Future Business Outlook for the Cloud Service Provider

Between 2009 and 2015, the worldwide public cloud services market grew from 58.6 billion to $175 billion, according to reports on Statista.com. [1] Despite growth already more than doubling revenue in six years, Gartner, Inc. estimates the market will grow another 16.5 percent in 2016, bringing the total revenue to $204 billion, [1] and the market is expecting to continue the high growth trend through 2017.

As enterprises move their infrastructure needs from data center build-outs to the public cloud, Infrastructure as a Service (IaaS) continues to lead the industry as the fastest-growing segment. Several leaders in the cloud market have a significant lead in the IaaS segment, so service providers wanting to take advantage of the growth in this area would need to differentiate their services for success.

Table 1. Worldwide Public Cloud Services Forecast (Billions of U.S. Dollars)

2015

2015 Growth (%)

2016

2016 Growth (%)

Cloud business process services (BPaaS)

39.2

2.7

42.6

8.7

Cloud application services (SaaS)

31.4

15.5

37.7

20.3

Cloud application infrastructure services (PaaS)

3.8

16.1

4.6

21.1

Cloud system infrastructure services (IaaS)

16.2

31.9

22.4

38.4

Cloud management and security services

5.0

20.7

6.2

24.7

Cloud advertising

79.4

15.4

90.3

13.6

Total market

175.0

13.7

203.9

16.5

BPaaS = business process as a service; PaaS = platform as a service

Source: Gartner (January 2016)

As software vendors shift business models from licensed software installed on-premises to public cloud-based offerings, cloud application services (SaaS) will experience continued growth. Service providers focusing on the SMB market can experience business growth focusing on this segment of the cloud industry. SaaS allows service providers to simplify deployment and keep the acquisition costs manageable for SMB customers, while enabling a consistent experience even when accessing from a mobile device.

Evolution of the Managed Services Provider to Cloud Service Provider

When companies turned to managed services providers originally it was to buy and manage technology solutions that would make their businesses more efficient. In the late 1990s, the Internet was starting to crossover from government use to mainstream use, and hosters would grant companies access to the internet while renting rack space to corporate websites and applications so they could have a website. This line of business evolved from “rack hoster” to rentable IT admins – who would manage operating systems, hardware, and the middleware and applications that ran on the servers. Then… the world as Managed Service Providers knew it changed and cloud computing came along. Software as a Service was introduced, led by Salesforce, and suddenly the software providers could deliver and manage software to businesses on their own. When SaaS became part of the enterprise market, it offered a scalable deployment model, pay-per-use, and multitenancy – making it difficult for the average MSP or hoster to compete. The public cloud platform enabled SaaS to extend to hosted applications.

MSPs looking to stay in business needed to start evolving. Traditional hosting and application outsourcing opportunities are diminishing but there are many more opportunities to shift to SaaS or cloud platforms. Not all corporate workflows can be moved to the cloud easily, or replaced by SaaS. Many businesses require a customized approach that involves both on premise and cloud-based solutions to meet their unique needs. Gartner, Inc. estimates more than 40% of enterprise will implement hybrid data centers by 2018 [1], up from just 10% currently.

The future of the managed service provider is as a cloud service provider, managing a blended IT environment. Success will involve evolving your business to include a mix of SaaS, in-house, and hosted applications.

Interested in learning more about how DXC can invigorate your service provider business? Or want to speak with one of our licensing experts to review your portfolio at no cost? Email here today!

[1] http://www.statista.com/statistics/273818/global-revenue-generated-with-cloud-computing-since-2009/

[1] http://www.gartner.com/newsroom/id/3188817