Quantifying Cloud Computing Market Share

Recent years have witnessed a proliferation of analyses about the size and relative market share of vendors in the cloud computing space. According to a post in GigaOM, UBS Analysts estimate that “the total market for AWS-type services will be between $5-to-$6 billion in 2010 and will eventually grow to $15-to-$20 billion in 2014.” Gartner, meanwhile, estimates that the IaaS market will grow from $3.7 billion in 2010 to $10.5 billion in 2014. Forrester predicts that IaaS spending alone will increase from $2.9B, projected to grow to $5.85B by 2015 in their recent report, Sizing the Cloud, Understanding and Quantifying the Future of Cloud Computing.

The discrepancies between these estimates of the current and future state of the IaaS space illustrate some of the difficulties specific to quantifying cloud computing market share, many of which of derive from the following reasons:

• The plurality of cloud computing modalities renders calculations of market share complex. While it’s true that the terms IaaS, PaaS and SaaS remain powerful terms for understanding cloud computing deployments, vendors are increasingly offering more than one variation of the IaaS, PaaS and SaaS trinity. Amazon’s Elastic Beanstalk, for example, constitutes a PaaS offering from the largest IaaS vendor in the space. Meanwhile, Red Hat offers an IaaS product called CloudForms alongside a PaaS offering known as OpenShift. Moreover, analysts may choose to include or not include SaaS, PaaS or consulting services from cloud computing products in their estimation of cloud computing revenue.

• Vendors often refuse to disclose cloud computing revenues, especially if they are privately held or otherwise multi-tiered businesses wherein cloud revenue is miniscule in comparison to revenues from other services. Amazon Web Services constitutes the paradigmatic example, here, but the recent acquisitions of Terremark by Verizon and Savvis by CenturyLink may serve as further cases in point, though most reports suggest that both Terremark and Savvis will function as independent business units within their parent company with detailed revenue breakdowns.

• Within the first half of 2011, Dell, HP, IBM, Oracle, Red Hat, Apple, Go Daddy and Microsoft have made increased commitments to cloud computing deployments in ways that promise to significantly impact the existing market share balance.

• The global nature of cloud computing renders quantification of market share challenging because many U.S. cloud computing vendors operate transnationally in partnership with other channel partners that may or may not report revenue in a transparent fashion. Consider Joyent’s partnership with ClusterTech and Qihoo 360 Technologies in China, for example, in this regard.

Despite these methodological difficulties, we can make some definitive statements about vendor revenue. Consider the following revenue data points, for 2010:

1. IaaS
a. Amazon Web Services: $500–700 million
b. Rackspace: $100 million
c. Terremark: $37.5 million, prior to acquisition by Verizon
d. Savvis: $15.2 million, prior to acquisition by CenturyLink
e. Joyent: $10- 20 million

2. SaaS
a. Salesforce.com: $1.3 billion
b. NetSuite: $200 million
c. Rightnow: $200 million
d. SuccessFactors: $200 million
e. Taleo: $200 million

Revenue for PaaS in 2010 is difficult to locate and widely believed to be miniscule. But given the sheer number and heterogeneity of cloud computing vendors and deployments, these numbers represent little consolation for analysts and investors seeking to understand trends in the cloud computing universe. How will Apple’s iCloud fit into this equation, for example? What about Facebook and Google? In what way will Microsoft’s Office 365 change market share in the productivity software space? Part of the difficulty of estimating cloud market share, here, involves the lack of a common set of standards for measuring the size of cloud computing deployments, in addition to the challenges specific to locating data for annualized cloud based revenue per vendor. Until inter-operability standards emerge, analysts will need to develop new methods of imposing discipline and rigor on the conglomeration of cloud computing forms. Meanwhile, vendors and customers alike should push for inter-operability standards that facilitate apples to apples comparisons of cloud offerings from vendors across the globe.


CenturyLink Acquires Savvis for $2.5 billion

Telecom giant CenturyLink has decided to acquire Savvis for $2.5 billion in a move that signals early consolidation within the cloud computing industry. CenturyLink announced a deal whereby Savvis stock would be acquired for $40/share or 11% above the April 26, 2011 closing share price. CenturyLink’s acquisition of Savvis also involves the assumption of $700 million in debt, resulting in a total deal valuation of $3.2 billion. Under the terms of the transaction, Savvis shareholders would receive $30/share and $10 in shares of CenturyLink’s common stock. The acquisition enables CenturyLink to expand upon its existing hosting and colocation capabilities and include, alongside them, Savvis’s IaaS cloud computing platform. Together, CenturyLink and Savvis will operate a total of 48 data centers worldwide, composed of the union of Savvis’s 32 data centers and CenturyLink’s 16 data centers. CenturyLink announced plans to integrate Savvis as a distinct business unit that retains its current leadership team headed by Savvis chairman and CEO, James Ousley. The telecom company’s acquisition of Savvis comes upon the heels of its recent acquisition of Qwest for $10.6 billion in the increasingly consolidated telecommunications vertical. Savvis is known for its large enterprise customer base and annual revenues that are close to a $1 billion. In an interview with ZDNet’s Larry Dignan, Bill Fathers, President of Savvis, noted that cloud based revenues averaged $8 – $10 million a quarter, with 350 of its 3500 customers using its cloud based platform, Symphony. The remainder of Savvis’s revenues are generated by colocation, managed services such as application hosting and network services. Cloud revenues constitute a subset of Savvis’s managed services revenue. Rumours have swirled about the impending acquisition of Savvis since the recent acquisitions of Terremark by Verizon and NaviSite by TimeWarner. Leading industry analysts such as Gartner’s Lydia Leong contends that the acquisition could bode well for Savvis provided that the company is allowed to run semi-independently. Nevertheless, the larger question posed by this acquisition concerns whether acquired cloud vendors such as Terremark and Savvis can continue to deliver the level of product innovation of highly agile competitors such as Rackspace and Amazon.