloud Computing will be felt in many places – among the indigenous Managed Service and Outsourcing providers and in the failing productivity of medium and large organisations which fail to invest.
Large international (and especially American) suppliers will not have it all their own way however. Trusted relationships and a thorough understanding of governance, compliance, security and data protection issues means that the Cloud will remain inappropriate for the majority of corporate applications and most UK companies will continue to need real people to help them implement and run their internal systems. However even in larger organisations I expect a slow influx of non-critical applications from suppliers such as Google, Amazon, eBay alongside the traditional big systems vendors – applications supplied from unknown places from their own Clouds.
The evolution of Cloud Computing is a symptom of the desire by many to let someone else run our applications for us, since although technology takes an ever-increasing part of our lives (and wallets), we’re not keeping up with the skills needed to run it.
Finally I believe that Cloud Computing involves a merger between IT and Communications – not least because it can only exist in a heavily connected world. It will undoubtedly help many Telecom suppliers with their convergence strategies and lead to many new types of services over time.
Are you interested in sizing Cloud Computing? Which countries are most important? Please let me know by commenting on this article.

Filed under: Cloud Computing Tagged: | Broadband, Cloud Computing, consumer, Forecast, hardware, IaaS, Internet Service, IT Service, ITCandor, large business, market sizing, Martin Hingley, medium business, PaaS, SaaS, SatS, small business, software, Telecom Service