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What Is Driving Growth in the Cloud Space?

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Slowdown in economy contributed to growth in cloud space

Previously in the series, we discussed the cloud’s growth in 2015 and Google’s (GOOG) (GOOGL) standing in the cloud space in comparison to its peers like Amazon (AMZN) and Microsoft (MSFT). Synergy Research expects the cloud services space to become a $27.4 billion market in 2016 from $14.9 billion in 2014. Approximately half of the cloud service revenue comes from IaaS (infrastructure-as-a-service), a space dominated by Amazon’s AWS (Amazon Web Services).

Gartner expects the cloud infrastructure space to grow more than 30% per year through 2018 as more and more companies feel inclined to migrate applications from their own data centers to the cloud in order to gain speed, scalability, efficiency, and access across multiple devices.

In a way, the slowdown in the economy is also feeding growth in the cloud space. A slowdown in the economy urges businesses to shrink their technology budgets and at the same time extract more efficiency from their budgets. The rapid transition of companies towards cloud proves this.

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SMAC revolution has given rise to data center requirements

The arrival of SMAC (social, mobile, analytics, and cloud) technology has led to an exponential growth in “big data” along with the increased adoption of smartphones and other mobile devices. This has exhausted the amount of space, power, and bandwidth currently available. The trend is expected to grow at an even faster pace in the near future. According to a combined study done by Cisco Systems (CSCO), IDC, and Gartner, by 2018, approximately 78% of workloads are likely to be processed by cloud data centers, whereas traditional data centers will process the remaining 22%.

It’s the investment in data centers that helped players like Amazon, Microsoft, IBM (IBM), and Salesforce (CRM) to report double-digit or triple-digit growth in the cloud space. In late 2015, Oracle’s management shared that it has increased its data center delivery capacity from 0.5 megawatts to 45 megawatts, a whopping 90x increase. Amazon started 2016 with the announcement of the opening of a new cloud region in South Korea (EWY) in 2016.

In the later part of the series, we will look into Google’s plan to compete with Amazon and Microsoft data centers.

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