Foundational cloud services to enable digital-first strategies of the future enterprise: IDC

Organizations' use of cloud is moving to the next level of maturity, spurring adoption of a cross-functional set of services to drive innovation in a digital-first economy. These foundational cloud services (FCS) for compute, data, and app frameworks will drive competitive development across the whole cloud market. According to IDC, annual recurring revenue (ARR) derived from FCS will increase from just under USD 100 billion in 2020 to more than USD 300 billion in 2025 with a compound annual growth rate (CAGR) of 28.8%.

"Digital is now a permanent, yet dynamic fixture in our world, built on the digital infrastructure and platform technologies of a cloud foundation," said Rick Villars, group vice president, Worldwide Research at IDC. "When organizations want to pursue some digital-based capability or intelligently leverage data to their advantage, they can do so because they have rapid access to the foundational cloud services offered by the leading cloud services providers."

IDC defines Foundational Cloud Services as the Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and System Infrastructure as a Service (SISaaS) markets where the top eight public cloud services providers (Amazon Web Services, Microsoft, Google, Alibaba Group, IBM, Tencent, Huawei, and Oracle) held a combined market share greater than 60% in 2020. These include the following key service portfolios:

• Compute Services: Virtualized x86 Compute, Bare Metal Compute, Block Storage, Accelerated Compute, Other Compute, and Software-Defined Compute Software.
• Data Services: Data Management Systems, Object Storage, File Storage, and Event Stream Processing Software.
• App Framework Services: Integration Software, Deployment-Centric Application Platforms, and AI Lifecycle Software.
• Usage Multiplier Services: Low or no fee services that encourage greater/more effective use of high value services by making it easier to adopt, connect, deploy, track, secure, and update those services. Includes load balancing and DNS as well as marketplaces and bundles of open-source software solutions.

Combined, the services within these portfolios accounted for more than half of all IaaS, PaaS, and SISaaS revenue in 2020 and are expected to grow to more than two thirds of all revenue in 2025.

Several factors are behind the rising demand for foundational cloud services rather than similar IaaS and PaaS services from individual providers. The available, affordable, and standardized infrastructure offered by FCS gives developers the ability to rapidly build, test, and deploy innovative applications. The availability of multiple deployment options (hybrid cloud) and technologies that bring portability to applications (containers) enable customers to choose the best matched cloud provider for a given workload. Service-based consumption of IT infrastructure enables end users to reduce capital spending, optimize operating expenses, and focus the efforts of IT personnel on achieving business goals rather than routine infrastructure/data management. Finally, data-centric foundational cloud services can provide fully automated data capabilities that address the significant increases in data volumes and storage associated with mobile and edge (IoT) devices.

IDC expects organizations will adopt a range of strategies for embracing FCS portfolios. Some will select a primary FCS partner while others will choose more diversified cloud deployment strategies. Regardless of the FCS strategy selected, enterprises will place a high priority on extensions to providers’ FCS portfolios in the areas of expanded service deployment options (edge, network, and core), automated governance services (manage, optimize, secure), and robust partner ecosystems.

"Demand for FCS is increasing, indicating customer expectations are being met by the providers in these areas. However, this is no time to rest. In a market characterized by rapid innovation, FCS providers must continually prove that they are willing to invest in innovation at a high level,” said Lara Greden, research director, Platform as a Service (PaaS) at IDC. “Customers are seeking outcomes, not technology solutions. The key will be to differentiate, build mindshare, and redefine/productize portfolios by use cases."