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Infrastructure as a Service Market Grows Fast

December 17, 2012

Cloud computing service provider revenue from “infrastructure as a service” (IaaS) and platform as a service” (PaaS) topped $2.75 billion in the first half of 2012, suggesting that full-year revenue will exceed $5.75 billion, on a global basis.

Amazon continues to be a clear leader in IaaS with a 34 percent share of the worldwide market. Amazon also is ranked second in PaaS, behind salesforce.com, which accounts for 21 percent of the worldwide market.

That should suggest both how concentrated the IaaS market is, with just two firms holding 55 percent market share.


Other related parts of the market, such as managed hosting and colocation, are highly fragmented. Rackspace, Verizon, NTT (News - Alert), British Telecom, IBM, France Telecom-Orange, SingTel and China Telecom all have market share of five percent or less.

Equinix is the clear leader in colocation with an 11 percent market share, but also features a wide range of competitors, none with more than single-digit share.

In the content delivery networks segment, Akamai (News - Alert) and Level 3 have about 44 percent market share, Synergy Research says.

Service providers widely believe cloud computing will be an important source of new revenue, and there is truth to that belief, but possibly not the way many are thinking about the business.

Cloud computing includes a number of discrete potential revenue streams, ranging from direct retail sales of applications to end users, either consumer or business. There is the rental of computing cycles and storage capability, as well as "platform" as a service, where a customer might rent an applications environment, often for purposes of developing new apps, for example.

By most current projections, SaaS will represent the biggest business, representing the most revenue. IaaS might be the next biggest, while PaaS will remain the smallest business, in terms of revenue. One forecast by the Yankee Group (News - Alert) has SaaS representing perhaps 70 percent of total revenue in 2013.

North America, specifically the U.S., currently represents the largest opportunity for SaaS, and it is the most mature of the regional markets, Gartner (News - Alert) argues. SaaS software revenue is forecast to total $9.1 billion in 2012, up from $7.8 billion in 2011, Gartner says. But that is revenue earned by software suppliers, not directly by hosting companies, data center providers or telcos.

North America shows the highest SaaS deployments in expense management, financials, e-mail and office suites, for example. It might be prudent to discount the notion that cloud computing revenue for service providers running data centers will capture very much of that sort of revenue.

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Edited by Brooke Neuman

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