The worldwide market for public cloud services, such as Amazon.com Inc.’s (NASDAQ: AMZN) Amazon Web Services (AWS), is forecast to reach $203.9 billion in 2016, a year-over-year increase of more than 16%. The fastest growing sector of that market is cloud-based infrastructure as a service (IaaS), forecast to grow from $16.2 billion in 2015 sales to $22.4 billion in 2016, a jump of more than 38%.
When Amazon launched AWS in 2006, the idea that individuals and corporations would store their critical data on someone else’s hardware was nearly unthinkable. That’s all changed now. Netflix Inc. (NASDAQ: NFLX) runs its streaming videos on AWS and Apple Inc. (NASDAQ: AAPL) is another huge customer.
Competitors are stacking up as well, with Alphabet Inc. (NASDAQ: GOOGL), Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM) among the top contenders. Amazon’s 27% share of the market tops second-place Microsoft’s 16% and IBM’s 12% third-place showing, according to report at Forbes.
The big difference for Amazon is that AWS adds revenue and gross profit to the company’s financial performance, where the impacts on Microsoft and IBM are more on the order of reducing the amount of lost revenue and income due to the shift away from enterprise hardware and software to cloud computing.
When Gartner released its forecast for cloud computing revenues in 2016, research director Sid Nag said:
The market for public cloud services is continuing to demonstrate high rates of growth across all markets and Gartner expects this to continue through 2017. This strong growth continues reflect a shift away from legacy IT services to cloud-based services, due to increased trend of organizations pursuing a digital business strategy.
IaaS continues to be the strongest-growing segment as enterprises move away from data center build-outs and move their infrastructure needs to the public cloud. Certain market leaders have built a significant lead in this segment, so providers should focus on creating differentiation for success.
Hewlett Packard Enterprise Co. (NYSE: HPE) gave up its public cloud project in January, and both Google and IBM have been throwing serious money at beefing up their public cloud services. While success would mean incremental revenue for Google, as it now does for Amazon, IBM needs a significant win in the space. That won’t be easy or cheap.
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