Synergy's $110B Cloud Spending Report Smashes Other Estimates

Synergy says $110 billion was spent on the cloud in 2015, 300% more than IDC's estimate. Why the difference?
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For the 12 months that ended Sept. 30, spending on cloud computing amounted to $110 billion, according to Synergy Research Group, an amount substantially higher than many other cloud spending estimates.

For example, another noted research firm, IDC, reported Oct. 5 that cloud IT spending will reach $53.1 billion -- but not until 2019. For 2015, the figure was $32.6 billion, counting IT spending on both public cloud services and private cloud installations.

Many observers regard 2015 as the breakout year for cloud computing, the time when companies stopped experimenting with cloud services and started committing to them big time.

It was the year Gartner's Lydia Leong doubled her estimate of Amazon Web Services' presence in the market (10 times that of its closest competitors), the year AWS declared its revenues for the first time and showed a 25% profit margin, and the year Microsoft and IBM redoubled efforts not to let the cloud market slip away from them.

Still, you'd have to double IDC's estimate of cloud spending for 2019 to come close to matching Synergy's 2015 estimate. So who's got it right in 2015? Synergy's figure is more than 300% greater than IDC's.

Let's see what the Synergy figure is actually telling us.

It says cloud spending is growing at a rate of 28% annually, or close to figures projected by Goldman Sachs (30%) and other marketplace estimates. But Synergy appears to be counting not just the well-defined services of infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS) but also cloud-designated output from Cisco, Hewlett Packard Enterprise, and other producers of "cloud" labeled products. At the end of January, HPE won't be a public cloud service provider any more (but it will continue to be a private OpenStack cloud supplier).

Synergy also counts unified communications-as-a-service (UCaas) as an important emerging market, adding $4 billion in revenues from Cisco, RingCentral, 8X8, Vonage, Shoretel, Mitel, and other companies to its cloud total. Unified communications through the cloud, as opposed to capital spending for on-premises communications, covers such things as videoconferencing, email, instant messaging, audio voice messaging, and Internet telephony.

Synergy includes UCaaS alongside SaaS under its "other cloud services" heading, with Salesforce and Microsoft being the market leaders in SaaS, and Cisco and Citrix the leaders in UCaaS.

Under the classification "cloud infrastructure services," Synergy lists Amazon and Microsoft as the leaders in IaaS and PaaS. Microsoft's Azure cloud was initiated as a shared development platform with Visual Studio and .Net tools in 2008, and it has since expanded with offerings of some open source languages and tools.

The Synergy presentation makes no effort to define marketshare between Amazon and Microsoft; it merely lists them as the market leaders in that class.

Likewise, also under cloud infrastructure services, it lists Amazon and IBM as the market leaders in private cloud and hybrid cloud, where on-premises systems are working with a public service supplier. Again, Synergy doesn't define the vendors' marketshare.

A third classification, "infrastructure hardware and software," shows Cisco and HPE as market leaders in providing the networking equipment, servers, and storage for the public cloud, and the same pair, listed in reverse order, as the chief suppliers to the private cloud. In this category, Synergy includes both IT spending and steps outside it. That is, it appears to be counting the amount spent by Amazon, VMware, IBM, Google, and anyone else building cloud data centers to establish that cloud infrastructure, as well as the amount that enterprises spend to establish cloud services.

[Want to see how AWS is trying to expand in the cloud market? See Amazon Starts 2016 With Three Price Cuts.]

This "hardware and software" spending alone accounts for over $60 billion in cloud revenues in 2015, the Synergy report said. That amount explains much of the discrepancy between Synergy and IDC and other market research reports. The IDC report is estimating enterprise IT spending, not Amazon's and other vendors' build-out of infrastructure.

Nevertheless, Synergy offers a composite picture that illustrates what a massive presence cloud computing will have as its build-out continues between now and 2020. Total spending to build and use cloud services is growing at an annual rate of 28%, and will continue to do so, it says.

"In many ways 2015 was the year when cloud became mainstream," Synergy Research Group's chief analyst Jeremy Duke wrote in the report. Barriers to adoption started to fall away last year, he added.

In a similar vein, IDC predicts IT spending on cloud services is growing at an annual rate of 24.1%. No matter how you count it, cloud revenues are well on their way to taking the center stage in IT spending and the world's growth in computing.

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