In 2016, cloud services for the first time surpassed cloud infrastructure in annual sales, driven by spectacular growth from the lower layers of the cloud stack, according to a Synergy Research Group report released Wednesday.
Overall revenues across the six major cloud services and infrastructure segments evaluated by Synergy hit US$148 billion (A$201 billion) in the four financial quarters ending in September, up 25 percent from US$110 billion in the same period of 2015.
Software-as-a-service still accounted for the largest services market, delivering more than US$40 billion in revenue between Q4 2015 and Q3 2016, even when excluding search, social networking, email and e-commerce offerings. But the infrastructure-as-a-service and platform-as-a-service layers expanded far faster as enterprise customers looked to differentiate their digital businesses with custom applications.
IaaS and PaaS products generated almost US$30 billion in revenue, notching 53 percent annual growth, led by leaders Amazon Web Services and Microsoft Azure.
Microsoft, then Salesforce, led the enterprise SaaS market which grew by 34 percent over the previous year.
While SaaS generated some US$10 billion more in total revenue over those four quarters than IaaS and PaaS, the lower layers of the cloud gained steam faster. Those sectors were more popular because they make it possible for businesses to gain competitive advantages, said Jason Noble, vice president of the digital innovation group at Neudesic, a professional services partner of several major cloud providers.
"That's why you see firms more interested in doing something custom that's really a differentiator," Noble told CRN US. "In a digital revolution, they have to create their own platforms."
Neudesic still sees the majority of revenue from reselling IaaS as customers are "basically just moving their data centre," Noble said. But the channel should be most excited by PaaS offerings, where customers are increasingly shifting spending as they look to modernise their apps.
"Everything we do now in terms of architecture is PaaS based," Noble said of Neudesic. "Very rarely are we talking about instances or VMs" when developing new software.
Hosted private clouds also grew at a brisk pace of 35 percent over the last four quarters, delivering roughly US$8 billion in revenue, according to Synergy. That segment is led by IBM, followed by Rackspace.
But 2016 is particularly "notable as the year in which spend on cloud services overtook spend on cloud infrastructure hardware and software," the Synergy report said. "In aggregate cloud service markets are now growing three times more quickly than cloud infrastructure hardware and software."
Global cloud providers and corporate data centre operators spent more than US$65 billion in 2016 on the hardware and software needed to build out their cloud infrastructure. More than half of that spending came from enterprises building their own private clouds.
But spending on private data centre only crawled upward in 2016 – an uptick of less than 5 percent. HPE and Dell EMC were the market leaders, in that order.
Spending on infrastructure for powering public clouds grew faster than 20 percent and those operators were buying more equipment from Cisco, followed by HPE, than any other vendors.
Cloud-based communications also took in between US$4 billion and US$5 billion, representing market growth above 15 percent. The emerging Unified Communications-as-a-Service (UCaaS) sector was led by Cisco, followed by the GoTo portfolio that Citrix Systems spun off last year.
"UCaaS, while in many ways a different type of market, is also growing steadily and driving some radical changes in business communications," the report stated.
"We tagged 2015 as the year when cloud became mainstream, and I’d say that 2016 is the year that cloud started to dominate many IT market segments," Synergy Research Group founder Jeremy Duke said in a statement accompanying the report.
“Major barriers to cloud adoption are now almost a thing of the past, especially on the public cloud side. Cloud technologies are now generating massive revenues for technology vendors and cloud service providers, and yet there are still many years of strong growth ahead,” Duke said.