Not many people would have predicted just how fast the cloud market has grown and evolved over the past 5 to 6 years.

A new report by Bain and Company, The Changing Faces of the Cloud, sheds some light on what has occurred in the market since 2011 – a time when companies selling cloud-based products and services were still trying to figure out how to make money. 

The management consulting firm estimates total revenues for cloud hardware, software and services (public and private) are around US$180 billion, which would equate to about 16 per cent of the US$1.1 trillion enterprise IT sector. Where the cloud market was once the domain of mainly small-to-medium business customers, late adopters now make up the fastest and largest growing market segment.

Profile of cloud users is changing

According to Bain, the rapid growth in the cloud market can be attributed to the changing profile of the typical cloud buyer.  

"Early adopters that fueled the first waves of cloud adoption are being joined and overtaken by larger and more mainstream customers that, until recently, had taken a wait­ and­ see approach," said Mark Brinda, a partner in Bain's global technology practice.

"As a result, executives need to understand the transformation that the cloud market is going through – and make the necessary changes to their offerings and go ­to ­market and operating models to successfully serve the customers coming off the sidelines."

Late adopters boosting the market

Over the past 5 years, available cloud products and services have certainly improved and matured. During that same period, customers who were initially cautious about the risks of the cloud and slow to embrace the technology have gone from being the smallest segment of the market to the fastest growing, and perhaps soon-to-be largest, group. In 2011, these cautious customers had less than 1 per cent of their applications in the cloud, on average. This share has increased ever since – to 4 per cent in 2013, then 16 per cent in 2015. Bain forecasts it to reach 30 per cent by 2018. 

Interestingly, late adopters don't seem to be showing a great deal of preference for the big names in cloud – IBM or Microsoft, for example – when they eventually do decide to migrate. Rather, they seem less attached and more likely to branch out to smaller, newer vendors.

"Late adopters have made a major jump in cloud use over the last 12 months. They're entering the cloud market in record numbers and, in a somewhat unexpected move, are using providers few anticipated," said Michael Heric, a Bain partner in the firm's global technology practice.

"This has created a shake­up among technology providers."

According to the report, cloud uptake amongst early adopters has almost peaked. Their share of applications in the cloud is predicted to plateau at around 75 per cent in 2018. In 2010, this market segment contributed 47 per cent of all demand for cloud services. Despite this demographic being increasingly responsible for cloud-related innovation or promotion, they only represent 26 per cent of overall cloud user demand.

Cost savings not the only driving factor

Cost­ savings don't seem to be a major factor in why customers move to the cloud – only about 10 per cent of organisations purchase based on cost. While the other 90 per cent want their cloud investments to be cost ­neutral, they are motivated by non­cost factors, for example, scalability, ease of use, flexibility, security and uptime.

"Cloud providers realised that they can't compete on price alone," said Heric.

"In response, they've added services that make their platforms more valuable and easier to use, and customers are willing to pay for these features. This shift in thinking has been the main reason for cloud's tremendous growth over these last few years."

The future of cloud computing

The cloud industry continues to transform, as providers redefine themselves, enter or exit the market. In the near future, it is expected that new buyers will drive demand for cloud products and services even more. As this market segment grows, their preferences will shape how the industry responds. Those providers who are able to recognise these trends early enough and adapt their offerings will be well placed to capitalise.

Talk to the cloud experts at ANATAS

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