One significant aspect of the big data revolution that we are currently in is the increasing use and importance of cloud computing or more commonly referred to as the “Cloud”.  Like big data, the Cloud has become an essential and nascent part of our lives.

The following information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs. 

 

Do you use a service such as Dropbox to store files and documents that you can access from your tablet? Do you access your music from a service such as iTunes, Apple Music or Spotify?  Do you view and share photos on your iPhone using Apple iCloud?  Do you watch on-demand TV shows and movies on a service such as Netflix?  If you answered yes to any of these questions, then you are using the Cloud in some form.

So what is the Cloud exactly?

In the most fundamental terms, the Cloud is a way of storing and accessing data and programs over the Internet instead of your device’s hard drive.  As a consumer, it allows for the convenience of being able to access information no matter which device you have in front of you as well as being able to have more storage capability and not being limited to a particular device’s hard drive capacity.  In recent years, this has allowed for more consumer applications such as on-demand music and movies to flourish.

For a broader definition of the Cloud, particularly in a business context, it can be referred to as the infrastructure (such as servers and data centres) that support the use of the Internet to deliver services to either consumers or businesses.

For businesses, they can utilise the Cloud in a number of ways:

  • As a Software-as-a-Service (“SaaS”), where businesses subscribe to a particular application it accesses over the Internet
  • As a Platform-as-a-Service (“PaaS”), where businesses can create their own custom applications that are used by employees in the company
  • As Infrastructure-as-a-Service (“IaaS”), where companies such as Amazon, Microsoft and Google provide internet infrastructure that can be utilised by other companies as part of their service offering (as an example, Amazon Web Services provides Cloud services to online companies such as Netflix and Pinterest)

Businesses benefit from the Cloud (compared to traditional networks) in terms of speed of implementation, performance, cost and productivity as well as scalability.  Concerns about security are also being addressed with many larger businesses utilising their own private Clouds (private Clouds are built by an individual company for their own use).

It’s no surprise that the Cloud is already a significant industry.  UBS estimates that in 2015, these 3 public Cloud services discussed above reached US$96 billion in size and by 2020, it will reach US$214 billion.  This does not even take into account the private Cloud space, which may grow from US$17 billion in 2015 to US$74 billion by 2020.

Who dominates the Cloud?

As our society creates and consumes more data each day and the benefits of using the Cloud become even more apparent, there will inevitably be beneficiaries of this trend and we believe these have been largely already determined given the technical expertise and the significant costs required to establish a global Cloud business.

As you can see from the below graphic, the top 4 players – Amazon, Microsoft, IBM and Google have a combined 51% market share of the Cloud market.  For the combined PaaS and IaaS market, UBS estimates their combined market share is closer to 59% and could grow to 77% by 2020.

20160610 Top 5 cloud providers market share infographic

Amazon is the dominant market leader with its market share of over 30% – in fact, the Cloud capacity of Amazon Web Services (“AWS”) is 10 times the size of its next 14 competitors combined in IaaS.  Amazon was an early mover with the Cloud, having established its IaaS business in 2006.  It now has over 1 million customers from start-up companies to Central Governments to large companies such as Adobe, Airbnb, Netflix, Pinterest, McDonald’s and General Electric.

One concern for these vendors of Cloud infrastructure is that pricing is falling as the product becomes more commoditised and competition intensifies amongst the top 4 players.   While this is true at the most basic level with a UBS survey suggesting that current prices are flat or have fallen 10% over the last year, prices do vary across multiple parts of the Cloud from storage, networking to server costs.  Importantly, these Cloud businesses remain highly profitable and continue to grow – as an example, Amazon’s AWS business is growing revenues at more than 50% and generated operating income of almost US$2 billion in 2015 with margins of 27%.  Analysts estimate that AWS could be worth over US$100 billion (about 30% of Amazon’s market value).

Further, as Cloud vendors continue to add new features and services such as data migration, machine learning and visualisation tools as well as Cloud analytics to their offering, it will create further opportunities to add margin to their existing services. The significant projected growth in the Cloud and profitability of Cloud businesses is one of the reasons why AtlasTrend strongly believes big data is a mega investment trend set to generate attractive long term investment returns.

 

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