Cloud adoption strategies will influence more than half of IT outsourcing deals through 2020

The worldwide public cloud services market is projected to grow 18 percent in 2017 to total $246.8 billion, up from $209.2 billion in 2016, according to Gartner. The highest growth will come from Infrastructure as a Service (IaaS), which is projected to grow 36.8 percent in 2017 to reach $34.6 billion. Cloud application services or Software as a Service (SaaS) is expected to grow 20.1 percent to reach $46.3 billion.

"The overall global public cloud market is entering a period of stabilization, with its growth rate peaking at 18 percent in 2017 and then tapering off over the next few years," said Sid Nag, research director at Gartner. "While some organizations are still figuring out where cloud actually fits in their overall IT strategy, an effort to cost optimize and bring forth the path to transformation holds strong promise and results for IT outsourcing (ITO) buyers. Gartner predicts that through 2020, cloud adoption strategies will influence more than 50 percent of IT outsourcing deals."

‘Cloud first’
"Organizations are pursuing strategies because of the multidimensional value of cloud services, including values such as agility, scalability, cost benefits, innovation and business growth," said Mr. Nag. "While all external-sourcing decisions will not result in a virtually automatic move to the cloud, buyers are looking to the 'cloud first' in their decisions, in support of time-to-value impact via speed of implementation."

Table 1. Worldwide Public Cloud Services Forecast (Millions of Dollars)

Source: Gartner (February 2017)

The SaaS market is expected to see a slightly slower growth over the next few years with increasing maturity of SaaS offerings, namely human capital management (HCM) and customer relationship management (CRM) and the acceleration in the buying of financial applications. Nevertheless, SaaS will remain the second largest segment in the global cloud services market.

Shift from cloud-first to cloud-only
"As enterprise application buyers are moving toward a cloud-first mentality, we estimate that more than 50 percent of new 2017 large-enterprise North American application adoptions will be composed of SaaS or other forms of cloud-based solutions," said Mr. Nag. "Midmarket and small enterprises are even further along the adoption curve. By 2019, more than 30 percent of the 100 largest vendors' new software investments will have shifted from cloud-first to cloud-only."

Gartner predicts more cloud growth in the infrastructure compute service space as adoption becomes increasingly mainstream. Additional demand from the migration of infrastructure to the cloud and increased demand from increasingly compute-intensive workloads (such as artificial intelligence, analytics and Internet of Things) both in the enterprise and startup spaces, These factors are driving this growth. Furthermore, the growth of platform as a service (PaaS) is also driving the growth in adoption of IaaS.

China will show high levels of growth
From a regional perspective, China's IaaS cloud market forecast has been increased to account for anticipated higher buyer demand over the forecast period. In particular, the larger pure-play IaaS providers in China, as well as other telecom-related cloud providers driving this market, are reporting significant growth. While China's cloud service market is nascent and several years behind the U.S. and European markets, it is expected to maintain high levels of growth as digital transformation becomes more mainstream over the next five years.

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