Thematic Insights – The Cloud

Cloud Computing Services ("the Cloud") were first discussed in scientific and national security circles in the late 1960s¹. With the advance of the modern internet and personal computers in the 1990s, the Cloud became commercially viable. By the turn of the century, Salesforce was one of the earliest companies to offer software as a service via the Cloud.

¹ The US Pentagon's Advanced Research Project Agency Networks.

In the 2000s the Cloud evolved to host a multitude of services from video and music entertainment to healthcare, finance and eventually government services.

Key to the Cloud's growth has been its agility, scalability and cost-efficiency. Proving popular with a wide range of sectors from manufacturing to retail and even agriculture, the Cloud allows organisations to build flexible architecture to handle dynamic applications at lower costs. This in turn has removed the capital and operational expenditure of managing expensive data centres and accompanying services which in turn lightens companies' balance sheets.

At the heart of Cloud's growth are its three primary service models:

1. Software-as-a-Service - SaaS; gives companies access to software via the Cloud and avoids the need to buy software licenses and install software on individual computers. This segment was the first and now largest segment of cloud service revenues as captured in the pie chart below. Big players include Salesforce, Microsoft, Adobe and SAP.
   
2. Infrastructure-as-a-Service - IaaS: allows businesses to rent or lease servers for computer and storage needs in the cloud rather than via proprietary data centres. This segment was the second Cloud service to develop in the 2000s. Amazon Web Services (AWS) control circa half the market with Microsoft and Alibaba occupying 2^nd and 3^rd largest market shares.
   
3. Platform-as-a-Service - PaaS; allows developers and companies to create, host and deploy applications via the Cloud. Often described as "middlewear".  It's the most recent Cloud service to develop and is helping businesses to consolidate multi-vendor cloud solutions. Prominent vendors include Microsoft Azure, Amazon (AWS) and Google Cloud.
   

Public IT Cloud Services Market Revenue Worldwide²

² Global Public IT Cloud Services Revenue at 2020. Statista

Cloud & the Pandemic

Since the 1990s the Cloud has seen some of its fastest adoption amongst small-to-medium sized businesses. Larger organisations have historically been slower to adopt it due to:

• pre-existing large in-house IT infrastructure,
• the need for customised and often multi-vendor solutions; and
• mistrust over data security issues.

As noted on a recent call with our equity research partner, Redburn, Cloud adoption in large organisations is changing:

Based on our research it is clear that lockdowns, social distancing and remote working have accelerated Cloud adoption across large organisations by several years. Demand has surged in IT, Telecoms, Professional Services⁴ and Media & Entertainment sectors. Employees in turn are using cloud collaboration platforms for communicating and consuming OTT streaming services.

³ Neil Steer, Partner, European Technology, Redburn Partners
⁴ Banking, Financial Services and Insurance

Cloud today

As businesses emerge from the Pandemic, the global cloud computing market size is expected to grow at a compound annual growth rate of 16.3% from USD 445.3 billion in 2021 to USD 947.3 billion by 2026.

As the market grows, it is also consolidating amongst a handful of key vendors. Looking at the IaaS market, 64% is captured by 3 companies:

Meanwhile the shift in company spend towards Cloud solutions for each of the three services - Software, Infrastructure and Platform - is clearly illustrated below⁵:

By 2024, it is estimated that more than half of all applications will be purchased as SaaS and consumed via the Cloud, as opposed to traditional software⁶. From a regional perspective North America remains the most mature market in terms of Cloud adoption but Asia Pacific is expected to offer significant growth opportunities for cloud computing vendors in the coming decade.

⁵ Scenarios for the Cloud Marketplace 2021: Gartner, 2021
⁶ Idem