Wednesday Dec 03, 2008

Cloud Computing: A $42B industry by 2012?

When Industry pundits ( like IDC ) come out with a report that describes cloud computing to be a $42 B industry by 2012 , you always take these with a grain of salt.  As you know some of these analysts (not IDC though ) also predicted that the .com bubble would grow to a mega billion dollar industry. There are however some key takeaway points in this report that could make this number a realistic estimate.

Two  interesting claims the report makes are:

  • The $42 billion number is a small (10%) percentage of the overall IT spend - which is at a whopping $490B - however the year over year is at at 27% growth as compared to a 7% growth for IT spend.

  • As shown below, the Application Service provider market (SaaS) is almost half of this pie: at 57% of the pie. The rest is split between infrastructure and platform ( IaaS and PaaS )

So like any good scientist , I decided to validate these claims with some ground numbers and observations.

Given that there are close to 50 plus top "cloud" vendors out there , ( it would take a long time to research revenue across all these - you would hope that IDC did that ) , I focused at the big boys and see if the numbers match up with IDC assessment for 2008.

Amazon: Amazon classifies its AWS revenue under "Other" in the quarterly filings. Here is the total "other" column from their Q3FY08 report ( all numbers in $$M ).

Q3 2007  

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Change Y/Y%

$92

$131

$111

$126

$130

42%

So with EC2 and S3 ( compute and storage ) this is about half a billion dollar a year business for amazon but growing at a whopping 42% Y/Y change.

Given that IDC claims that storage and compute is about a 14% of a $16 B market ( or about $2.24 B ) , and that there are numerous companies in this space ( from the list above ), Amazon is definitely in a good position by owning about a quarter of this market ( and looking to grow it ). As we all know with their recent announcements, they are looking to enter other parts of the pie.

Now lets look at the heavy weight gorilla in the SaaS space: Salesforce.com.

SalesForce.com : Reports earnings in the billion dollar ranges . For the quarter ending sep 2008, here are the numbers:



Three months ending


 Nine Months Ending




 Oct 2008

 Oct 2007

  2008

 2007

Revenue

 Subscription and Support

$253,403

$176,376

$718,464

$484,064


 Prof Services and other

$23,084

$16,427

$68,722

$47,730

 Total


$276,487

$192,803

$787,186

$531,794

So salesforce is projected at approximately a $1B revenue with a 43% y/y growth! IDC estimates the market to be at around $7B dollars in FY08 and with so many players in this space, it is quite likely that salesforce.com controls about 15% of the market.Google, the other 800lb gorilla doesnt break out their numbers to get a sense but you can imagine their enterprise offerings ( in mail and google apps and other platform offerings ) are in the multi million dollar ranges at least.

So is the IDC survey sound plausible? Yes, the numbers seem to validate.

One thing the survey does not point to is that as this market evolves, the applications mentioned here will move into the more "custom space" targeting particular verticals : healthcare, education, finance, telecommunications, government , media  and so on. With the initiative of force.com, you can already see the path salesforce is going. Could there be vertical clouds that could emerge with specialized platform and services? You betcha.

As with any rising tides, there will be many winners and losers but this market is definitely looking big enough to catch the attention of all big players. Delivering on Ray Ozzie's 2 year old memo taking Microsoft to this space, Microsoft just started delivering with their large azure push. And as history shows, when MS enters any market, the market is not only validated but the game face is on.

So what is Sun doing in this space? That is quite literally, the billion dollar question - stay tuned for that sooner than later!.


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ralvi

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