What's in store for cloud IaaS in 2015?

Spending on public cloud IaaS is growing more than five times faster than overall IT spending.

Market forces are driving organisations to seek more agile and responsive technology solutions to meet changing business needs, and many organisations are finding that cloud infrastructure as a service (IaaS) is part of the answer. Faced with fierce competition, however, 2015 will see the market ripe for consolidation, driving a period of significant transition and upheaval.

Spending on public cloud IaaS is expected to reach US$36.6 billion globally by the end of 2018, according to Gartner’s latest forecast, and we’ll see spending on it grow more than five times faster than overall IT spending.

Gartner research shows that agility is the main reason organisations are investing in cloud to respond to changing business needs. It rates above a raft of other reasons, such as scalability, cost reduction and innovation.

The propensity to adopt cloud IaaS is also influenced by the organisation’s general operating environment and unique industry factors, often relating to security, privacy and/or data residency. Not surprisingly, we are seeing significantly lower adoption of a ‘cloud-first’ policy for IaaS within industry sectors driven by specific regulatory and legislative mandates, such as government, banking, insurance and utilities. Industries such as education also show a lower propensity for a ‘cloud-IaaS-first’ policy, but show heightened use of cloud IaaS as an option.

In line with this, many of the industries with lower IaaS adoption are those that traditionally have higher average investment in IT. The reverse is also true, with the services sector, retailers and wholesalers showing higher likelihood to adopt cloud IaaS. Ignoring regulatory barriers, it seems possible that cloud use will be higher among organisations with lower investment in on-premises IT.

Despite the market growth, however, public cloud IaaS is dominated by only a few key global providers - most notably Amazon Web Services, but increasingly also Microsoft Azure and Google Compute Engine. Between them, these three providers comprise the majority of workloads running in public cloud IaaS in 2015.

Faced with fierce competition from these players, we can expect many of the other public cloud IaaS providers to adjust their business and technology plans, either to bolster areas of strength or stem losses, which will inevitably lead to further concentration of workloads.

We’ll also see these providers begin to re-platform, moving away from custom engineering to leverage the growing potential of alternatives - including OpenStack - to reduce or refocus development effort. Others are likely to make a business decision to begin to exit from public offerings in favour of private, intending to add value through offerings such as managed services.

For many existing customers, however, such activity will result in review and re-evaluation and, in many cases, unplanned migration costs.

Michael Warrilow is a Research Director at Gartner. His primary research area is modern infrastructure software, including virtualisation, cloud and IT operations. He works with clients to understand the best practices, leading trends and competitive landscape involved with optimising data centre infrastructure and operations management.