Investment advisor Piper Jaffray interviewed 100 CIOs and IT managers, then wrote up its conclusions in a 320-page report, neatly summarized by its title: "The Future Is In the Cloud." Spending on software as a service and cloud computing will grow from 5.7% today to 13.5% of all software spending in five years, it predicts.If cloud spending escalates at that rate, it would amount to 19.2% growth a year. Piper Jaffray authors Mark Murphy and Brian Schwartz add in an IDC projection that IT software budgets will grow 4.7% a year over the next five years and conclude that actual rate of cloud spending will go up at a 23.9% compound annual growth rate.
"In other words," they conclude, "software spending (as a whole) will grow gradually in the next five years, but the mix of spend allocated to cloud-based applications will likely surge rapidly. The cloud computing market is expected to grow five times as fast as the broader software market… a tremendous shift in IT spending is just getting started."
At this early stage of cloud computing, many readers of this report must be shaking their heads in disbelief. Haven't the authors heard the critics of the cloud take off on its vapidness, its absence of substance, it's lack of anything new? Why does Piper Jaffray take such a strong stand that cloud computing software "presents a momentous opportunity for wealth creation among the most innovative emerging cloud computing vendors."
The answer lies in the perceived "unique and compelling economic benefits driven by cloud computing," the report concludes. Those benefits remain to be proved. But I am confident the cloud -- meaning computing on a virtual server, running in a large data center on the Internet made available through automated means to the end user -- will one day be undisputed. It will be established by both business metrics and careful academic research as far more efficient than the forms of computing that have preceded it.
What will be the result, if this becomes a widely accepted notion? "Everything will move to the cloud. We believe people will run their lives, and their businesses, off of the cloud. As broadband Internet connections become pervasive and iPhone-like devices become standard gear for hundreds of millions of consumers, cloud-based applications will proliferate and become ubiquitous," the authors write.
This is just the sort of stuff that drives cloud critics crazy. You can almost hear them say, "What are these guys talking about, 'Everything will move to the cloud?' What kind of nonsense is that?"
What about business applications? Surely the burgeoning business of selling software to businesses won't go away. They'll still want to buy those shrink wrapped packages and pay those maintenance fees, won't they? Well, that might be another way to measure the cost effectiveness of cloud computing from henceforth. How many business applications are being sold for use on premises versus being subscribed to in the cloud? Use of software-as-a-service has become a leading indicator of where the software business is headed.
"Over time, we believe it will be possible to achieve the vision of running 'an entire organization in the cloud," the Piper Jaffray authors wrote.
"This does not mean that ALL production on-premises systems will be immediately ripped out… Companies will still support and maintain traditional on-premise systems due to the substantial historical investment and customizations developed therein," they continued.
"But the breadth of cloud-based offerings is likely to evolve at a frenetic pace and grow at a rapid trajectory while on-premise systems converge asymptotically toward a GDP-level of growth," they concluded. (asymptotically = a straight line always approaching but never meeting a curve)