‘The Cloud’ – Growth and revenue, a zero-sum game?

032216-Cloud-Growth

Cloud Is A Fad

Whichever way you wish to slice-it ‘The Cloud’ these days, growth and revenue are predicted at incredible rates. Just reading that initial sentence, I can already hear the cloud-naysayers wanting to ask me, “but what about profitability?”. Fair question; but let’s put that on the sideline now for another spirited discussion at a later date.

‘The Cloud’, which was this mysterious thing of a few short years ago where there was no revenue, no viable business model and dismissed as a loser ‘FAD’ proposition; ‘The Cloud’ is now all-the-rage.  Below, we have compiled a few random articles from various sources and research organizations where in each the revenue and growth of all ‘cloud’ spending far exceeds traditional Information Technology (IT) spending.

“IDC predicts that “Greater Cloud Spending” will exceed $500B by 2020. This includes SaaS, PaaS, IaaS, plus all the professional and managed services around cloud technology (both public and private), as well as the supporting software and hardware to make cloud implementations happen. That’s over three times what it is today!”

https://assets.microsoft.com/en-us/The-Booming-Cloud-Opportunity.pdf

“By 2018, Salesforce and its ecosystem of customers and partners will create 1 million jobs and generate $272 billion in GDP impact worldwide.” 

https://www.salesforce.com/blog/2015/10/272-billion-salesforce-opportunity.html

“By 2020, according to Forrester, cloud computing will be a $191 billion market, with giants like Google and Microsoft challenging Amazon with their own cloud services. Amazon, which declined to comment for this story, just reported $2.41 billion in revenue for its Amazon Web Services division during the fourth quarter of last year, or more than $9.6 billion in annualized sales”

http://www.wired.com/2016/03/epic-story-dropboxs-exodus-amazon-cloud-empire/

 

Still Early Innings of ‘The Cloud’

Moving existing software applications, building new applications or trusting your data to an outsource ‘cloud’-service provider is something to take seriously for any organization. So when the naysayers of ‘The Cloud’ would say this in the past it was a simple answer that wasn’t worth arguing at that point. The fact of the matter is that when you design any sort of IT system you generally need the following basic components of (a) Infrastructure (IaaS), (b) Platform Tools (PaaS) and (c) Software Application (SaaS) packages combined as a deliverable to end-users. Why would ‘The Cloud’ be any different?

Naysayers will always complain that Cloud-Software Application (SaaS) providers such as Salesforce, Box and others still aren’t profitable. It’s true, but these people need to understand that there is the typically 80%/20% rule which is especially true with ‘The Cloud’. At first, a general rule-of-thumb is that 80% is upfront expense and costs associated with building up the Infrastructure with only 20% (or typically much less) revenue realization in the early innings. However, once the Infrastructure is in-place and ordering, configuring and maintaining most of these As-A-Service applications are done by the users themselves then most of the cost is maintaining the IaaS itself and not on sales, marketing or support. This tangible cost savings than can be passed on to the users themselves for a win-win situation.

 

‘The Cloud’, a zero-sum game?

Simply. Not a chance.

The gloves are off and the competition is fierce. There will be clear winners and losers where not every companies gains (or losses). It was clear that early adopters such as Salesforce, Concur, Ariba (as well as a few strategic other SaaS providers) made big bets on ‘The Cloud’ and it has paid off nice for each of these Companies. There have also been laggards such as Oracle, Microsoft, IBM and SAP that are now getting on-board with the clearly obvious trend of cloud computing.

Who will win or who will lose is still up for much debate. I think the real question is if you would be establishing a new Company in these interesting, and high revenue times, of traditional and emerging cloud mashup technologies, what would you do? The answer is rather obvious in that you would want to be a small-fish in this huge, gigantic, humongous ocean of Billions, if not Trillions, of IT dollar spending. Who you agree?

 

Google sincerely enters the Iaas/PaaS game

That’s it folks – IaaS legitimized.

While Google has always been a cloud-first Company with Search, the truth of the matter is that a majority of their revenue dollars still come from advertising and not business applications. Well, as-of-late Google seems to have put a full-court press on expanding their revenue into IT business instead such a huge reliance on Marketing revenue. Nearly overnight Google is killing many of their internal ‘moonshot’ projects and directing these resources, money and energy to the ‘Google Cloud Platform”.

This doesn’t mean that Google automatically wins. In fact, far from it. It simply means that vision, agility and innovation helps give you a business advantage in these days of fast moving technology. Google now entering the market, in sincerity, is another sign that this is a legitimate market.

Below is a link to a USA Today article with many great statistics, predictions and graphics regarding IaaS, PaaS and SaaS worth reviewing:

http://www.usatoday.com/story/tech/news/2016/03/25/cloud-warriors-battle-2019s-300b-spoils/82134082/

 

Customers are empowered more than ever

In summary, all this fierce competition among the major IT providers translates into great value of end-user consumers. We encourage organizations to evaluate all available options because you are the IT-providers prize. They want your business more than ever, and often times, will provide valuable services even at-a-revenue-loss just to acquire your business. They will attribute this to ‘customer-acquisition’ marketing costs likely in the hopes of monetizing your business at a later date with additional value-added services.

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