Cloud computing increasingly mainstream in wider enterprise IT market

06 March 2017

Cloud computing is maturing, creating a host of opportunities for providers as more and more companies consider the technology for their IT needs. In a new report the cloud market is found to be valued at around 16% of the $1.1 trillion enterprise IT market, while continuing to grow at around 17% per year to 2020. Concerns around cost and security among potential customers has fallen, although compliance and regulatory concerns have grown. 

Cloud computing is increasingly becoming part of the wider IT market, as the technology develops, needs from customers change and the price comes down. To better understand the evolving cloud computing landscape, a new report from Bain & Company, titled ‘The Changing Faces of the Cloud’, maps out the current situation as well as opportunities for the future.

Cloud market revenue growth

The cloud market now represents around 16% of the $1.1 trillion enterprise IT market. The largest segments in the cloud arena are SaaS and public cloud infrastructure and enabling services. The market is however, projected to see strong growth to 2020, hitting average CAGR of 17%. SaaS and IaaS/PaaS are projected to see growth rates of 18% and 27% annually respectively. Private cloud infrastructure & enabling services too are projected to see growth at above 20%, coming in at 25% annually on average.

The research also found that of the total ~$375 billion in revenue growth added to the global enterprise IT pie between 2015 and 2020, 60% is projected to go towards cloud computing solutions, whether at the infrastructure level of the sales and management level.The reasons for growth, according to Michael Heric, a Bain Partner, is that “Cloud providers realized that they can’t compete on price alone. In response, they’ve added services that make their platforms more valuable and easier to use, and customers are willing to pay for these features. This shift in thinking has been the main reason for cloud’s tremendous growth over these last few years.”

Concerns around cloud are shifting

Cloud technology is starting to mature, and with it, perceptions about its vulnerabilities and drawbacks are changing. Data security was in 2015 cited among the top three concerns of 35% of respondents, down from 42% in 2012. Uncertainties about costs and savings have seen the most significant call, down from 36% to 21% of respondents citing it within their top three. Loss of control concerns too have fall, from 22% in 2012 to 19% in 2015.

A number of areas have seen a rise in concern however, with companies increasingly concerned about regulatory or compliance conditions for cloud computing proposition, up from 21% to 27%, while questions about data portability and ownership are up slightly, from 18% to 20%. The biggest rise in concern, however, comes from lock-in conditions, up from 7% in 2012 to 22% in 2015.

Five types of cloud customers

The study further found that the cloud market remains relatively undeveloped. The largest part (90%) of current demand in the segment, according to the firm, stems from replacing or upgrading existing, non-mission critical applications and from the creation of new digital businesses. Its wider uptake into new business models, IT transformations and ways of working has, largely, not yet begun in the industry.

To better understand the future potential of the market, the firm considers five key groups, which were identified by the firm in a 2011 study. A follow up study considered how the groups had transformed their IT usage in relation to the cloud. The ‘early adopters’ or ‘transformational’ group represents around 11% of total respondents. This group was already heavily involved back in 2010, with 44% of its IT operation in the cloud, this has since grown to 69%, with a total value of around $24 billion.

The heterogeneous group (12% of companies surveyed), whose IT priorities evolve over time and whose IT demands are highly technical, has seen its cloud as a % of total IT increase from 13% in 2010 to 36% in 2015, with a total value of around $13 billion to the market. The ‘opportunistic adopters’ (21%), have diversified IT needs, and operate with sensitive data, this group has seen cloud adoption hit around 37% of IT, with a total spend of around $24 billion.

The largest group however, the ‘slow-and-steady’ segment, has 43% of companies. This group has remained in ‘wait and see’ mode regarding the technology, while also focused on minimising disruption while operating within clear regulatory constraints. The group has increased its share of IT in the cloud slightly, up from 1% in 2010 to 16% in 2015.

Changing spending opportunities

The consultancy firm also sought to identify how the different groups are likely to respond to the increasing maturity of the cloud computing market. One key shift is in the slow-and-steady group, whose appetite for the segment, the firm projects, is likely to hit around 30% of total cloud spending by 28%, as cloud as a % of total IT spending in the group also hits 30%. The transformational group will see its share of total cloud spending decrease as a % but stay relatively close in absolute terms to the 2015 result, while the transformational group will see its share of total IT spending decrease as the segment reaches saturation.

“Late adopters have made a major jump in cloud use over the last 12 months. They’re entering the cloud market in record numbers and, in a somewhat unexpected move, are using providers few anticipated,” says Michael Heric, a Bain Partner in the firm’s global Technology Practice. “This has created a shake-up among technology providers.”


KPMG withdraws SME cloud accounting service from UK

26 February 2019

Big Four firm KPMG has announced it will withdraw a digital accounting service line targeting small businesses from the UK. The move comes as KPMG UK attempts to consolidate on its highest growth in a decade, dropping aspects of its business which are slower to grow. While the offering will no longer be available in the UK, it will remain on the table for clients outside of Britain.

According to a poll of small and mid-sized enterprises (SMEs) four years ago, 72% viewed digital innovation as important to the future of their businesses, while 43% said it was either high or very high priority as they sought to work smarter and faster in order to make ground on large market incumbents. The research was released by KPMG, and coincided with the firm’s launch a of small business accounting (SBA) service in the UK, which sought to tap into the desire among SMEs to leverage digital technology to improve efficiency.

The service would go on to provide cloud-based bookkeeping to SMEs and micro businesses, and saw KPMG become one of the first of the Big Four to go after the SME market. The move also saw KPMG sink a £40 million investment into a technology platform – as well as 20 Partners and 50 Directors to help grow the offering – to enable the firm to deliver accounting services to small and start-up businesses at a fraction of its usual fees. This included online accounts preparation, bookkeeping, payroll, VAT and corporate tax returns.KPMG withdraws SME cloud accounting service from UKAfter less than five years, however, the project is due to come to an end in the UK offices of the Big Four firm. According to industry news hub Accounting Web, the service had faced closure since the Autumn, and the closure will not result in job losses, as the SBA service professionals will instead by re-deployed in areas where KPMG hopes to grow in 2019. This comes on the back of KPMG UK reporting its highest level of revenue improvement in a decade at the end of its FY19 cycle, with fee income rising 8% and underlying profits jumping up 18%.

The move will likely play a part in the company’s efforts to consolidate on those positive results, especially as KPMG prepares to launch its legal consulting line in the UK. KPMG said it is contacting its existing SBA clients to inform them of its decision. Meanwhile, despite these services being withdrawn in Britain, the Big Four firm confirmed that the SBA line would still be available in other countries.

A KPMG spokesperson said of the news, “Discussions with staff is on-going and we are supporting them and keeping them informed of their options as we wind down SBA. We are looking to redeploy a large number of SBA staff into other roles within KPMG whilst keeping a small number of advisors to work with existing clients until they have found alternative providers for their cloud-based accounting requirements.”

2019 looks set to be a difficult year for UK businesses, with the economic uncertainty brought on by Brexit likely to impact many of the Big Four’s clients. As a result, KPMG is not the only member of the quartet to announce changes to its set up, designed to play to its strengths in the UK, early in the year. A week before, EY announced that it would be relocating its European entity to the mainland, as it sought to circumnavigate potential disruptions in its talent pipeline brought on by the UK’s divorce with the bloc of 27 remaining EU states.