Cloud computing adoption has evolved beyond a question of "if”, and maybe even beyond "when”. Most enterprises today are using some form of the cloud - whether in a public, private or hybrid model - to host applications, servers, storage or other infrastructure. The real question facing networking professionals is whether they have the right network strategy to support this radical shift in IT service delivery. Some form of partial adoption is now present in 65% of large enterprises, though lower among SMEs. Market growth potential also lies in furthering different aspects of the cloud so market penetration is still currently low. There are large elements of businesses not using the cloud, and even among those that do full adoption remains rare. Moreover, the UK is the most advanced market in Europe in terms of its size and levels of adoption.

Scope for growth remains highly significant; not only are large swathes of commerce, industry and public services yet to be penetrated at all, but among current users, the evolution of cloud computing still has significant opportunity as initially adopted applications offered, such as the basics of email management, disaster recovery/backup, storage and web hosting, are extended to core applications.

Figure 1: UK market for cloud computing, 2010-14 actual and 2015-19 forecast

(£ billion)

Source: MBD estimates and forecasts

Growth of almost 31% in 2014 is set to increase to more than 36% in 2015, with migration to the cloud furthered with the end-of-life of Windows Server 2003 and Microsoft Small Business Server 2003. This is extending the SME market, while the enterprise sector is also growing strongly with the continued resolution of perceived issues concerning data security. Further strong growth of 36% is expected for 2016, and growth will continue to be strong throughout the remainder of the review period, though it will fall in percentage terms due to the higher base calculation. The market will more than double between 2015 and 2019.

The motivations behind the decisions to adopt cloud computing vary significantly between companies and individuals, but the market has already evolved beyond early adopters. Motivations are generally not entrenched in advances in technology, but business transformation goals, with the ability to quickly roll out business processes, flexibly respond to changing market conditions, and enable flexible working practices key to cloud computing adoption. In this sense, economic developments - such as a recession that requires changes in cost structures and the ability to respond to reduced demand - actually promote cloud adoption. Equally, rapid growth periods have a similar effect. Under such a definition and given that cloud adoption remains only a small percentage of the total IT market, the development of the market has little dependency on wider economic trends.

Cloud migration is gathering pace and the UK is one of the most advanced markets in Europe.

Figure 2: Proportion of businesses buying cloud computing services in the UK compared with EU15, by type of service, 2014

(% of companies)

Source: Eurostat

While 24% of companies are using some form of cloud computing service, the variations in application usage indicates a significantly lower total adoption and major further potential.

Software in the cloud represented a market of £4.5 billion in 2014, equivalent to almost 63% of the total cloud market. The other major sector to date is infrastructure, while the platform sector forms the smallest element of the market.

Figure 3: Segmentation of cloud computing by type of service, 2014

(% by value)

Source: MBD estimates

In 2014, sales of cloud computing services to enterprises were estimated to have reached £5.3 billion, equivalent to almost 74% of total sales. SMEs are estimated to have accounted for the remaining £1.9 billion. While there are strong differences in motivation, the adoption of cloud computing permeates consumers, enterprises and SMEs.

Figure 4: Segmentation of cloud computing by type of company, 2014

(£ billion)

Note: Consumer activity included with enterprises

Source: MBD estimates

The vast majority (reportedly in excess of 80%) of SMEs in the UK use one or two service providers for IT infrastructure, with more than half the market single sourcing.

Figure 5: Segmentation of cloud computing by SMEs, 2014

(% by value)

Source: Parallels

Sole use of traditional on-premises infrastructure is being eroded rapidly, having represented 38% of the market in 2012 but falling to 22% in 2014. The most important structure is now a combination of on-premises infrastructure and a private cloud. This route is favoured by large enterprises, accounting for 38% of companies, up from 27% in 2012. A further 20% of companies are now using a mix of both public and private cloud with on-premises infrastructure. This option is slowly gaining in popularity as enterprises look to migrate non-critical functions to the public cloud to benefit from its elasticity. A further 12% of companies combine on-premises infrastructure with the public cloud, with the sector dominated by SMEs. Companies that have totally migrated to the cloud remain in the minority, but include both enterprises that typically opt for a combined public and private cloud mix, to new startups that have the opportunity to opt for a public cloud-only option without the costs of developing in-house infrastructure.

Figure 6: IT infrastructure and cloud use mixes, 2014

(% of user companies)

Source: MBD estimates

The over-arching factors that are intertwined and drive demand in the market are:

• the increased mobility of the environment - many people have multiple devices that need to connect to data residing in data centres, the totality of which effectively defines the cloud

• the growth in speed and reliability of connectivity, making it easier to access and operate in the cloud

• the growth in the volume of data created that needs to be stored and managed securely

• small new company specialisations

As cloud adoption increases, the proportion of companies identifying and realising its benefits is also growing:

Figure 7: Reported benefits of cloud adoption, 2015

(% of respondents)

Source: RightScale 2015 State of the Cloud Report

Fears about the security of the cloud are widely reported as the major limitation on adoption. However, research indicates that while this remains a critical area, a more widely identified issue is a lack of knowledge or expertise.

Companies that have a heritage of website hosting are cash rich. Acquisition activity is therefore strong in a cloud market that is still in its infancy, with companies vying for market share and the skills and infrastructure to offer services as IT eventually trends towards full cloud adoption. At the same time, the potential range of services and end-use requirements are encouraging a host of channel partnerships

Potential cloud customers are confronted by an ever more complex set of decisions in terms of cost, value, effectiveness, complexity, security and compliance. In response, an ecosystem of managed services providers and large infrastructure providers is growing to serve these customers. Since the cloud has disrupted the traditional IT value chain, cloud service providers are now forming key alliances that allow them to excel in delivering one or more services, whether IaaS, PaaS or SaaS. Microsoft, Amazon Web Services and Google all have long-term strategies to capture market share, with all stating that we are in the early days of a long journey to full cloud adoption. All these companies will also require channel partners to go to market.

Figure 9: Analysis of the public cloud top 191 companies by activity, 2015

(number of companies)

Note: Companies can be active in more than one sector

Source: MBD analysis of Metisfile data

The range of companies offering SaaS is increasing, as are the types of applications offered:

Cloud computing is gathering popularity and represents a fundamentally new approach to IT. It enables businesses and individuals to reduce their emphasis on traditional capital intensive software and hardware investments, and switch to a pay-as-you-go methodology, with all the benefits of continuous updates incorporated in a more flexible costing process. The growth of cloud computing is by far the most fundamental IT trend and its adoption is permeating across all end users, from individuals to SMEs and large enterprises.