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Why Legacy IT Vendors Seek Cloud Niche Viability

Leading hyperscale cloud service providers continue to disrupt the traditional IT infrastructure vendor landscape, as more enterprise CIOs and CTOs expand their adoption of multi-cloud strategies that marginalize the remaining applications for on-premises data centers.

Legacy IT vendors that were reluctant to evolve their business model will now seek niche cloud market segments where they can differentiate their offerings. There's no viable growth path that's based upon hardware or software market status-quo assumptions. However, distinctive professional services are still a source of new opportunities.

Cloud Computing Market Development

The worldwide public cloud services market is projected to grow 17.5 percent in 2019 to total $214.3 billion -- that's up from $182.4 billion in 2018, according to the latest global market study by Gartner.

The fastest-growing market segment will be cloud system infrastructure services, or infrastructure as a service (IaaS), which is forecast to grow 27.5 percent in 2019 to reach $38.9 billion -- that's up from $30.5 billion in 2018.

The second-highest growth rate of 21.8 percent will be achieved by cloud application infrastructure services, or platform as a service (PaaS).

"Cloud services are definitely shaking up the industry," said Sid Nag, vice president at Gartner. "At Gartner, we know of no vendor or service provider today whose business model offerings and revenue growth are not influenced by the increasing adoption of cloud-first strategies in organizations. What we see now is only the beginning, though."

Through 2022, Gartner projects the market size and growth of the cloud services industry at nearly three times the growth of overall IT services.

According to recent Gartner surveys, more than a third of organizations see cloud investments as a top three investing priority, which is impacting market offerings. Gartner expects that by the end of 2019, more than 30 percent of technology providers’ new software investments will shift from cloud-first to cloud-only.

This means that license-based software consumption will further plummet, while SaaS and subscription-based cloud consumption models continue their rise.

"Organizations need cloud-related services to get on-boarded onto public clouds and to transform their operations as they adopt public cloud services," said Mr. Nag.

Currently, almost 19 percent of cloud budgets are spent on cloud-related services, such as cloud consulting, implementation, migration and managed services, and Gartner expects that this rate will increase to 28 percent by 2022.

Outlook for Cloud Computing Application Growth

According to the Gartner assessment, as cloud computing continues to become mainstream within most organizations, technology product managers for cloud-related service offerings will need to focus on delivering solutions that combine experience and execution with hyperscale providers’ offerings.

This complementary approach will drive both the transformation and optimization of an organization’s IT infrastructure and operations. This vendor coexistence model is the multi-cloud market reality.

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