Who Stands out in the IaaS Space?

Infrastructure as a Service is one of three main areas in the cloud computing stack. Yet, who leads the space

who-stands-out-in-iaas-space

The cloud is one of the biggest transformations to computing and businesses since the birth of the internet. As the cloud has rapidly become part of everyday life both personally and professionally, the term “the cloud” itself has begun to take numerous meanings as its capabilities continuously grow. Infrastructure as a Service (IaaS), for example, is one of the three main areas of the cloud computing stack, where it is complemented by Software as a Service (SaaS) and Platform as a Service (PaaS). Yet, what actually is it and who is leading the space?

What is IaaS?

Gartner defines IaaS as “a standardised, highly automated offering, where compute resources, complemented by storage and networking capabilities, are owned by a service provider and offered to the customer on demand”.

Iaas, PaaS, Saas(Source: Microsoft, 2016)

Businesses can use IaaS to avoid the capital expenditure and complexity of hosting and managing their own infrastructure and on-premises solutions. Cloud service vendors are able to provide IaaS for businesses whereby they remove the need for not only a significant initial investment in the form of servers but also the on-going operating expenditure for maintaining these. In addition, IaaS ensures a substantial upgrade in security, accessibility and also disaster recovery compared to on-premises solutions. IaaS platforms offer highly scalable resources that can be adjusted on-demand and clients typically pay on a per-use basis, which makes them appealing for volatile demand and workloads.

The distinction between the categories of the cloud computing stack is becoming increasing blurred, where their natural crossovers have become evident. SaaS is defined by Microsoft as “software deployed as a hosted service and accessed over the Internet”, while they also define PaaS as “a complete development and deployment environment in the cloud, with resources that enable you to deliver everything from simple cloud-based apps to sophisticated, cloud-enabled enterprise applications”. PaaS includes many of the components of IaaS – the infrastructure itself – but also includes resources such as development tools and database management systems. Where IaaS allows any business to leave the management of their IT infrastructure in the hands of a vendor, PaaS allows for a more hands-on approach from an internal IT professional while still having the infrastructure managed by a vendor.

What is IaaS Worth?

By itself, SaaS is larger than both IaaS and PaaS combined. As displayed below, the SaaS category is 73% ($16 billion) larger than IaaS ($22 billion), which itself is over four times as large as the PaaS category:

Table 1. Worldwide Public Cloud Services Forecast (Billions of U.S. Dollars)
2015 Growth (%) 2016 Growth (%)
Cloud business process services (BPaaS) 39.2 2.7 42.6 8.7
Cloud application services (SaaS) 31 16 38 20
Cloud application infrastructure services (PaaS) 4 16 5 21
Cloud system infrastructure services (IaaS) 16 32 22 38
Cloud management and security services 5 21 6 25
Cloud advertising 79 15 90 14
Total Market 175 14 204 17


(Source: Gartner, 2016)

The public cloud services market as a whole is projected to grow worldwide by 17% in 2016 to make it a $204 billion market: an increase of $29 billion from 2015. Year-over-year growth of 14% in 2015 and 17% in 2016 is a clear reflection of the state of the industry, where it is all going in a rapid uphill trend.

Global spending on IaaS is projected to reach $22 billion in 2016, which is a 38% growth from when it reached $16 billion in 2005. This 38% growth from 2015 to 2016 sees a second consecutive year-over-year growth of over 30%, with IaaS growing by 32% from 2014 to 2015. This consistent high level of growth is a clear reflection of the rapid uptake and immediate benefits that many see in IaaS. While IaaS accounts for just less than 11% of the overall value of the public cloud services, its level of growth is substantially higher.

Who is in the IaaS Market?

cloud infrastructure services - q4 2015 (iaas & paas)

As of Q4 2015, Amazon Web Services (AWS) leads the cloud infrastructure market (inclusive of both IaaS and PaaS) in terms of market share, where they hold 31% of the market. This is comparative to Microsoft Azure’s 9%, IBM Cloud and SoftLayer’s 7%, Google Cloud Platform’s 4% and Salesforce’s 4%. Operating as a separate subsidiary, AWS are obligated to disclose their financial results of their cloud business independently as opposed to their main competitors who add their cloud business as another layer to their core business. Therefore, it is more complex to make a straight ‘apples for apples’ comparison between all of the competitors in the market.

AWS

Amazon has risen from merely an online bookstore to the largest Internet-based retailer in the world. They then joined the cloud business by “offering IT infrastructure services to businesses in the form of web services” and have grown to take a lead with just under a third of the market share. They have benefitted greatly from a first-mover advantage into the cloud industry, where they recently celebrated a 10th birthday for their Amazon Web Services platform, in comparison to its younger competitors such as Microsoft Azure (2010) and Google’s Cloud Platform (2011).

As a whole, AWS sales grew 64% in Q1 2016: a year-over-year increase of 63.8% from 2015. Amazon attributes this growth in sales – $2.6 billion up from $1.6 billion – as a result of “increased customer usage, partially offset by pricing changes”. In order to maintain their top position in the market, “AWS’ strategy has been clear: cut prices”. Since 2008, AWS has lowered its prices more than 50 times”. While Amazon maintains a very strong position, higher levels of growth from key competitors in Microsoft and Google has made it apparent that measures need to be taken to ensure it remains.

Microsoft Azure

Microsoft Azure was previously strictly PaaS before emerging with “the final piece of the puzzle in Microsoft’s cloud portfolio” with Azure Infrastructure Services in April 2013. In the short period since then, they have emerged alongside AWS as market leaders in the infrastructure space. Microsoft’s success in both IaaS and PaaS has seen them named as the only cloud vendor to be named in the “leader” category in Gartner’s Magic Quadrant. Gartner cited that Microsoft “earned top marks for its ability to easily extend and interoperate with your company’s existing on-premises environment”. With leading solutions in both IaaS and PaaS, Microsoft’s ability to offer a hybrid cloud solution makes for a very strong value proposition where “more than half of Azure IaaS customers are already benefiting by adopting higher level PaaS services”.

As stated, Microsoft is one of Amazon’s competitors whose cloud business is integrated into their core functions rather than as a separate subsidiary. Microsoft Azure forms a part of their ‘Intelligent Cloud’ segment in their financials that is inclusive of their other cloud-based operations. As such, Microsoft announced in their quarterly filing that they grew their server products and cloud services revenue by 3% ($153 million), which includes a growth of 127% in Microsoft Azure revenue.

According to TechTarget, “AWS has been king of the public cloud mountain for years. But now, Azure is steadily climbing up, with a host of new services in tow”. Microsoft believes that “Azure has always offered the industry leading capabilities” and their significant growth can certainly be attributed to their top quality service in addition to their hybrid capabilities and cloud services integrations.

Gartner Magic Quadrant

Gartner provides visual snapshots and in-depth analysis of markets via their Magic Quadrants, which “are based on rigorous analysis backed up by a highly structured methodology”. As previously stated, Microsoft is the only vendor to appear in the leader’s quadrant for both IaaS and PaaS. Yet, AWS has been placed in both the highest (Ability to Execute) and furthest right (Completeness of Vision) position in the matrix in both 2014 and 2015.

Figure 1. Gartner Magic Quadrant for Cloud Infrastructure as a Service, Worldwide

Gartner Magic Quadrant IaaS 2014Gartner Magic Quadrant IaaS 2014


While many of their competitors have demonstrated impressive growth – namely from Google and IBM – AWS and Microsoft have remained the only two vendors to be placed in the leader’s quadrant either in 2014 or 2015.What is interesting to observe, though, is the growth that Microsoft have experienced from 2014 to 2015 and how this has been recognised by Gartner:

Gartner Magic Quadrant IaaS 2014 & 2015 AWS Microsoft

The size and scale of AWS make their growth within the quadrant admirable and impressive, yet the substantial growth of Microsoft as represented above should present a considerable threat to Amazon.

Conclusion

As leaders in both Gartner’s Magic Quadrant and also in market share, it is apparent that AWS and Microsoft stand out in the IaaS space. AWS’ early prominence has been maintained, yet it has become very clear that Microsoft is not satisfied with sitting in second place for market share – and AWS appears very aware of that. Microsoft CEO Satya Nadella’s call to “transform them into a cloud-first and mobile-first entity” is reaping its rewards, where analyst firm Forrester believe they are “light years ahead of IBM, Oracle, and SAP in the cloud”. Nadella and Microsoft are looking forward, though, and not back. While AWS’ price cutting can be seen as retaliation to Microsoft’s rapid growth, Microsoft’s “longstanding commitment to make or our prices comparable…to Amazon Web Services” projects their belief that they have the market’s superior service.