Hybrid IT Infrastructure Growth Outlook | Cloud Computing Market Dynamics
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Competitive Differentiation
- Sustainable Growth and Tech Trends
Publication | Update: Sep 2020
According to Markets and Markets research report, the global cloud computing market size is expected to grow from USD 371.4 billion in 2020 to USD 832.1 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 17.5% during the forecast period. While technology spending in APAC has increased, the setback due to the recent COVID-19 pandemic is imminent. The cloud technology adoption is expected to increase in sectors where the WFH initiative is helping to sustain enterprise business functions.
COVID-19 impact on the cloud computing market
Many of the enterprises across verticals have adopted the work from home model to safeguard employee well-being and maintain operational efficiency, surging the demand for Software-as-a-Service (SaaS)-based collaboration solutions. For instance, Microsoft Team platform users increased to 44 million globally due to the high demand for collaboration solutions. While the standalone 8x8 Video Meetings cloud solution experienced a more than 300% increase in registered users in the last week of February across ~150 countries. Other popular SaaS-based collaboration tools gaining traction are Google Hangouts, Cisco Webex, Slack, Zoom, Ding Talk, WeChat Work, and Tencent Meeting, among others.
There is a significant increase in the demand for streaming platforms, such as Netflix, Hulu, Amazon, Disney+, Twitch, YouTube, and Apple TV, as most of the population is staying at home due to country lockdowns. This surge in Video-on-Demand (VoD) has increased the demand for IaaS to tackle consumer demands. Enterprises across the globe are expanding offerings to addresses the emerging needs of end-users. Below are a few instances:
- In June 2020, Google announced a partnership with Telefónica. Under this partnership, Google is planning to launch a cloud region in Spain that will leverage Telefonica's Madrid region infrastructure. This partnership also aimed at economic recovery of the country post-COVID-19 by boosting the digitalization of companies and supporting Spain's public administration.
- In May 2020, Microsoft announced Microsoft Cloud for healthcare to tackle COVID-19 challenges. Microsoft introduced industry-specific cloud offerings for healthcare organizations, improved workflow efficiency, and streamlined interactions. Microsoft Cloud for Healthcare, include data analytics for both structured and unstructured data.
Cloud Computing Market Dynamics
Drivers: Increased return on investments with lower infrastructure and storage costs
Enterprises are concerned about the initial implementation and maintenance costs of hosting data on-premises. Moreover, staff expenses and issues with downtime are a few additional concerns for enterprises. The existing competition and global economic situations have accelerated the adoption of cost-effective measures to restructure business models. The increasing shift of enterprises toward the adoption of digital transformation and accelerating customer experience are a few more factors leading to the adoption of cloud computing services, which are ultimately reducing enterprise costs. Moreover, the cloud offers the benefit of the pay-as-you-go model, which enables enterprises to pay as per their usage of cloud services, leading to reduced costs.
Restraints: Need to manage regulatory and compliance policy needs
In recent years, the need for meeting regulatory and compliance needs is constantly increasing due to the changing business needs, increasing data breaches and cyber-attacks, and rising data security concerns. In addition to this, companies have to strive to survive in the market by taking measures to meet regulatory needs and prevent financial penalties, prevent customer and revenue losses, and avoid exposure to legal actions.
Challenges: Cyberattacks damaging business operations and critical data loss
Cloud computing services help enterprises improve business efficiency and reduce costs. Moreover, these services offer various advantages, including flexibility, scalability, and agility. Though the cloud offers various benefits and security measures, the data stored on the cloud is still prone to cyber-attacks. With the increasing volume of data and rising enterprise initiatives toward digital transformation, the number of cyber-attacks is increasing rapidly. The cyber-attacks, such as Spectre, Meltdown, cloud malware injection attacks, account or service hijacking, and man-in-the-cloud attacks, are creating vulnerable threats to enterprise data. These threats may result in business losses and shutdowns
Opportunities: Increase in adoption of hybrid cloud services
Enterprises having their existing infrastructure are moving toward the adoption of cloud computing services and willing to adopt the hybrid approach so that they could reap the benefits of on-premises and cloud services. Moreover, SMEs are largely adopting cloud computing services due to their major benefits, such as no initial infrastructure setup costs and the on-demand availability of compute services. These factors are contributing to the growth of hybrid cloud services in enterprises. Moreover, the hybrid cloud offers the benefit of enhanced workload management, increased security and compliance, and efficient integration within DevOps teams.
By deployment model, the hybrid cloud segment to be a larger contributor to the cloud computing market growth.
Increased user and resource mobility, ongoing migration of applications over the cloud, and the emergence of more sophisticated threats are leading organizations toward the adoption of hybrid cloud. Industries, such as healthcare, BFSI, and government, which prioritize compliance, security, and customer experience, opt for the hybrid deployment model. Leading cloud vendors are focusing on improving their presence in hybrid cloud space; for instance, in October 2018, IBM acquired Red Hat. The acquisition helped IBM gain access to a larger customer base and an extensive cloud portfolio of Red Hat.
According to David Deans, Technology Media Telecom analyst, as the impact of the global pandemic disrupted enterprise operations, more CIOs and CTOs determined that scaling-up public cloud services and enhancing the management of on-premises IT resources was a priority.
The worldwide public cloud services market is forecast to grow 6.3 percent in 2020 to reach a total spend of $ 257.9 billion -- that's up from 2.7 billion in 2019, according to the latest global market study by Gartner.
Also, infrastructure that supports remote working, such as SD-WAN and virtual workspace solutions, has gained new momentum as more organizations deploy the capabilities that enable their employees to connect to enterprise IT systems from their home-based office.
According to David Deans, Technology Media Telecom analyst, for the remainder of 2020, organizations that expand remote work functionality will prioritize collaboration software, mobile device management and distance learning investments -- as well as the hybrid IT infrastructure to rapidly scale and support additional capacity, when needed.
Organizations that have already embraced a hybrid IT architecture -- where on-premises server and storage systems are combined with public cloud services -- will gain a strategic digital business advantage. This model offers superior flexibility and proven cost-containment.
Furthermore, advanced SD-WAN and application delivery solutions provide the required security and compliance that CISOs demand from new enterprise IT investments. The same criteria are valued by CFOs seeking assurance that branch offices and remote workers have cost-effective IT options.
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
The report in its entirety provides a comprehensive overview of the current global condition, as well as notable opportunities and challenges.
The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period.
The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players. This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.
Research Process & Methodology
We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.
We draw on available data sources and methods to profile developments. We use computerised data mining methods and analytical techniques, including cluster and regression modelling, to identify patterns from publicly available online information on enterprise web sites.
Historical, qualitative and quantitative information is obtained principally from confidential and proprietary sources, professional network, annual reports, investor relationship presentations, and expert interviews, about key factors, such as recent trends in industry performance and identify factors underlying those trends - drivers, restraints, opportunities, and challenges influencing the growth of the market, for both, the supply and demand sides.
In addition to our own desk research, various secondary sources, such as Hoovers, Dun & Bradstreet, Bloomberg BusinessWeek, Statista, are referred to identify key players in the industry, supply chain and market size, percentage shares, splits, and breakdowns into segments and subsegments with respect to individual growth trends, prospects, and contribution to the total market.
Research Portfolio Sources:
Global Business Reviews, Research Papers, Commentary & Strategy Reports
M&A and Risk Management | Regulation
The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pretax revenue and its total boughtin costs (costs excluding wages and salaries).
Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from ofﬁcial sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reﬂect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.