Cloud computing continues to change the way businesses and consumers operate throughout the world, and it shows no sign of slowing down. Several reports indicate increased spending on cloud services over the next few years, meaning new and existing companies must revamp their business strategies to take advantage of the growing market.
According to a recent report from Gartner, an IT research and advisory firm, the public cloud services market will hit $246.8 billion this year, up 18 percent from 2016's $209.2 billion. By 2020, the market will hit $383.4 billion.
Most of these gains will come from the Infrastructure as a Service market, which will grow at a rate of nearly 37 percent to hit $34.6 billion by 2017's end. Software as a Service will continue to hold much of the market, but growth in this area will slow as existing companies refine their product and fewer new ones emerge.
"Executives have started looking at SaaS and IaaS options first when making decisions."
What's noteworthy is that Gartner believes much of this growth will come from a shift in business priorities. Instead of seeing cloud products as second options, executives have started looking at these tools first when making decisions.
"While all external-sourcing decisions will not result in a virtually automatic move to the cloud, buyers are looking to the 'cloud first' in their decisions, in support of time-to-value impact via speed of implementation," said Sig Nag, research director.
A report from the International Data Corporation shows similar promise. The firm's numbers regarding worldwide spending were different, but it came to the same conclusion as Gartner regarding IaaS: With a five-year compound annual growth rate of 30 percent, infrastructure will grow at a much faster pace than software.
IDC went on to identify who the big spenders in the cloud market will be in the future. Very large businesses – corporations with at least 1,000 employees – will make up the bulk, providing around half of all cloud spending in the coming years. However, large businesses – those with 500 to 999 employees – will be the fastest to increase their spending. The four industries that will invest in cloud software the most over the next five years are professional services, retail, media and telecommunications.
As businesses move away from cloud software and toward infrastructure, SaaS and IaaS providers must sharpen their focus to maintain revenue this year and beyond.
First, they must target those large businesses IDC mentioned: companies with 500 to 999 employees. These businesses want to spend and are desperate for efficient services, so they're prime targets from cloud software and infrastructure providers. Additionally, cloud-based companies should diversify their offers to target very large enterprises hungry for novel ideas.
These days, almost any product or service can operate on a subscription billing model and alleviate the burden of ownership, which are two of the greatest benefits of cloud services. ITProPortal recently called driverless cars "Mobility as a Service," and a report from TechCrunch shed light on IBM's newly launched Blockchain as a Service product. Such creative thinking keeps a cloud business on the cutting edge, showing potential customers the company refuses to let itself get stuck in the past. All it takes is a little entrepreneurship to make these ideas operate effectively on a subscription billing model.
That said, the business-to-consumer market can be incredibly lucrative as well. According to comScore's 2017 U.S. Cross-Platform Future in Focus report, apps that simplify real-world behaviors – paying friends with Venmo, navigating city streets with Waze, dating with Tinder, etc. – are some of the fastest-growing mobile services. Many cloud companies can find success by creating a consumer product monetized with a subscription billing model.
Of course, to target these markets effectively, cloud service providers will have to rely on two tried-and-tested techniques: creating an accessible product and using data to personalize marketing efforts.
A commonly cited advantage of cloud services is that they are more easily accessible than desktop software, mainly due to their mobile capabilities. Therefore, it is imperative that current and future cloud providers adopt a mobile-first ideology when developing their product. According to the comScore report, people spend 70 percent of their digital media time on mobile devices. This information implies smartphones and tablets are the first places people go to when they need to access a digital service.
Collecting this type of data is important, and it's the second idea SaaS and IaaS companies need to carry them through 2020. Kissmetrics detailed how data collection helps a company pinpoint and address the problems of specific customers, not what the business itself perceives as a problem.
Additionally, as Hubspot pointed out, cloud service providers must keep a watchful eye on their churn rates. As the SaaS market in particular reaches full saturate over the coming years, current businesses should be prepared with a healthy number of dedicated customers. An engaged user based will stick around longer, leading to an increased customer lifetime value.
As the cloud market continues to grow while the most sought-after services shift, adopting a forward-thinking strategy that focuses on data, diversification, mobile offerings and targeting markets eager to spend will ensure future success for service providers.