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Global Disruptors - Cloud Computing 2022

Global Disruptors - Cloud Computing 2022

Winford Collins and The Finance Ghost | South Africa | 28 February 2022

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Report Coverage

This report, which is part of a series of Whom Owns Whom reports, on disruptive industries, focuses on cloud computing. It includes information and descriptions of the industry and its subsectors, types of clouds and cloud service models, global cloud statistics, trends and the industry’s major players including Microsoft, Adobe, Intuit, Amazon Web Services, Google Cloud Platform and Alibaba Cloud, among others.

Introduction

The COVID-19 pandemic has had a profound impact on the way we live and work. Once lockdown-related restrictions are lifted, the question for businesses is to what extent the remote or hybrid working trend will continue. At the forefront of this trend is cloud computing – the ability to access, via the internet, applications, servers (physical servers and virtual servers), data storage, development tools and networking capabilities on demand, ultimately enabling businesses and individuals to work from anywhere. The days of noisy server rooms and major upfront capital expenditure are behind us. For new businesses and those making the transition, cloud and hybrid cloud environments offer cost-effective tools for productivity, data storage and application delivery. Speaking about cloud computing and hybrid work in June 2021, Microsoft CEO Satya Nadella said: “If there’s one trend that has defined the past year, it’s that digital adoption in every industry is being brought forward multiple years.” The trend of digitisation and cloud computing was already growing before the pandemic but was accelerated by companies being forced to adopt remote working practices at short notice. Without cloud computing, it is difficult to imagine how economic activity could have continued in a way that would help prevent the spread of the virus. The cloud computing industry is lucrative, with subscription-based revenues and a highly cash-generative business model. Customers are “sticky” as the costs and disruptions of moving away from a specific service provider often outweigh any perceived or real benefits. This is reflected in the lofty valuations that the market has been placing on cloud computing businesses like Microsoft, Adobe and Intuit. Amazon’s Amazon Web Services (AWS) is highly regarded by the investment community. Alphabet’s Google Cloud Platform is growing rapidly. The global growth rate for cloud services is expected to be more than 20% per annum for the foreseeable future. There are numerous tailwinds, from remote working to increased broadband access in emerging markets. At enterprise level, spending on cloud infrastructure is growing faster than spending on traditional IT infrastructure as large companies and institutions emerge from the pandemic. Workload migration and modernisation is a priority. For small businesses and individuals, the ecosystem of cloud computing and especially software-as-a-service (SaaS) products like Office 365 or Mailchimp enable critical productivity and sales tools to be obtained at a low cost and with a pricing model that is matched to the growth of the business. Instead of significant upfront investment in software and systems, a monthly subscription is all that is required for a small business to get off the ground. As the business scales, the software can be upgraded in terms of functionality or number of users. There is also no need to upgrade the software, as the SaaS format is typically web-based, so the user is always accessing the latest version. This also enables SaaS companies to merge or acquire other SaaS companies, creating an integrated online service that can easily be rolled out to users. A recent example is Intuit’s acquisition of Mailchimp, which brings the email marketing platform under the same umbrella as QuickBooks accounting software. Cloud computing is bigger than just SaaS. There are other services targeted at businesses, developers and IT professionals, like Infrastructure-as-a-Service (IaaS) and Platforms-as-a-Service (PaaS).

Strengths

• A monthly subscription model creates consistent and dependable cash flows.
• Basic and intermediate cloud services are easy and affordable to implement.
• Cloud computing enables remote and hybrid working environments,
• Cloud infrastructure is geared towards megatrends like artificial intelligence, machine learning and big data.
• Cloud solutions are scalable with pricing tiers based on usage.
• In simple public cloud deployments, there is no upfront capital expenditure.
• Maintenance of physical components, security and software can be outsourced to cloud providers.
• SaaS applications don’t need to be upgraded, as they are web-based, so the user is always accessing the latest version.
• Users are “sticky” as moving infrastructure is difficult and expensive.

Weaknesses

• Hybrid cloud and complex Platform-as-a-Service/Infrastructure-as-a-Service implementations still require significant upfront capex in equipment, fees to integration specialists or both, which limits the market as this is beyond the reach of SMEs.
• On a shared cloud infrastructure, any downtime or network outages are beyond the user’s control.

Opportunities

• Fast-growing market with a very large total addressable market and relatively low penetration, especially in SaaS.
• Increasing demand for applications as a driver of growth in Platform-as-Service solutions.
• Ongoing migration of on-premises solutions to Infrastructure-as-a-Service solutions.
• Potential to simplify IaaS and PaaS solutions to ease implementation projects for SMEs.

Threats

• Data privacy and ownership regulation.
• Data security and potential breaches.
• Geopolitical tensions.
• Non-compliance with government policies and contractual obligations related to the handled data or the business operations.
• Potential regulatory interference to address market concentration.

Outlook

Cloud computing is an example of an industry in which the leading players have achieved high market penetration almost across the world. This is especially true in IaaS/PaaS services, which are concentrated in a few big tech firms. It seems unlikely that this situation will change. SaaS as a concept is highly fragmented, as the umbrella term describes web delivery of applications and the use of a subscription model. This can range from office productivity tools like Office 365 to sheet music for individual musicians. Where there is demand for a digital service, SaaS companies will compete for that demand.`a The tailwinds for this industry include increasing broadband access, remote working, automation, artificial intelligence, machine learning, big data and the so-called “creator economy”. With widely-accepted estimates of growth in excess of 20% per year for the foreseeable future, this market will remain highly competitive among the world’s largest tech companies, while other players offer fringe products and specialisations in elements like cloud security and edge computing. This sets the industry up for mergers and acquisitions as leading players acquire new technologies. The explosive growth will be balanced by increased regulatory scrutiny, especially in the fields of data privacy and ownership. The geopolitical tensions between East and West may limit the ability of leading players in each market to compete successfully on the other side of the globe. A likely source of disruption will be in the form of SaaS businesses entering markets that have been dominated by companies with traditional revenue models or outdated services. While IaaS and PaaS require substantial economies of scale among a handful of global players, regional SaaS businesses are commonplace and this trend is likely to continue. The cloud computing market has made a significant difference to the way we work and live. All indications are that this trend will remain strong for the foreseeable future.

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Global Disruptors - Cloud Computing
Global Disruptors - Cloud Computing 2022

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Table of Contents

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PAGE
1. INTRODUCTION 1
1. DESCRIPTION OF THE INDUSTRY 2
1.1. Types of Cloud Deployment Models 2
1.2. Types of Cloud Service Models 5
2. SIZE OF THE INDUSTRY 9
2.1. Global cloud computing market 9
2.2. IaaS / PaaS: Major players 13
2.3. SaaS: Major players 18
3. STATE OF THE INDUSTRY 21
3.1. Key Trends 21
4. INFLUENCING FACTORS 23
4.1. COVID-19 23
4.2. Cloud adoption challenges 24
4.3. Regulation 24
5. OUTLOOK 26
6. SWOT ANALYSIS 27
7. REFERENCES 28
1.1. Websites 28
Appendix: Summary of notable players 29