Technology giant International Business Machines has been restructuring its business to boost profitability and focus on new verticals that offer better growth opportunity. As part of this strategy, the company is continuously expanding its portfolio of cloud services. In a recent move, the company rolled out its hybrid cloud technology, which extends Client Control, Visibility & Security to Public Cloud and enables developers to work across any IT cloud. Furthermore, the company has announced that it is targeting $40 billion in revenues from the cloud, big data, security and other growth areas by 2018. In this note, which has two parts, we will explore IBM’s offering for cloud services. In this first part, we will discuss the cloud computing industry, and follow it with a second article that looks at IBM’s services in the domain.
The Cloud Market
Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. The cloud computing stack consists of three services namely software as a service (SaaS), infrastructure as a service (IaaS) and platform as a service (PaaS). Among the three categories, SaaS is expected to grow the fastest followed by IaaS. However, in the near future all the three segments are projected to experience healthy demand. The primary reason for this growth is global demand for technology-based services, which in turn depends on the state of the global economy.
The global cloud computing market is expected to grow from estimated $58 billion in 2013 to over $191 billion in 2020, according to Forrester research. Furthermore, IDC predicts cloud computing services will grown at a compounded rate of 22.8% to 2018.
SaaS, IaaS And PaaS Services Explained
The three services in the cloud stack (i.e., SaaS, IaaS and PaaS) are interconnected and dependent on each other to deliver a cost effective solution to clients. Most of the Cloud services are provided on a “multitenancy” architecture which represents a shared infrastructure with multiple locations arrayed in a resources topology that leverages the advantages of virtualization and remote access to deliver new business models and services. A brief description of these layers of stack are:
- Software as a Service (SaaS) is software deployed over the Internet. With SaaS, a software company licenses an application to customers either as a service on demand through a subscription “pay-as-you-go” model, or at no charge when there is an opportunity to generate revenue from streams other than the user, such as advertisements. Another model that is coming to fore is the hybrid “freemium” model which gives free access to the basic functionality of the software, but the user has to pay a subscription fee for using advanced functions. SaaS is a rapidly growing market as indicated in recent reports that predict ongoing double-digit growth. According to Goldman Sachs, Global SaaS software revenues are forecasted to reach $106B in 2016, increasing 21% over 2015.
- Infrastructure as a Service (IaaS) is a way of delivering cloud computing infrastructure – servers, storage, network and operating systems – as an on-demand service via secure IP-based connectivity. Rather than purchasing servers, software, data center space or network equipment, clients buy those resources as a fully outsourced service on-demand instead. IaaS is based on virtualization techniques, i.e., creating a virtual (rather than actual) version of something, including but not limited to a virtual computer hardware platform, storage device, or computer network resources. Compared to SaaS and PaaS, IaaS users are responsible for managing applications, data, and middleware within the O/S that resides with the host server (either discreet or virtual).
- Platform as A Service (PaaS ) is the most complex of the three layers. PaaS can be defined as a computing platform that allows the creation of web applications or software quickly and easily and without the complexity of buying and maintaining the software and infrastructure underneath it. PaaS is similar to SaaS except that, rather than being software delivered over the web, it is a platform for the creation of software, delivered over the web. According to Forrester, a PaaS solution is expected to generate $44 billion in revenues by 2020.
Growth In Cloud Services Across SaaS, PaaS And IaaS Market
Over the past few years, cloud services have come to the fore for both large and SME (small and medium size) companies that are looking to improve their businesses by employing IT solutions and services. The advantage of cloud services is the scalability and accessibility to new applications, resources and services. Furthermore, the costs associated with using these services are less as the onus of management of these services lie with the cloud services provider. As a result, demand is growing for virtualization services, which enable service provider to create a virtual computer domain independent of the underlying software and hardware that not only increases manageability but also reduces cost. As a result, cloud services are expected to reach a market size of $555 billion in 2020 from $209.9 billion in 2014 at a CAGR of 17.6%, according to a report by Allied Market Research.
However, public cloud services market is expected to grow to $200 billion by 2018 according to market research firm Infonetics Research. Within the public cloud services, IaaS is expected to grow from about $23 billion in 2014 to $34 billion in 2015, and PaaS to grow from 13% of the total cloud revenue in 2013 to 16% in 2018. Considering the size and growth of cloud services, companies such as Amazon, IBM, Microsoft and Google are rolling out new services, and extending functionality in this domain.
In the next note, we will explore IBM’s cloud services.
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