Source: crn.com.au, reporting on Synergy Research Group’s mid-year cloud market review (2019).
Cloud Revenue Outpaces Infrastructure Spending
Cloud service revenues grew significantly faster than spending on cloud infrastructure in the first half of 2019 — a signal that the broader market was entering a high-growth, increasingly profitable phase. According to Synergy Research Group’s mid-year cloud market review, operator and vendor revenue across seven key cloud services and infrastructure segments exceeded A$212 billion (approximately US$150 billion) for H1 2019, representing 24% growth compared to the same period in 2018.
John Dinsdale, chief analyst and research director at Synergy Research Group, noted that cloud-associated markets were growing at rates ranging from 10% to well above 40% depending on the segment.
“Annual spending on cloud will double in under four years. Cloud has opened up a range of opportunities for new market entrants and for disruptive technologies and business models.”
— John Dinsdale, Chief Analyst, Synergy Research Group
IaaS and PaaS: The Fastest-Growing Segments
Cloud infrastructure services — encompassing Infrastructure as a Service (IaaS), Platform as a Service (PaaS), hosted private cloud services, and enterprise Software as a Service (SaaS) — generated more than A$133 billion (approximately US$90 billion) in revenue during H1 2019.
Among these segments, IaaS and PaaS recorded the highest growth rate at 44% for the first six months of 2019. The three dominant players in this segment were:
- Amazon Web Services (AWS)
- Microsoft Azure
- Google Cloud
“Amazon and Microsoft have led the charge in terms of driving changes and aggressively growing cloud revenue streams, but many other tech companies are also benefitting. The flip side is that some traditional IT players are having a hard time balancing protection of legacy businesses with the need to fully embrace cloud.”
— John Dinsdale, Synergy Research Group
Other Cloud Segments: Hosted Private Cloud, SaaS, and UCaaS
Growth was strong across multiple other cloud service categories in H1 2019:
- Hosted private cloud infrastructure services grew 20% year-over-year, led by IBM, Rackspace, and NTT Communications.
- Enterprise SaaS grew 27%, driven primarily by Microsoft, Salesforce, and Adobe.
- Unified Communications as a Service (UCaaS) grew 23%, with RingCentral, Mitel Networks, and 8×8 as the primary beneficiaries.
The Synergy report described UCaaS as “driving some radical changes in business communications” despite being a structurally different market from traditional cloud infrastructure services.
Cloud Infrastructure Spending: Hardware and Software
Total spending on hardware and software for cloud infrastructure reached approximately A$81.3 billion (approximately US$55 billion) in H1 2019 — an increase of just over 10% year-over-year. This spend was roughly evenly split between public and private cloud deployments.
The leading vendors supplying this infrastructure were largely the same on both the public and private/hybrid cloud sides:
- Dell EMC
- Cisco Systems
- Hewlett Packard Enterprise (HPE)
Dinsdale framed the investment-to-revenue dynamic as typical of capital-intensive industries: early phases require heavy upfront infrastructure investment before revenue can be realised, but as markets mature, the ratio of infrastructure investment to revenue tends to fall and margins improve. In cloud, this is further complicated by the dual nature of investment — serving both public and private cloud buildouts.
Hyperscale Infrastructure Supports More Than Cloud Services
The infrastructure deployed by hyperscale cloud operators does not exclusively support commercial cloud services. It also underpins large-scale consumer and enterprise workloads such as search engines, social networking platforms, email, e-commerce, online gaming, and mobile applications — illustrating the broad economic footprint of hyperscale data centre investment.
Data Centre Leasing and Colocation Growth
Cloud provider spending on data centre leasing and colocation services grew 17% compared to H1 2018. The segment leaders for this period were real estate investment trusts (REITs):
- Digital Realty
- Equinix
- CyrusOne
Five-Year Outlook: Sustained Growth Despite Moderation
Synergy Research Group’s forecasts indicated that while growth rates across cloud markets would gradually decline over the following five years as the market scaled, the decline would not be dramatic. In aggregate, the firm projected the combined cloud market would still roughly double in size within approximately four years from the time of the report.
Dinsdale described Synergy’s methodology as drawing on quarterly surveys of major technology vendors and service providers, analysis of company financial reports, ongoing briefings with key market participants, and proprietary internal tracking models developed over several years of in-depth market analysis.
Key Takeaways for DevOps and Cloud Architects
- IaaS and PaaS were the fastest-growing cloud segments at 44% in H1 2019, reinforcing the strategic importance of AWS, Azure, and Google Cloud for infrastructure decisions.
- Enterprise SaaS and UCaaS also showed strong double-digit growth, indicating broad adoption of cloud-native and cloud-delivered services across the enterprise stack.
- Infrastructure hardware spending growth (10%) significantly trailed revenue growth (24%), suggesting improving unit economics for cloud providers.
- Private and hybrid cloud remained significant, with Dell EMC, Cisco, and HPE holding leading positions on both sides of the market.
- Colocation and data centre REITs continued to grow alongside hyperscaler demand, signalling sustained capital investment in physical infrastructure.