ringcentral-team
RingCentral Team
April 11, 2012

Where the Cloud Is Headed: Q1 2012 Forecasts

Image courtesy of Πrate

The Market

The software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) sectors represent a small subset of the vast enterprise information technology market. But SaaS, IaaS and PaaS are poised to grow much more quickly than enterprise IT as a whole in the coming months and years — a reflection of the fact that businesses large and small see the value that cloud-based systems and services provide.

Overall enterprise IT spending will grow 5.2 percent in constant-currency terms this year to $3.7 trillion, according to research firm Gartner. Cloud spending accounts for just a fraction of that total: In 2011, companies bought only $12.3 billion in SaaS software.

But Gartner believes SaaS spending will reach $14.5 billion this year — a year-over-year increase of 17.9 percent.

That torrid rate of growth isn’t likely to slow, either. News site GigaOm predicts that the SaaS and IaaS markets will expand 119 percent and 122 percent, respectively, between 2011 and 2014.

Cloud Computing’s Workforce Impact

Cloud services companies’ robust growth will have knock-on effects throughout the economy. A report released in early April by Sand Hill Group and SAP forecasts that, in the next five years, cloud-services firms will not only enjoy annual revenue increases of $20 billion but will create approximately 472,000 jobs.

And investors, salivating at the opportunities presented by the fast-growing cloud-computing market, are likely to spur the creation of even more cloud-related jobs in the years ahead. Venture capital firms could pump as much as $30 billion into cloud companies between now and 2017, Sand Hill Group and SAP say. That would add an estimated 213,000 jobs to the nation’s payrolls.

Cloud Computing and Small Businesses

Small companies, in particular, have much to gain from cloud computing.

One of the major paradigm shifts that cloud computing is forcing is the growth of “service-ification.” That is, things that companies used to buy outright – storage, computing power, phone systems, etc. – are being moved into the cloud and turned into services. Most of the time, cloud-service providers charge on a pay-what-you-use basis, meaning that businesses are freed from having to make massive capital expenditures as they scale in size.

The savings that will accrue from service-ification are significant. Sand Hill Group and SAP expect cloud adoption to reduce U.S. IT outlays by $625 billion over the next five years.

Another benefit to cloud computing: It enables companies to be more agile. That’s of particular importance to small businesses, which pride themselves on being responsive. Kevin Noonan, a research director with advisory firm Ovum in Canberra, explains:

“Now we are seeing it [the cloud] … give more flexibility and access to expertise. This is what the cloud is now providing.”

And, if savings and agility weren’t enough, cloud computing will give small firms access to services which were once accessible only to the largest enterprises. Gartner, in its latest cloud forecast, noted that American, Canadian and Mexican companies are adopting cloud-based systems in a number of business areas.

“North America shows the highest SaaS deployments in expense management, financials, email and office suites. Use of web conferencing is higher in North America than in other regions” as well, the research firm noted.

Conclusion

As is the case with any disruptive technology, cloud computing has taken its time to pick up steam. But 2012 may finally be the year that cloud-based services gain traction across enterprise IT – especially among small companies, which can enjoy cost savings, flexibility improvements and better service quality by embracing the cloud. Those small businesses that don’t plan to get aboard the cloud-computing train may find themselves lagging their competitors before long.