Cloud Infrastructure as a Service Market Update, 2015

United States

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March 2015
 Contents

Section Slide Numbers

Executive Summary 5
Market Overview 7
• Definitions & Study Scope 8-10
• Market Drivers 12-14
• Market Restraints 15-18
• Key Market Trends 19-22
Forecasts and Trends
• Forecast Assumptions 24-25
• IaaS Market: Total Revenue Forecasts, U.S., 2012-2019 26
• IaaS Market: Revenue Split by Compute vs. Storage Segments, U.S., 2012-2019 27
• IaaS Market: Compute as a Service Revenue Forecast, U.S., 2012–2019 28
• Compute as a Service Market: Revenue Split by Public vs. Hosted Private, U.S., 2012–2019 29
• Compute as a Service Market: Public Cloud Market Forecasts, U.S., 2012–2019 30
• Compute as a Service Market: Hosted Private Cloud Market Forecasts, U.S., 2012–2019 31
• IaaS Market: Storage as a Service Revenue Forecast, U.S., 2012–2019 32
Market Share & Competitive Analysis
• Infrastructure as a Service Market: Market Share Analysis (U.S.), 2014 34
• Market Share Comparison, 2012 & 2014 35
• Competitor Profiles 37-43

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 Executive Summary

The U.S. Infrastructure as a Service (IaaS) market continues to witness strong demand with 2014
revenues for the service exceeding $ billion. While concerns regarding data security, compliance and
application performance continue to persist, enterprises are making the leap to cloud to reduce their IT costs
and manage the data growth. Enterprise adoption of IaaS is also further validated by Frost & Sullivan’s 2014
Cloud survey results in which % of US IT decision-makers indicated using public cloud IaaS to augment
their IT infrastructure.
Hosted private cloud revenues, while still representing a small portion of the total market, are growing
significantly faster than public cloud revenues. Cloud service providers report that enterprises that are
concerned about security and reliability in the shared public cloud are willing to pay a premium for private
cloud services.
While enterprises are adopting cloud IaaS despite security concerns, there is also an increased awareness
of different types of cloud services (public, private, hybrid, managed) among IT decision makers. Emergence
of open standards or open source-based cloud platforms—OpenStack is a widely adopted one—is a key
driver for the growth in hybrid clouds, as they facilitate easy migration of cloud apps and enable multi-cloud
interoperability. To take advantage of the benefits of a cloud model (reduced cost, agility, ease of
procurement and limited maintenance burden), enterprises are increasingly evaluating a hybrid cloud
strategy that helps them adopt the cloud configuration that best suits different application requirements.
Hence, the overall spend on cloud is increasing, but some of those dollars are being redistributed
among various cloud configurations (for example, on-prem private cloud, managed cloud, hosted
private cloud, bare-metal cloud), and PaaS and SaaS offerings.
This study analyzes the current IaaS market, and forecasts revenue growth over the next five years, broken
down by Compute as a Service and Storage as a Service, and public and hosted private cloud. We look at
the strategies and market shares of the key players to understand the competitive landscape of this fast
evolving market.

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 Executive Summary—CEO’s Perspective

IaaS adoption is growing, as enterprises

increasingly look to third-parties to assume
1
responsibility and costs for managing data center
infrastructure.

Hosted private cloud services are growing faster

than public cloud, as providers roll out services that
2
address enterprise concerns over control and
security.

With the availability of open source-based cloud

platforms that facilitate multi-cloud deployments
and interoperability, hybrid IT deployment models
3
are gaining traction as enterprises realize that one
cloud or IT solution does not fit all their application
requirements.

As hybrid IT models evolve, providers recognize

the need for managed services to help enterprises
4 transition certain applications to cloud, and keep
others in-house. This need is paving the way for
managed cloud offerings in the market.

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Market Overview—Definitions

In this section, we define IaaS and related elements that are included in our study.
Infrastructure as a Service (IaaS) – Hosted, scalable data center infrastructure resources, available on-demand, without term
or usage commitments, and charged via a pay-per-use model. IaaS comprises “raw” infrastructure, onto which users can build
and deploy applications or workloads. The two most common types of IaaS—Computing as a Service and Storage as a
Service—utilize different pricing elements.
Computing as a Service – A type of IaaS in which subscribers pay for computer resources used (usually a combination of CPU
cycles and memory), plus data moving in and out (per Gigabyte).
Storage as a Service – A type of IaaS in which subscribers pay for storage capacity and data moving in and out, both on a per
Gigabyte basis.
Public Cloud – Hosted IaaS services in which server infrastructure is shared among enterprise subscribers. Users access their
public cloud applications via the public Internet or virtual private networks.
Private Cloud – Hosted IaaS services in which each server is dedicated to a single enterprise subscriber. Access is generally
via a private network.
Note that enterprises are also building “private clouds” in their on-premises data centers, using virtualization and orchestration
software on their own infrastructure. We have not included those in this study. Instead, we are focusing on hosted private clouds
offered “as a Service” by third-party providers.
Hybrid Cloud – The term “hybrid cloud” generally denotes a combination of cloud environments under the management of a
single enterprise; for example, private and public hosted cloud services or on-premises private cloud and a hosted cloud. For
enterprises, a hybrid cloud holds the promise of easy mobility of data and/or workloads among environments. Ideally, a hybrid
cloud also provides common and centralized management and orchestration tools. In reality, many “hybrid” clouds today
comprise two adjacent environments with little to integrate them—a gap that is being corrected with the rollout of cloud platforms
from several cloud leaders. In this study, we have captured the hosted portion of hybrid clouds in our revenue projections.

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 Market Overview – Scope of Study

Cloud
Services
Market

IaaS PaaS SaaS

Hybrid Cloud
Hosted
(hosted Public Cloud
Private Cloud
portion)

Storage as a Computing
Service as a Service

Included Excluded
in sizing from sizing

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Market Overview—Scope of Study (continued)

In our market sizing, Frost & Sullivan has included IaaS services, as defined—comprising both public and hosted private cloud,
and both Storage as a Service and Computing as a Service.
Where possible, we have excluded revenue from value-added services that providers may offer to their cloud customers,
including fee-based managed and professional services. However, many providers in the market do not split their IaaS revenues
based on self-service and managed services. For example, Rackspace stopped selling pure IaaS in late 2014. The company’s
offer comes as a bundle wherein customers not only buy compute, storage, databases and a variety of other products as a
service, but they also purchase a support package to go along with it. Prices range from $ cents per GB hour of compute
capacity for a basic package, to $ cents per GB hour for a broader package, with a $ minimum. Inconsistencies in
reporting may have led to inclusion of some revenues from managed portions in our total market estimate. We will revise this
estimate as providers clarify their definitions and start to record revenues separately.
We have also excluded hosted services that are not available on-demand, such as co-location and managed hosting services
(see report: CC 3-4, U.S. Data Center Services Market), and “pull through” IaaS, in which a provider offers elastic storage or
computing resources as part of a different service offering, such as PaaS or SaaS.
Our reasoning is that this type of service constrains users to a specific platform, rather than providing raw infrastructure.
Furthermore, in most cases, the provider defines the computing or storage resources as an element of the primary service (SaaS
or PaaS), rather than stand-alone IaaS.
While some of the industry’s giants, including Microsoft and Google, entered the cloud infrastructure market as an adjunct to
other cloud services, they both now have a dedicated IaaS offering—Microsoft Azure and Google Compute Engine, respectively.
Although Frost & Sullivan expected platform-based infrastructure services that enable enterprise IT to manage, integrate, and
deliver corporate applications (rather than run them) to emerge as the preferred cloud infrastructure service for enterprises,
relegating pure IaaS to niche use cases such as test and development, market demand for pure IaaS has remained strong.
Database as a Service or DBaaS can be considered a “pull through” IaaS, but due to lack of sufficient data on the revenue
breakdowns from the providers we are counting DBaaS within the IaaS revenue market size.

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 Market Engineering Measurements

Market Overview
Infrastructure as a Service Market: U.S., 2014
MEASUREMENT NAME MEASUREMENT TREND

Market Stage (Nascent, Growth, Mature) Growth —

Market Revenue (2014) $ B ▲
Market Size at End of Forecast Period (2019) $ B ▲
Base Year Market Growth Rate % ▲
Compound Annual Growth Rate (CAGR), 2014-2019 % —
Customer Price Sensitivity (scale of 1 to 10, Low to High) ▼
Number of Competitors + ▲
Market Concentration (% of base year market controlled by top four competitors) % ▼

Decreasing Stable Increasing

TREND
▼ ● ▲ Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan.

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 Market Drivers—Impact and Duration

Drivers 1–2 Years 3–4 Years 5–7 Years

Decrease IT infrastructure costs

Support for disaster recovery and business

continuity plans

Ability to deliver services and applications

faster

Align IT spend to better support business

needs

Better position company to take advantage of

new technology trends

H = High M = Medium L = Low

Source: Frost & Sullivan.

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