Market Insight — Cloud Computing

A KPN Ventures Market Insight Report

The increased adaptation of cloud computing/hosting enables enterprises in all verticals to scale their operations to new heights. Previously, businesses needed expensive on-premise hardware and local software/application deployment. But, with the introduction of cloud-based infrastructure solutions, companies can flawlessly scale up or down their IT infrastructure and deploy resources over multiple locations from a central source with increased flexibility and availability.

Digital transformation to the cloud allowed companies to lower their IT costs significantly, enhance their continuity of operations, obtain the most up to date technology standards, collaborate freely and reduce maintenance efforts. But for the technology to reach mass adaption, it requires businesses to ask critical questions such as: how can we migrate our legacy on-premise infrastructure to the cloud? Is the cloud beneficial in terms of costs spending? What is the impact of pivoting from a capital expenditure model to a recurring OPEX model?

The worldwide cloud market is growing steadily, from $182.4B in 2018 to an expected $331B in 2022 (a CAGR 2018–2022 of 16%). Enterprises are increasingly migrating to the public cloud in a phased manner via a combination of public/private cloud and on-premise (hybrid-cloud). In 2018, 85% of the companies are already operating in a hybrid-cloud environment, which is expected to grow towards 98% in 2022. The most significant segment within the cloud market is Software-as-a-Service (SaaS) being deployed via a cloud infrastructure with market size of $85.1B in 2018. However, the Infrastructure-as-a-service (IaaS) segment is expected to grow the fastest with a CAGR of 26% from 2019 to 2023.

In terms of the competitive landscape, AWS, Microsoft (Azure), IBM and Google Cloud are leading the way as cloud infrastructure providers. The overall situation is that of a commodity scenario, thereby competing on price leveraging the economies of scale by adding additional volume. However, there is not a “winner takes it all”, and new companies are entering the industry rapidly. Consequently, there is an evident opportunity for new entrants focusing on specific verticals and/or providing value-added services built on top of the more general/commoditized cloud offering.

Full report here:

From an investment point of view, we see that the cloud market is maturing given a large amount of M&A activity as well as significant funding rounds of >$500M. The total investment amount, as well as the individual funding amounts in cloud-based enterprise software companies in the United States, is significantly higher compared to Europe. However, the total annual investment amounts have remained constant between $10-$16B from 2014 to 2018. Europe, on the other hand, experienced an upward trend in total yearly investment amount, increasing from $1.5B in 2014 to $5B in 2018. Overall, both in Europe and the United States have had significant funding rounds with companies such as Cloudflare, Veeam, Snowflake and Outsystems leading the race. Additionality, the most notable M&A market is the United States with Salesforce, VMware, Cisco, Amazon and Microsoft being the most active acquirers.

In the next research article, the cloud strategy of KPN will be investigated together with an interview with KPN’s head-of cloud and the CEO of Cloudify, one of KPN Ventures’ portfolio companies and active commercial partner KPN.

In case you have any questions regarding the market developments, data or activity within KPN Ventures, feel free to comment or ask questions by sending us an e-mail at kpnventures@kpn.com .

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