Global IaaS Industry 2011& Forecast 2014-2016 – Slow adoption by large Enterprises

Infrastructure as a Service is a cloud computing model in which the service provider owns the equipment (Hardware like Storage, Servers, Networking Equipment, etc.  & Software) and is responsible for housing, running and maintaining it and the client typically pays on a per-use basis.  Major players in the IaaS market include Leaders like Amazon Wen Services, Savvis, CSC, Terremark, Bluelock; Challengers like Navisite, Opsource, IBM, GoGrid; Visionaries like Rackspace, Joyent and Niche players like Hosting.com, Tier3, AT&T, Tata Communications, SoftLayer, iland, Carpathia Hosting, Datapipe and Virtacore Systems, according to Gartner Magic Quadrant December 2011. Gartner predicts IaaS is a fast growing market as players like Google & Microsoft entered this market and in future this market will be 1/3^rd of the hosting market. Gartner also forecasts the IaaS market will generate $24.4B in revenue in 2016 from $5.6B in revenue in 2011 and IaaS is expected to grow by over $20B with a CAGR of 41.7% in the forecast period globally. The Compute sub segment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR and other two sub segments CAGR growth - Storage (36.6%) and Print (16%).

Forrester predicts that IaaS market will initially grow for next few years but the market is expected to decline in the long term. Forrester’s report, “Sizing the Cloud”, highlights that IaaS is the second largest public cloud category with a $2.9 billion market size and “IaaS will reach a peak of $5.9 billion in global revenues in 2014 and will then enter a period of significant commoditization, price deterioration and margin pressure and between 2014 and 2020, as a result, the IaaS market will first stagnate and then decline, with total market revenues of $4.8 billion in 2020,” according to Forrester analysts Stefan Ried and Holger Kisker. Yankee Group analysts suggest IaaS might represent $2 billion to $3 billion, globally. IDC also estimates IaaS will decline to $15 billion in 2014 and most of the analysts believe the IaaS market will be larger than the PaaS market and IaaS is one of the most talked about in the cloud space, which saw several important improvements, such as changes in pricing strategies, the appearance of new smaller players, and the entrance of some technology heavyweights.

Enterprise Strategy Group survey published in January 2012 highlights that of more than 600 enterprise and mid-market companies globally; only 27% said they were using public cloud IaaS services. That's up 10% from a similar survey published in early 2011. But 28% of respondents said they have no immediate plans to jump into the cloud, and another 24% said they haven't pulled the trigger on a cloud deployment yet, but plan to at some point in 2012. SMBs are at the forefront of IaaS adoption totally for IT infrastructure needs but large enterprises are selective in adoption and using public IaaS primarily for these specific use cases: R&D projects, load testing, move non critical legacy applications from expensive on premise to off premise, build & deploy new apps and as part of SaaS or PaaS usage. With some of the large enterprises that selectively adopted IaaS couple of years back and who effectively utilized it are becoming test cases for more large enterprises to adopt IaaS within their organizations. There are also concerns that the pricing has not fallen for some time till now but with the entry of more players particularly Large IT players, businesses can expect more choice of offerings and reduction in prices.