This article is based on Synergy Research Group’s mid-year 2019 cloud market review, as reported by crn.com.au.
Cloud Revenue Growth Outpaces Infrastructure Spending
Cloud service revenues are growing significantly faster than spending on the underlying infrastructure — a signal that major cloud markets are entering a high-margin, high-growth phase. According to Synergy Research Group’s mid-year 2019 market review, operator and vendor revenue across seven key cloud services and infrastructure segments exceeded AU$212 billion (approximately US$150 billion) for the first half of 2019, representing 24% year-over-year growth.
John Dinsdale, chief analyst and research director at Synergy Research Group, noted that cloud-associated markets are growing at rates ranging from 10% to well above 40%, depending on the segment. “Annual spending on cloud will double in under four years,” Dinsdale said. “Cloud has opened up a range of opportunities for new market entrants and for disruptive technologies and business models.”
IaaS and PaaS: The Fastest-Growing Segments
Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) recorded the highest growth rates among cloud infrastructure services, expanding 44% in the first six months of 2019 compared to the same period in 2018. Amazon Web Services (AWS), Microsoft Azure, and Google Cloud held the top market-leader positions in these segments.
Combined, cloud infrastructure services — encompassing IaaS, PaaS, hosted private cloud, and enterprise Software as a Service (SaaS) — generated more than AU$133 billion (approximately US$90 billion) in revenue during H1 2019.
“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,” Dinsdale said. “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.”
Other Cloud Services: SaaS, Hosted Private Cloud, and UCaaS
Beyond IaaS and PaaS, multiple other cloud service categories posted strong growth figures in H1 2019:
- Enterprise SaaS grew 27%, driven primarily by Microsoft, Salesforce, and Adobe.
- Hosted private cloud infrastructure services grew 20%, with IBM, Rackspace, and NTT Communications leading the segment.
- Unified Communications as a Service (UCaaS) grew 23%, with RingCentral, Mitel Networks, and 8×8 among the primary beneficiaries.
“UCaaS, while in many ways a different type of market, is also growing strongly and is driving some radical changes in business communications,” the Synergy report states.
Cloud Infrastructure Spending: Hardware and Software
Total spending on hardware and software for cloud infrastructure reached approximately AU$81.3 billion (roughly US$55 billion) in H1 2019, climbing just over 10% year-over-year. Spending was split roughly equally between public and private cloud environments.
On the public cloud infrastructure side, Dell EMC, Cisco Systems, and Hewlett Packard Enterprise (HPE) were the leading vendors. The same three vendors also topped the rankings for private and hybrid cloud infrastructure spending.
Dinsdale explained the economics at play: “As with any capital-intensive industry, companies have to invest in infrastructure before they can start generating revenues from selling services that run off that infrastructure. Typically, over time, as markets develop and mature, the percent of revenue that has to be invested back into the infrastructure declines, and profit margins and cash flows ought to improve.”
He added that the dynamics are more complex in cloud because infrastructure investment supports both public and private cloud deployments, as well as adjacent services such as search, social networking, e-commerce, gaming, and mobile applications.
Data Centre Leasing and Colocation
Cloud provider spending on data centre leasing and colocation services also grew strongly, climbing 17% compared to H1 2018. Digital Realty, Equinix, and CyrusOne were the leading real estate investment trusts (REITs) in this segment for the first half of the year.
Outlook: Growth Will Moderate but Markets Will Double
Synergy Research Group’s forecasts indicate that as already-large cloud markets continue to scale, growth rates will inevitably moderate over the next five years — though not dramatically. In aggregate, the firm expected the combined cloud markets to roughly double in size within four years from the time of the report.
Synergy’s analysis is based on quarterly surveys of major technology vendors and service providers, analysis of company financial reports, ongoing briefings with key market participants, and proprietary tracking models developed over several years of in-depth cloud market research.
Key Takeaways for DevOps and Cloud Architects
- IaaS and PaaS are the fastest-growing segments — organizations moving workloads to AWS, Azure, or Google Cloud are riding the steepest growth curve in cloud services.
- Revenue is outpacing infrastructure spend — cloud economics are improving at scale, which translates to more competitive pricing and a broader service portfolio from major providers over time.
- Private cloud is not disappearing — roughly half of hardware and software cloud infrastructure spending targets private cloud environments, underscoring the continued relevance of hybrid architectures.
- UCaaS is a fast-growing adjacent market — teams evaluating communication platforms should factor in the rapid maturation of cloud-delivered unified communications.
- Market consolidation is a risk — the dominance of AWS, Microsoft, and Google in IaaS/PaaS creates vendor lock-in considerations that should inform architecture decisions.