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Cloud Infrastructure Spend to Reach $38 Billion in 2016

Several related trends are accelerating the move to cloud computing. The dramatic shift of data center expenditure from enterprise on-premise IT applications to cloud service provider deployments is continuing in 2016, as the use of these services gain new momentum across the globe.

Canalys estimates that worldwide expenditure on cloud infrastructure services reached $8.2 billion in Q1 2016 -- that's up by 53 percent year-on-year. Total spend is forecast to exceed $38 billion in 2016. This includes infrastructure as a service (IaaS) and platform as a service (PaaS) delivered as part of hosted private and public cloud services.

"Business adoption is increasing fast, but it is the growth of consumer-centric services, such as video streaming, content storage, gaming and social networking services, that has been the main driver," said Daniel Liu, research analyst at Canalys.

More Public Cloud Provider Consolidation

The combination of cloud and mobile has enabled new business models and tech start-ups to emerge, giving instant access to billions of customers via online marketplaces. By 2020, the value of the cloud infrastructure services market is expected to reach $190 billion.


The push by the leading public cloud service providers to offer data center capacity to businesses is also having a major impact on the traditional IT vendor industry. Over 50 percent of servers in 2016 will be shipped to hyperscale data centers providing cloud infrastructure services.

But these are typically low-margin and increasingly 'white box' servers, which is affecting IT vendors and channel partners that sell compute and storage components. Moreover, these data centers are scaling rapidly and operated by a few large providers. The top four cloud service providers accounted for nearly 60 percent of the total market in Q1 -- that's up from just over 45 percent two years ago.

Cloud Computing Market Development Outlook

Canalys believes that this transformation is supported by virtually every software company prioritizing the development of their offerings for the cloud. But challenges remain. The massive capital investment required to sustain cloud data centers will see many service providers leave the market – consolidation will likely continue.

These investments were possible in an environment when capital is plentiful, and interest rates are incredibly low, but this will not always be the case. A significant part of cloud use is driven by loss-making, venture-backed Silicon Valley start-ups, whose future looks questionable as investors become more cautious.

According to the Canalys assessment, the ongoing uncertainty as to whether data in the cloud can be kept hidden from the U.S. and other government agencies may make some enterprises wary of embracing public cloud solutions.

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