Thematic Insights – The Cloud

Cloud Computing Services ("the Cloud") were first discussed in scientific and national security circles in the late 1960s1. With the advance of the modern internet and personal computers in the 1990s, the Cloud became commercially viable. By the turn of the century, Salesforce was one of the earliest companies to offer software as a service via the Cloud.

1 The US Pentagon's Advanced Research Project Agency Networks.

Commercialising the Cloud

  • 1999 Salesforce launches software services to end-users via the Cloud allowing users to download applications without the need for physical downloading and license purchases.
  • 2006 Amazon Web Services launches Simple Storage Service (S3) offering IT infrastructure services to businesses in the form of cloud computing.
  • 2006 Google launches Google Docs Services giving users a way to access their documents anytime, anywhere as well collaborate on shared documents via the Cloud.
  • 2007 Netflix launches its video streaming services for the first time, uploading video content to the Cloud.
  • 2010 Microsoft launches its cloud computing services, Windows Azure. Azure now has 140 data centres in as many countries.
  • 2011 IBM launches its public cloud offering SmartCloud Enterprise
  • 2011 Apple launches iCloud which by 2018 had amassed some 850m users

In the 2000s the Cloud evolved to host a multitude of services from video and music entertainment to healthcare, finance and eventually government services.

Key to the Cloud's growth has been its agility, scalability and cost-efficiency. Proving popular with a wide range of sectors from manufacturing to retail and even agriculture, the Cloud allows organisations to build flexible architecture to handle dynamic applications at lower costs. This in turn has removed the capital and operational expenditure of managing expensive data centres and accompanying services which in turn lightens companies' balance sheets.

At the heart of Cloud's growth are its three primary service models:

  1. Software-as-a-Service - SaaS; gives companies access to software via the Cloud and avoids the need to buy software licenses and install software on individual computers. This segment was the first and now largest segment of cloud service revenues as captured in the pie chart below. Big players include Salesforce, Microsoft, Adobe and SAP.
    Software-as-a-Service logos.gif
  2. Infrastructure-as-a-Service - IaaS: allows businesses to rent or lease servers for computer and storage needs in the cloud rather than via proprietary data centres. This segment was the second Cloud service to develop in the 2000s. Amazon Web Services (AWS) control circa half the market with Microsoft and Alibaba occupying 2nd and 3rd largest market shares.
    Infrastructure-as-a-Service logos.gif
  3. Platform-as-a-Service - PaaS; allows developers and companies to create, host and deploy applications via the Cloud. Often described as "middlewear".  It's the most recent Cloud service to develop and is helping businesses to consolidate multi-vendor cloud solutions. Prominent vendors include Microsoft Azure, Amazon (AWS) and Google Cloud.
    Platform-as-a-Service logos.gif

Public IT Cloud Services Market Revenue Worldwide2


2 Global Public IT Cloud Services Revenue at 2020. Statista

Cloud & the Pandemic

Since the 1990s the Cloud has seen some of its fastest adoption amongst small-to-medium sized businesses. Larger organisations have historically been slower to adopt it due to:

  • pre-existing large in-house IT infrastructure,
  • the need for customised and often multi-vendor solutions; and
  • mistrust over data security issues.

As noted on a recent call with our equity research partner, Redburn, Cloud adoption in large organisations is changing:

The Pandemic has seen a fundamental re-assessment of Cloud solutions by large businesses. In addition, customisation issues have been solved by the development of Platform services (PaaS) which knit together different Cloud services into a single and tailored solution for large organisations.³

Based on our research it is clear that lockdowns, social distancing and remote working have accelerated Cloud adoption across large organisations by several years. Demand has surged in IT, Telecoms, Professional Services4 and Media & Entertainment sectors. Employees in turn are using cloud collaboration platforms for communicating and consuming OTT streaming services.

3 Neil Steer, Partner, European Technology, Redburn Partners
4 Banking, Financial Services and Insurance

Cloud today

As businesses emerge from the Pandemic, the global cloud computing market size is expected to grow at a compound annual growth rate of 16.3% from USD 445.3 billion in 2021 to USD 947.3 billion by 2026.

As the market grows, it is also consolidating amongst a handful of key vendors. Looking at the IaaS market, 64% is captured by 3 companies:


Meanwhile the shift in company spend towards Cloud solutions for each of the three services - Software, Infrastructure and Platform - is clearly illustrated below5:


By 2024, it is estimated that more than half of all applications will be purchased as SaaS and consumed via the Cloud, as opposed to traditional software6. From a regional perspective North America remains the most mature market in terms of Cloud adoption but Asia Pacific is expected to offer significant growth opportunities for cloud computing vendors in the coming decade.

5 Scenarios for the Cloud Marketplace 2021: Gartner, 2021
6 Idem

To navigate this fast-changing sector and understand its implications from an investment perspective, our Investment & Portfolio Advisory team have analysed the market and its key players.

For further information, please do not hesitate to contact your Client Adviser.

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