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Expect growth higher up the cloud stack in 2016

IT analysts expect markedly increased adoption in 2016 across all layers of the cloud stack, with IaaS leading the growth and higher-end services becoming more attractive.

Infrastructure as a service is expected to continue its torrid growth in the IT market in 2016, but higher-end services may finally start to get more attention this year.

Exact dollar figures vary, but there is a consensus among IT analysts that the infrastructure as a service (IaaS) market will grow by more than 25% in 2016, with some estimates as high as nearly 40%. That translates to a market valued at over $20 billion, and one that's maturing and primed for customers to move higher up the cloud stack.

A recent 451 Research survey also found 29% of respondents' workloads run in some form of cloud, with 16% in public cloud. That number is expected to jump to 57% in two years, with 27% in a public cloud.

"That really says to me, we have crossed over from brave, risk-taking early adopters to the mainstream," said Andrew Reichman, research director at 451 Research, based in New York.

Software as a service (SaaS), which includes popular applications, such as Microsoft Office365 and Salesforce, remains the biggest cloud expenditure for companies, with Gartner estimating the market will reach $37.7 billion in 2016. That segment continues to see steady growth, but several firms expect IaaS and platform as a service (PaaS) to outpace its growth this year.

IaaS will remain the fastest-growing segment of the cloud market this year, anticipated to expand 38.4% to $22.4 billion in sales, according to Gartner. The PaaS market is expected to grow by 21.1% in 2016 to $4.6 billion, exceeding its 16.2% growth in 2015.

IaaS will remain the fastest-growing segment of the cloud market this year, anticipated to expand 38.4% to $22.4 billion in sales, according to Gartner.

The accelerated adoption around public cloud is partly due to traditional hardware vendors being unable to keep pace with the speed and agility of cloud providers to provide users with the latest and greatest services, said Sid Nag, research director at Gartner.

"Buying traditional hardware is a much more elongated process from a time perspective," whereas with Amazon, "the latest technology is being provided to me -- I know they're doing it in the back end and all I'm doing is giving them a check every month," Nag said.

In 451 Research's latest survey, only 11% of respondents said they don't use any form of cloud, and that's expected to shrink below 7% in the next six months. SaaS was the most widely deployed at 60% usage, followed by private cloud at 42%. IaaS is projected to grow by half in the next six months to 47% of users, while PaaS usage will expand from 24% to 35% over the same time period.

PaaS means a lot of different things to different people, Reichman pointed out. That includes prepackaged tools for software developers, but it increasingly includes offerings from Amazon and other IaaS vendors as they move up the stack.

"Clearly, Amazon realizes the risk if they only offer infrastructure," Reichman said. "More and more enterprises want to consume solutions, rather than components. And for them to remain relevant, that's the direction they have to go."

Customers are moving to a cloud-first mentality, where they seek to offload nondifferentiating tasks, such as email and collaboration, to SaaS vendors -- as long as it's secure and effective. Enterprises then start looking further down the stack and will pursue on-premises products only if all other options are exhausted, Reichman added.

One of the primary drivers of PaaS is the rapid growth of data, and how vendors are responding to the need to extrapolate value into applications and how developers build applications, said Larry Carvalho, research manager at IDC. He said he expects there will be significant growth this year around data management, analytics and cognitive technology.

"Maybe two years ago, we didn't have that much data or detection patterns, but now that people have been putting it in the cloud, they are actually getting value out of it," he said.

Expect the rapid growth of IaaS and PaaS to start slowing down by the end of the decade, according to Technology Business Research (TBR) in Hampton, N.H., which estimated public and private IaaS and PaaS spending to hit $90 billion by 2020.

"Growth rates will still be high [in 2019 and 2020]; they just won't be as fast as they were the years prior," said Cassandra Mooshian, an analyst with TBR.

Growth rates will still be high [in 2019 and 2020]; they just won't be as fast as they were the years prior.
Cassandra Mooshianan analyst with Technology Business Research

If there's one segment that hasn't met expectations, it's private cloud, which TBR predicted will grow much more slowly than public cloud in the coming years. Public cloud is more cost-effective, and many of the concerns with the technology have been quieted.

The perception a couple of years ago was that "public cloud wasn't secure and that's why private cloud was going to take off," Mooshian said. "Public cloud companies reacted to that and really beefed up their capabilities, so there's not as much of a difference between multi-tenant and single tenant."

Private cloud actually saw a drop in reported usage in 451 Research's survey, from 55% in the fourth quarter of 2014 to 41% in the third quarter of 2015. Customers aren't dumping what they have, but the downturn is probably more of an indicator that they're smarter about differentiating between virtualized servers being billed as private clouds and the real thing, Reichman said.

"For a while, companies were willing to accept that and now are less so, which is good for the market for companies to be a little more savvy about what they mean by cloud," Reichman said.

Trevor Jones is a news writer with TechTarget's Data Center and Virtualization media group. Contact him at [email protected].

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