STATE OF THE CLOUD 2018

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The cloud era began in March, 2006 with the launch of Amazon Web Services’ Simple Storage Service (S3). It began modestly, as an extension of storage capacity and a platform for developers to invent and experiment. Since then, the cloud has turned into a revolution that has completely transformed how IT services are provisioned and business operations are managed. Now, with organizations sending a majority of the their workloads to the cloud, it is becoming the center of the IT universe: orchestrating business processes, analytics, and real-time operational data. It’s also driving the next wave of digital innovation that will reshape our world, from AI and IoT to autonomous vehicles.

Public cloud spending is projected to surpass $220B by 2020.1 The so-called hyperscalers, led by Amazon and Microsoft, are each approaching $20B annual revenue run rates for their commercial cloud businesses2

But the competition is catching up fast: IBM and Google Cloud Platform are both poised to make major inroads in 2018 and chip away market share.

To help make sense of this tumultuous environment, this report offers a brief overview of five of the leading trends shaping the dynamic world of cloud computing in 2018.

Since launching its cloud business in 2006, Amazon Web Services (AWS) has dominated the global enterprise cloud marketplace. Now, they’ve been pushed off their throne, at least for now, by Microsoft Azure, which ended the year on top of the heap from a revenue standpoint.

Azure delivered $18.6 billion in annual revenues, compared to Amazon Web Services’ $17.5 billion. And on top of that formidable revenue base, Microsoft is also experiencing scorching growth. In Q4 2017, Azure revenues grew a whopping 98 percent year-over-year. Although AWS sales weren’t exactly tepid -- they grew 45 percent.3 IBM is right behind them and gaining speed, reporting $17.0 billion in cloud revenue for 2017.4 Google came in at number four, although it doesn’t report its enterprise cloud revenue as a separate segment.

Microsoft CEO Satya Nadella’s goal is to build the company’s future around the cloud, and it appears his vision is well on track. Analysts predict another big year ahead -- with revenues growing at 88 percent in 2018.5

But don’t expect Microsoft to run away with the market. While it has undeniable strengths even AWS can’t match -- including deep tentacles into every IT department on the planet, plus a strong AI ecosystem -- the competition in 2018 will be formidable. With companies like Google, SAP, Salesforce, IBM and Oracle nipping at its heels -- not to mention AWS -- Microsoft will need to execute flawlessly, gaining more market share in its core cloud business even as it concentrates on building out its AI franchise.

1. MICROSOFT WILL TRY TO SOLIDIFY NEW POSITION AS #1 GLOBAL ENTERPRISE CLOUD PROVIDER

INTRODUCTION

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Year-over-year revenue growth in 2017 for Microsoft’s enterprise cloud unit.

98%

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While the vast majority of companies are sold on the cloud and building their futures around it, some still need some convincing -- while others remain hamstrung by regulatory requirements such as EU GDPR.

Expect this situation to improve in 2018. Oracle predicts that even regulated industries will shift 50 percent of production workloads to the cloud by 2020 as providers introduce more sophisticated systems and strategies to address security concerns6 .

CIOs must revise their line of inquiry from “Is the cloud secure?” to “Am I using the cloud securely?”, according to Gartner. “The challenge exists not in the security of the cloud itself, but in the policies and technologies for security and control of the technology.

“In nearly all cases, it is the user — not the cloud provider — who fails to manage the controls used to protect an organization’s data,” according to the research firm, which maintains that at least 95% of cloud security failures over the next four years will be the customer’s fault7 .

Gartner asserts that CIOs can address the problem with stringent policies on cloud ownership, responsibility and risk acceptance, and by establishing management and monitoring systems that can manage the complexity associated with a multi-cloud environment.8

Public cloud will reach an important milestone in 2018, hosting more than 50% of global enterprise workloads9 .

IDC reports that “over the next 12 months, enterprises will see a shift in IT operations spend from on-premises to public cloud, with over 30% of enterprises spending more on public cloud operations than on their other datacenter IT operations combined10 .”

The RightScale survey confirms that growth trajectory, finding that nearly three-quarters (71 percent) of enterprises plan to grow public cloud spending by more than 20 percent in 2018, with one in five enterprises expecting to double their investment over last year’s levels.

Small and medium-sized businesses are adopting public cloud with equal fervor, with 17 percent committing to double their investment in public cloud this year

Public cloud spending as a whole is projected to reach $178 billion in 2018, growing at a 22% CAGR11 .

3. ENTERPRISES WILL CONTINUE TO DEVOTE MORE SPENDING TO PUBLIC CLOUD VS. ON-PREMISE.

2. SECURITY CONCERNS THAT INHIBIT CLOUD ADOPTION WILL CONTINUE TO EASE IN 2018.

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Percent of companies that plan to grow their public cloud spend by > 20% in 2018.12

71%

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Most organizations today use multiple cloud providers, leveraging the specialized capabilities of each to manage an ever-expanding variety of use cases. Currently, 81 percent of enterprises have a multi-cloud strategy13 , and RightScale reports they rely on an average of five cloud platforms each.

Although the hyperscalers are naturally working feverishly to change this and trying to gain most, if not all, of a customer’s cloud spend, this will be the exception and not the rule. Most customers will continue to opt for the multi-cloud approach in order to meet specialized business needs. The desire for better redundancy and pricing leverage are also factors.

IDC predicts that “by 2020, over 90% of enterprises will use multiple cloud services and platforms, with more than one-third of these organizations having established mechanisms to operate their multi-cloud environments.”14

The latest data shows that AWS and Microsoft Azure are solid fixtures in most companies’ cloud portfolios -- no surprise there. Yet, companies are expanding their ecosystem to include companies like Nutanix, MuleSoft, Snowflake, and Yugabyte, and analysts believe this trend will only grow as needs become more specialized and hybrid cloud continues to scale.

Orchestration tools and software management overlays offered by providers like these are making it easier to manage applications and workloads across a variety of cloud vendors. Container orchestration tools like Kubernetes, for example, are vendor agnostic, making it much easier to port applications from one cloud platform to another with refactoring code or tooling.

Hyper-agile architectures, which have risen to prominence thanks to the open source movement, are not only making migration easier. They’re profoundly changing the way applications are developed, tested and deployed. IDC predicts that by 2021, “enterprise apps will shift toward hyper-agile architectures, with 80 percent of application development on cloud platforms using microservices and functions, and over 95 percent of new microservices deployed in containers.”15

“Apps that were hosted on hardware servers were built as monoliths. The codebase included every feature and service that made up the app as a single, giant lump of code,” according to Benjamin Wooten of the IT consultancy Contino. “Today, with microservices architecture, apps are being built as a distributed collection of services, which pairs up perfectly with the distributed nature of the cloud.”16

The wildly popular Kubernetes edged out Docker last year to become the undisputed champion in container orchestration. Now Amazon has thrown its support behind Kubernetes as well, with its Elastic Container Service for Kubernetes (Amazon EKS).

5. ORCHESTRATION, MICROSERVICES AND CONTAINERS WILL ENTER THE MAINSTREAM.

4. THE MULTI-CLOUD APPROACH WILL DOMINATE.

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of companies will use multiple cloud services and platforms by 2020.17

90%

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Over the last decade, the cloud has grown from a web hosting platform and extension of storage capacity into the foundational infrastructure driving digital innovation and business transformation in the 21st century. In 2018, the number of workloads moving to the cloud will continue to increase. The largest share of IT spend to date will be dedicated to migration to the public cloud, and that migration, increasingly orchestrated through Kubernetes containers, will remain the top priority for IT leaders.

The cloud will also reach an important inflection point in 2018, transitioning from its traditional role as an extension of on-premise IT infrastructure into a strategic enabler of core business processes and mission-critical applications that directly drive business value and bottom line outcomes.

The cloud will also be the prime orchestrator of emerging technologies like artificial intelligence; as well as systems supporting IoT applications and services. To accomplish this, organizations will rely on AWS, Microsoft Azure, IBM and Google Cloud Platform and specialty providers, many of which will rely on microservices and container solutions like Kubernetes.

Copyright ©2018 Centrificle LLC. or its subsidiaries. All Rights Reserved. Published in the USA 06/17. White Paper D4328. Centrificle. or its subsidiaries believe the information in this document is accurate as of its publication date. The information is subject to change without notice.

SUMMARY:

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Projected spend on public cloud in 2018.18

$178B

1 Dave Bartoletti, Lauren E. Nelson, Liz Herbert, Paul Miller, Charlie Dai, Andras Cser, Andre Kind ness with Glenn O’Donnell, William McKeon-White, Peggy Dostie, “Forrester’s Predictions 2018: Cloud Computing Accelerates Enterprise Transformation Everywhere,” Nov. 7, 2017. 2 Jordan Novet, “Amazon cloud revenue jumps 45 percent in fourth quarter” Jordan Novet, CNBC.com, Feb. 1, 2018. 3 Ibid. 4 Ibid.5 Jordan Novet, “Amazon Lost Cloud Market Share to Microsoft in the Fourth-Quarter,” cnbc.com, Jan. 12, 2018. 6 Oracle Cloud Predictions 2018.7 Kasey Panetta, “Is the Cloud Secure? Recommendations For Developing a Cloud Computing Strat-egy and Predictions For the Future of Cloud Security,” Gartner, March 27, 2018. 8 Ibid.9 Dave Bartoletti, Lauren E. Nelson, Liz Herbert, Paul Miller, Charlie Dai, Andras Cser, Andre Kind-ness with Glenn O’Donnell, William McKeon-White, Peggy Dostie, “Forrester’s Predictions 2018: Cloud Computing Accelerates Enterprise Transformation Everywhere,” Nov. 7, 2017. 10 Frank Gens, “Worldwide IT Industry 2018 Predictions,” IDC FutureScape Web Conference, Oct. 31, 2017. 11 Dave Bartoletti, Lauren E. Nelson, Liz Herbert, Paul Miller, Charlie Dai, Andras Cser, Andre Kind-ness with Glenn O’Donnell, William McKeon-White, Peggy Dostie, “Forrester’s Predictions 2018: Cloud Computing Accelerates Enterprise Transformation Everywhere,” Nov. 7, 2017.12 Kim Weins, “Cloud Computing Trends: 2018 State of the Cloud Survey,” RightScale, Feb. 13, 2018. 13 Ibid.14 Frank Gens, “Worldwide IT Industry 2018 Predictions,” IDC FutureScape Web Conference, Oct. 31, 2017. 15 Ibid.16 Benjamin Wooten, “What is Cloud Native Architecture and Why Is It So Important?,” Contino, Sep. 11, 2017. 17 Frank Gens, “Worldwide IT Industry 2018 Predictions,” IDC FutureScape Web Conference, Oct. 31, 2017. 18 Dave Bartoletti, Lauren E. Nelson, Liz Herbert, Paul Miller, Charlie Dai, Andras Cser, Andre Kind-ness with Glenn O’Donnell, William McKeon-White, Peggy Dostie, “Forrester’s Predictions 2018: Cloud Computing Accelerates Enterprise Transformation Everywhere,” Nov. 7, 2017.

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