Rationale in irrationality – The coming of cloud bust?

What are the current industry growth rate projections for the cloud, and what are some signs that these growth rates could begin to slow in the years ahead?

lightning clouds storm thunder
Christopher Alzati (CC0)

Any technology, product, or service can become so popular that it develops a trendiness, in which case it becomes difficult to determine if the tool actually has its perceived value or is causing overzealousness in the market. Cloud computing has the huge visibility that could allow it to become an overvalued product, which could allow industry analysts to think it will expand more rapidly than it actually will. This article explores the current industry growth rate projections for the cloud and signs that these growth rates could begin to slow in the years ahead.

The numbers: how fast is cloud growing?

For many reasons, businesses are turning toward the cloud. One key one is that a greater understanding has developed that the security of cloud is preferable to the security of on-premise architecture.

For all the reasons that organizations are deciding cloud is the right choice for them, the market is certainly expanding. A Gartner forecast released in October projected that the cloud market was expanding rapidly, particularly in the area of cloud hosting, which is technically called infrastructure-as-a-service, or IaaS (in contrast with other primary cloud service categories platform-as-a-service, or PaaS, and software-as-a-service, or SaaS). There are also many other types of as-a-service solutions (disaster-recovery-as-a-service, or DRaaS, for instance), but those other types of products fall under one of the primary categories of service – IaaS, PaaS, or SaaS.

Gartner projected that IaaS would expand at a compound annual growth rate (CAGR) of 23.31% through 2020. The analyst's estimate suggested that cloud would hit $260.2 billion for 2017, representing a rise from $219.6 billion in 2016.

Gartner predicted the public cloud market would grow worldwide from $153.5 billion to $186.4 billion, which would entail a 21.4% CAGR.

The Gartner report, led by research director Sid Nag, noted that SaaS had been outpacing projections from previous years. To unpack these numbers a bit, the growth is notable of course. It should be understood also, though, that they are in excess of rates of growth that could have been easily considered overzealous. Consider that another way to look at the numbers for cloud hosting, for example, is to think about how much it multiples the size of the market in total by the end year. The estimate from Gartner was that cloud would grow as follow for the years 2016 through 2020: $25.4 billion, $34.7 billion, $45.8 billion, $58.4 billion, and $72.4 billion. When you divide $72.4 billion by $25.4 billion, you can see that the market is expected by Gartner to be 2.85 times its 2016 size in 2020. The basic takeaway from this projection is that cloud computing is growing fast, from large to massive.

A report from April, also released by Gartner, suggested that cloud is starting to put on the brakes just a bit – in the sense of not quite meeting the strong market forecasts that have been published previously. The new report suggested the market would grow more slowly, at 18.5 percent, from 2017 to 2018. Software-as-a-service was projected to expand at 21% from 2017 to 2018. Gartner predicted in October that IaaS would be at $72.4 billion by 2020; the new data suggests the market will be at $67.4 billion by that point. Similarly, Gartner adjusted their expectation for the entire market from $411.4 billion to $260.2 billion for 2020, a significant reduction.

As two other brief comparisons to understand these growth expectations, we can review the numbers on other rapidly growing segments, the internet of things (IoT) and 3D printing.

According to Grand View Research, the industrial IoT will grow at a CAGR of 27.8% through 2025. To consider the entire market, IDC predicts that the global internet of things (IoT) will grow at a 14.6% CAGR through 2021 (numbers starting with the 2017 year, released in December).

Three-dimensional printing is another one of those technologies that just seems to be everywhere all the time right now (and for the past few years). MarketsandMarkets forecasts that the worldwide 3D printing market will grow at 25.76% from 2017 to 2023, with numbers that the analyst released in July. IDC's estimate on 3D printing is not quite as optimistic as that from MarketsandMarkets but is still impressive. IDC projects that the market will rise at a CAGR of 20.5% through 2021.

Cloud computing on the decline? An absurd notion?

Jaroslaw Czaja, CEO of Poland-based software development firm Future Processing, is one of the few thought leaders that you will see at present advancing the notion that cloud computing might be on its way downward. Czaja noted that the way the cloud market will develop is unknown, so we can only make educated guesses.

Czaja referenced the expansion of interest in and deployment of machine learning and IoT solutions, making it possible for organizations to collect an ever-more-mind-boggling volume of big data. The speed with which this data can be obtained keeps rising. Meanwhile, businesses and consumers are expecting higher quality and faster performance, so firms know that they have to keep improving what they offer if they want to remain abreast or ahead of their competition.

Devices within the IoT have to respond immediately to any requests with which they are presented. Edge computing is also growing to serve the IoT since it will mean that the devices are potentially able to get back processed data faster.

Furthermore, the cloud is not currently prepared to be able to handle the amount of data storage that will be needed in 5 years, when it is forecast that there will be many more smart appliances and other connected products than there are currently. The expectation is that the cloud would still be important, but that only the most essential data would be exchanged with the cloud (after which, findings would be sent from the cloud to all devices for development across the environment).

Cloud is continuing to expand at a fast rate right now, as indicated in the projections above. Czaja acknowledged that cloud will continue at a fast growth rate but said that other technologies will also grow alongside it and sometimes be used instead of it.

Czaja is not the only one making these types of statements that cloud might be ready for a decline in growth rate in just a few years. Jonathan Taylor of ManpowerGroup noted that the demand for talent in cloud computing could start to wane as the edge computing industry begins to ascend with the IoT. It is edge computing that is seen as a sort of threat to cloud in these assessments. However, the cloud is typically still a large part of the picture. There is plenty of data in the IT world for these different types of networks.

Cloud computing is not the only type of server that you might want to have implemented – and perhaps managed – through a hosting service or colocation center (in other words, it is not a straight dichotomy between cloud and legacy, but there are various external services that might be valuable).

This article is published as part of the IDG Contributor Network. Want to Join?

Join the Network World communities on Facebook and LinkedIn to comment on topics that are top of mind.
Related:
Now read: Getting grounded in IoT