Cloud Computing Set to Soar, IDC Predicts

Is it possible that cloud computing might actually be an underhyped technology?

Has anyone considered that cloud computing might actually be underhyped? International Data Corp. (IDC) has.

Its latest market survey paints a picture of a thriving public cloud computing segment -- one that generates $16 billion in annual revenues -- and suggests that the best is still to come. By 2014, IDC predicts, sales of cloud computing products or services will generate almost $56 billion in annual revenues.

To put it in perspective, IDC estimates that sales of public cloud services will grow at a 25 percent annual clip. The annual growth rate for vanilla IT projects, conversely, is 5 percent. If public cloud computing offerings do, in fact, grow five times faster, by any reasonable standard that's a juggernaut.

When it comes to cloud computing, the word "disruptive" seems unusually apt. Customers see cloud as a means to disrupt the software licensing status quo. Cloud likewise has the potential to disrupt traditional acquisition patterns, replacement schedules, or other asset management-related activities.

"Discussions of cloud computing have made their way up to the boardroom just as board-level talk of outsourcing did in the 1980s and the Internet did in the 1990s," wrote analysts Bill Lesieur and Carol Baroudi in "Business Adoption of Cloud Computing," a study published by Aberdeen Group late last year. "Beyond cloud as a transformational technology, the CFO and board level are looking at the economics of cloud, specifically converting traditional fixed capital expenditure … spending to variable operating expenditure [or opex] spending."

Vendors, on the other hand, see cloud as either a threat (which must nonetheless be accommodated) to their existing revenue streams, or -- among upstart vendors or challengers -- as an opportunity.

In every case, everyone is jockeying to develop a cloud strategy.

"For vendors, cloud computing is critically important for two key reasons -- market growth and leadership disruption," said IDC senior president and chief analyst Frank Gens, in a statement. "The cloud model will propel IT market growth and expansion for the next 20 years and will help the industry to more rapidly develop and distribute a new generation of killer apps, and to more successfully penetrate small and medium-sized businesses. As this happens, industry leadership ranks will certainly change."

If vendors are anxious about cloud, customers are ecstatic, IDC reports.

"[O]ur research with many CIOs about their plans for adopting cloud computing shows that IT customers are excited about the cost and agility advantages of cloud computing, but they also have serious concerns about the maturity of cloud computing offerings, specifically around security, availability, cost monitoring/management, integration, and standards."

In just four years, IDC predicts, public cloud-related projects will account for one-quarter of net new IT product spending growth.

By the same date, spending on public cloud products or services will comprise 12 percent of all IT spending (it's in the low single-digits today). Today, sales of cloud applications -- e.g., the traditional software-as-a-service (SaaS) model -- still predominates. In four years, however, IDC predicts that "a less skewed distribution of revenue" will emerge, "with applications accounting for a little over one-third of market revenue and increased revenue shares in infrastructure and platform-as-a-service (PaaS) segments."

Likewise, the U.S. today accounts for greater than 70 percent of cloud-related activity. By 2014, however, IDC predicts that the U.S. will generate just over half (51.4 percent) of public cloud revenues.

Public cloud uptake in both Western Europe and the Asia-Pacific region (with the glaring exception of Japan) will have increased markedly.

IDC's tally only takes into account public cloud services. Adoption of private cloud offerings -- which vendors such as Cisco Systems Inc., EMC Corp., Hewlett-Packard Co. (HP), IBM Corp., and Oracle Corp. (among others) are aggressively pushing -- is an entirely separate market.

Analysts say that private cloud adopters are already realizing significant cost savings.

According to Aberdeen's Lesieur and Baroudi, for example, more than half (56 percent) of enterprise IT organizations are building their own private cloud-based infrastructures. "Having become a mainstream IT infrastructure solution for a number of years, virtualization has dramatically changed datacenter operations," they write. "Cloud computing was born to further abstract the physical hardware infrastructure from the services and application layer of IT architectures."

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