1. P ARTNER INSIGHT
Cloud Transition Series: (1) Cloud Definitions and Market
Opportunities
Sponsored by: Microsoft Corp.
Paul Edwards Darren Bibby
July 2011
CLOUD TRANSITION SER IES
www.idc.com
This is the first in a series of eight Partner Insight reports created specifically for
partners by IDC on behalf of Microsoft. See Figure 1 for an overview of these reports.
This first Partner Insight contains IDC's definitions of cloud computing and software
as a service (SaaS), as well as forecasts that show the tremendous opportunity in
F.508.935.4015
these growing areas. The second report covers changes across a partner's business
models in the areas of sales, marketing, and business strategy as a partner takes on
cloud computing, while the other reports in the series cover changes in each of the six
key revenue activities any IT solution provider may undertake.
P.508.872.8200
FIGURE 1
Reports in the IDC Cloud Transition Series
Global Headquarters: 5 Speen Street Framingham, MA 01701 USA
Cloud Definitions and Market Opportunities
Sales, Marketing, and Business Strategy
IT Consulting and Hosting, Outsourced, Resale
Integration Services and Managed Services and Referral
Business Consulting Training and Support Software Product
Services Services Development
Source: IDC, 2011
CLOUD DEFINITIONS AN D MARKET
OPPORTUNITIES
Cloud services represent an emerging model for online delivery of a host of business The cloud model goes
well beyond prior
offerings that will eventually have a significant impact on partners of all types, online delivery
including VARs, services firms, and ISVs. The cloud model goes well beyond prior approaches to make
offerings easier,
online delivery approaches to make offerings easier, cheaper, and often more
cheaper, and often
powerful for customers to consume. For these reasons, partners need to assess how more powerful for
their businesses are positioned to take advantage of the cloud opportunity today and customers to
consume.
to adjust strategy to maximize potential in the future.

2. This IDC document provides a road map of cloud services for partners, providing a
top-line perspective across the following key areas:
 Cloud services defined: The key attributes and deployment models that define
public, private, and hybrid cloud environments, as well as the breadth of end-user
functionality provided across SaaS, platform as a service (PaaS), and
infrastructure as a service (IaaS)
 Cloud services value: From cost savings to services revenue — the important
benefits for partners in participating in the cloud services opportunity and for
customers in adopting this delivery model
 Cloud services market size: A market that is growing at a double-digit pace in
many regions globally and that is making inroads into key industry segments
Cloud Services Defined
Ask a handful of partners to define cloud services and you will get as many different
answers. The same goes for end users. This is because the term cloud services
encompasses a wide array of attributes, deployment models, and functionality.
To simplify and differentiate the cloud model, IDC first defines it as having important
attributes that distinguish it from other computing architectures, including virtualization
and clustering. Specifically, cloud environments are defined as having the following
attributes:
 A standardized, shared services model that enables highly automated turnkey
service provisioning and operation across shared infrastructure resources
 Self-service provisioning by end users via browser-based portals using
standardized service catalogs and menus
 Dynamic, elastic scaling of resource consumption based on changing demand
and business requirements (frequently enabled by virtualization and automated
provisioning and workload migration technologies)
 Consumption-based metering to support pay-as-you-go pricing models for public
cloud services and consumption-based chargeback/showback for private cloud
The second layer IDC uses to define cloud services is deployment models (shown in
Figure 2), which include the following:
 Public shared services: Open to a largely unrestricted universe of potential
users and designed for a market, not a single enterprise
 Private services: Designed for, and access restricted to, an individual company
(It is an internal shared resource, not a commercial offering, where the IT
organization is the "vendor" of the shared service to its users. Private clouds can
be deployed inside a corporate datacenter or can be built and operated by an
outsourcer or a hosting provider.)
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3.  Hybrid services: Where an enterprise has private and public deployment
models, as well as virtual and physical noncloud resources, and where some
services may be delivered in a combined public/private model (e.g., private cloud
"bursting" to a public cloud service)
FIGURE 2
Cloud Deployment Models
Private Hybrid Public
• Designed for, and access • Enterprise’s cloud services • Designed for a market, not a
restricted to, a single portfolio includes both single enterprise
enterprise (or extended private and public cloud • Open to a largely unrestricted
enterprise) services universe of potential users
• An internal shared resource, • Some specific services are • Customers buy at specific
not a commercial offering delivered in a combination of level of abstraction (server,
• IT Org is the “vendor” of the public and private models application, platform)
shared/std service to its users (e.g., private cloud ―bursting • Single-vendor or multi-vendor
to‖ a public cloud service)
Resource Single enterprise/ Virtual and physical (non- Multiple unrelated
Source: Isolation
IDC, 2011 extended enterprise cloud) resources and enterprises (shared)
(dedicated) applications
Control | SLA | Specialization | Security | Agility | Price Advantage | Access | Elasticity
D.I.Y.
IDC's cloud definition also encompasses an important third layer, which is the
functional description of the service (see Figure 3). We align our primary market
categories (e.g., application development and deployment [AD&D]) with the specific
cloud service (e.g., platform as a service) and the corresponding function or
secondary market (e.g., structured data management). One explanatory note is that
applications provided in a cloud services model are defined by IDC as application as
a service — the larger category of software as a service includes application as a
service, platform as a service, and the system infrastructure software portion of
infrastructure as a service.
Servers and storage represent the part of cloud services that isn't in the SaaS
definition. More granularity on definitions in each category is provided in the section
entitled Cloud Services Market Size.
©2011 IDC #229237 3

4. FIGURE 3
IDC's Cloud Services Definition
Source: IDC, 2011
Cloud Services Value
IDC is continually conducting executive interviews and focus groups with a cross-
section of partners worldwide to understand the potential value of cloud services to
partners and their end customers. The following are the distilled results of those
efforts to define cloud services through end benefit across all customer (e.g., size and
industry) and partner (e.g., VAR, SI, ISV) types.
Customers
 Cost Savings
 Project/solution cost can be amortized over time with up-front capital costs
reduced or defrayed in favor of a shift to operating expenses.
 Customers pay only for the services/functionality being used.
 Cloud services require fewer in-house staff and skills and involve fewer costs.
 Reduced Complexity
 Onsite hardware infrastructure requirements are lessened in support of key
cloud-based business applications and overall business operations.
 The use of cloud services encourages more standard IT systems.
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5.  Efficiency
Cloud services provide:
 Faster deployment of services/functionality to end users
 Faster realization of business and/or operational results
 The latest functionality
 Automated upgrades and solution management
 Continuous improvements
Partners
 Market Expansion
 Partners managing complex on-premise assets (i.e., software and hardware)
at customer sites are constrained to work within geographical boundaries.
The ability to manage cloud services remotely, with little or no responsibility
for the underlying assets, positions partners to expand into other regions.
 The capability of cloud-based solutions to address both simplistic and The capability of
cloud-based solutions
complex customer requirements allows partners to serve across customer to address both
size segments (small, medium sized, and large) and industries. simplistic and
complex customer
 Recurring Revenue requirements allows
partners to serve
across customer size
 Although cloud-based fees are typically lower in terms of total dollars but are segments (small,
higher in margin than on-premise software license deals, they are important to medium sized, and
large) and industries.
partner businesses in establishing ongoing revenue and combining with their
own recurrent services, even after any initial, one-time services are complete.
 Customer Loyalty
 The ongoing fee structure of cloud-based solutions helps partners maintain
regular contact with customers to build long-term relationships and capitalize
on upgrade and cross-sell opportunities.
 Leverage Existing Skills
 Taking advantage of cloud opportunities often requires partners to acquire
new skills (e.g., business domain expertise), but there are still underlying
technologies in cloud solutions for which partners can leverage existing
knowledge, skills, and experience.
 Leveraging Vendor Investment
 Vendors such as Microsoft are committing to driving higher cloud revenue
and market share and using all partner types to help achieve those goals.
Leveraging a vendor's available cloud-based attributes (e.g., development
platform, resale/referral fees, business and technology training, hosted
assets) is an important factor in partners participating in, and growing their
business from, the cloud economy.
©2011 IDC #229237 5

6.  Services Revenue
 Cloud provides the potential for growth in partner services, including integration
of hybrid environments, environment assessments, business consulting, etc.
Cloud Services Market Size
The market for cloud services is growing globally and represents an opportunity for
partners to get on the front end of this expansion, whether for services, resale, or
development. In addition, there are clear areas in the market where high growth is
occurring and on which partners will be required to set their sights in order to
maximize revenue opportunity and margin.
IDC's forecast for public cloud services is segmented by five major categories, as follows:
 Applications. This category includes collaborative applications (e.g., messaging,
conferencing, and team collaboration software) and business applications (e.g.,
CRM, ERP, financial, HCM, PLM, and SCM) delivered via the cloud services
model. Examples include Microsoft Office 365, Microsoft CRM Online, IBM
LotusLive, Salesforce.com, and more.
 Application development and deployment. This category includes application
development software, application life-cycle management software, enterprise
mashup and portal software, information management and data integration
software, and middleware and business process management software delivered
via the cloud services model. Examples include Microsoft Windows Azure,
Salesforce.com's Force.com, and more.
 System infrastructure software. This category includes system and network
management software, security software, storage management software, and
system software delivered via the cloud services model. Examples include
Microsoft Windows Intune, Symantec cloud security or backup offerings, and more.
 Basic storage. This category includes storage delivered via the cloud services
model. The "basic" qualifier is used to include only raw storage capacity
delivered as a cloud service. Advanced storage cloud services (e.g., backup and
archiving) are in the system infrastructure software category. Examples include
Microsoft Windows Azure Storage.
 Servers. This category includes server computing capacity delivered via the
cloud services model. Good examples of basic storage and servers are Microsoft
Windows Azure and Amazon Web Services.
IDC believes that public cloud services will be an oversized contributor to IT industry IDC believes that
public cloud services
growth, with rates over five times those of traditional IT products. Worldwide revenue will be an oversized
for public cloud exceeded $16 billion in 2009 but is forecast to reach $55.5 billion in contributor to IT
industry growth, with
2014, representing a compound annual growth rate of 27.4% (see Table 1). rates over five times
those of traditional IT
Among the five primary cloud services categories in Table 1, cloud applications products.
dominate, representing close to 50% of worldwide public IT cloud services revenue in
2011. However, by 2014, a less skewed distribution of revenue will occur among
these segments, with applications accounting for a little over one-third of market
revenue and increased revenue shares in the infrastructure and AD&D segments.
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7. TABLE 1
Worldwide Public IT Cloud Services Revenue by Segment, 2009 –2014 ($M)
2014
2009–2014 Share
2009 2010 2011 2012 2013 2014 CAGR (%) (%)
Applications 8,118 10,431 13,040 15,332 17,470 20,580 20.4 37.1
Application 1,647 2,264 3,130 4,325 6,075 8,618 39.2 15.5
development
and deployment
System 3,385 4,381 5,676 7,194 8,877 11,345 27.4 20.5
infrastructure
software
Servers 1,974 2,958 3,890 4,960 6,000 7,548 30.8 13.6
Storage (basic) 1,424 2,140 2,998 4,098 5,414 7,366 38.9 13.3
Total 16,549 22,173 28,734 35,911 43,837 55,457 27.4 100
Source: IDC, 2011
In addition, worldwide adoption growth will shift away from U.S. dominance. As shown
in Figure 4, revenue from public cloud services in 2011 will be heavily concentrated in
the United States (63%), but by 2014 this share will drop to 51.4%. Other
regions/countries — notably Western Europe (30.2%) and Asia/Pacific (excluding
Japan) (8.9%) — can be expected to grow share rapidly.
FIGURE 4
Public Cloud Services Revenue Share by Reg ion, 2011
Middle
Central/Eastern East/Africa
Europe (2.0%)
Asia/Pacific (1.0%)
Latin America
(excluding Japan)
(1.0%)
(6.0%)
Japan (2.0%)
Western Europe
(24.0%)
United States
(63.0%)
Canada (1.0%)
Source: IDC, 2011
©2011 IDC #229237 7

8. Lastly, the opportunity for cloud services in industries is also growing, but it's
important to isolate those that are growing the fastest. The largest public cloud
services market is in the United States, which provides a good context for
understanding the opportunity for cloud across industries worldwide.
The largest industries in 2010 (in order of magnitude) for public cloud were
professional services, communications and media, and discrete and process
manufacturing. All of these industries are also expected to grow at healthy rates.
Professional services, for example, is a sweet spot of public cloud services due to the
multitude of information-dependent midsize companies that will adopt SaaS as well
as the large services companies that will be customers of wholesale basic storage
and AD&D tools. This industry will have the highest rate of growth in public cloud
through 2014 (see Figure 5), followed by communications and media, education, and
healthcare.
IDC expects that industries that are highly regulated or have serious privacy and
security data concerns, such as government and banking, will be limited in their
spending on public cloud services beyond certain applications like email, messaging,
and collaboration. However, IDC also believes that industries that are typically
associated with the highest levels of IT spending (e.g., banking, manufacturing, and
government) will spend proportionally more on private cloud IT services for reasons of
control, security, compliance, and privacy.
FIGURE 5
U.S. Public IT Cloud Services 2009–2014 CAGR by
Fastest-Growing Verticals
Prof essional services 27.9
Communications and media 24.8
Education 23.4
Healthcare 22.9
Total 21.6
0 5 10 15 20 25 30
(%)
Source: IDC, 2011
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9. CONCLUSION AND NEXT STEPS
Cloud services represent an emerging opportunity for partners of all types, including
VARs, services firms, and ISVs. The opportunity for partners resides in a wide array
of activities across resale, services, and development. However, it's of key
importance that partners have a whole understanding of the what, where, how, and
why of cloud services prior to embarking on wholesale business strategy change.
This document has made clear what cloud services are, the potential value derived by
customers and partners, and where market growth is occurring. Partners are
encouraged to use IDC's cloud definition to present a standardized view to current
and potential customers for clarity of communications. The key potential benefits of
cloud computing for end customers and partners are meant to provide partners with
an informal benchmark when building customer value propositions and in planning
cloud-focused strategy. Lastly, partners should use the public cloud services forecast
to identify customer markets and/or cloud categories that represent their best
opportunity for success.
Your next step is to understand how moving to cloud computing will affect your own
business model. Review the next report in the series, Cloud Transition Series: Sales,
Marketing, and Business Strategy, and then consider reviewing the practice-specific
Partner Insight reports on one or more of the six practice areas.
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©2011 IDC #229237 9