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Sangara Narayanan
Sangara Narayanan
Articles (508) 

Cloud Growth Continues Unabated

Gartner forecasts for IT spending bode well for the cloud industry

October 12, 2017 | About:

Gartner released its forecast for IT spending last week, and it was filled with good news for top cloud computing players and device manufacturers. According to the market research firm, global IT spending is expected to hit $3.7 trillion in 2018, an increase of 4.3% from 2017.

The company predicts that the enterprise software segment will account for the bulk of IT spending over the next two years, followed by the IT services and devices segments.

Enterprise software and IT services continue to exhibit strong growth, with communications services continuing to drive the majority of spending. Software spending is projected to grow 8.5% in 2017, and it will grow another 9.4% in 2018 to total $387 billion (see Table 1). IT services spending is on pace to grow 4% in 2017 to reach $931 billion and increase 5.3% in 2018 to reach $980 billion.” – Gartner

Who will benefit?

The top five cloud vendors  Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), IBM (NYSE:IBM), Google and Oracle (NYSE:ORCL– will continue to enjoy robust growth in their infrastructure services segment as public cloud adoption continues. But the company that will benefit the most is Microsoft, which has strong presence in both the Software as a Service (SaaS) as well as the Infrastructure as a Service (IaaS) segments.

Office 365 as well as Dynamics 365, both enterprise software products, have grown at double-digit rates in the past several quarters, and if the market is going to further expand, then their growth is all but guaranteed over the next two years as well.

Referring to second-quarter 2017 data, Synergy Research Group wrote:

Microsoft remains the clear leader in overall enterprise SaaS revenues, having overtaken long-time market leader Salesforce a year ago. Microsoft was already rapidly growing its SaaS revenues, but in the second quarter its acquisition of LinkedIn gave its SaaS business a further boost.”

Adoption rates in the SaaS segment remain high because enterprises around the world do not want to risk being left behind. If your competition is already using cloud-based customer relationship management software to assist sales or is using Office 365 to streamline employee interaction, it will be difficult for you to stay away and not take advantage of new software solutions that can improve productivity.

Most of the companies do offer free tiers for clients to try their products, and the pay-as-you-go model makes it extremely cost-effective to get started. The competition between the top vendors has significantly increased the pace of new innovative solutions hitting the market. Salesforce has been doubling down on Artificial Intelligence, Oracle recently launched an autonomous database called 18c, Microsoft keeps releasing new value-added services to Office 365, and Amazon keeps increasing its features list by the hundreds every year.

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The cloud computing market is already becoming one dominated by large-sized vendors. According to data from Synergy Research Group, during the second quarter of the current fiscal, Amazon held 34% market share followed by Microsoft with 11%, IBM with 8% and Google with 5%. These four companies now control more than 50% of the market, which is only going to grow from here.

Microsoft and Amazon are the clear front-runners that will walk away with most of the IT spending growth over the next two years in the Saas and IaaS segments, thanks to their size, scale and, more importantly, the features they have built over the years.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

About the author:

Sangara Narayanan
Sangara Narayanan holds an MBA from Kent State University, Ohio, and has worked on the floor as a trader in New York. You know where. He is passionate about capital markets and specializes in business analysis, stock valuations and making chicken curry

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