Expert opinion

What is the Future of Cloud Service Market?

503
5 minutes

Maxim Berezin

As viewed by global analytical agencies, the Russian market of cloud services is rather modest with its global market share of less than $1 billion, while the American one is 120 times that of the Russia's ($124.6 billion, according to IDC). However, compared to other countries' cloud segment, the Russia's one is growing almost twice as fast as others do, showing, by various estimates, the YoY growth rate between 20 and 30%. Will this explosive growth continue over the next years and what are the prospects for Russian cloud providers*?

Russian cloud market perspectives
The cloud market will keep rising rapidly for the next two or three years at least. All analysts are on the same page here, with some proposing purely optimistic forecasts. For example, iKS-Consulting envisions a 2.5-time increase in the segment by the end of 2022, totaling up to ₽155 billion. The reason behind this consensus is that the market is far from saturation. Slightly more than half of Russian companies use IaaS, but this amount will climb up to 78% in the next two years.

The higher demand for cloud services will naturally intensify competition among providers. There is more to it, since companies from opposite segments – telecom operators, banking, and internet companies – are entering the market. Obviously, they can't successfully launch cloud services without infrastructure, competencies, and a team, and needless to say, it won't happen overnight, so they will need time and money. This drives new market players to buy the existing data center service providers – the same old story we've heard many times last year. Only time will tell what will happen to these cloud businesses. Nevertheless, the market clearly tends to consolidate powers, and soon only a few large providers might survive the competition while the rest will somehow merge with market leaders. Small businesses, including regional and niche companies, will have to struggle to enter the market, merely because their service quality and range are out of the giants' league.

By the way, what about services? What will be in demand?
The cloud market will keep rising rapidly for the next two or three years at least. All analysts are on the same page here, with some proposing purely optimistic forecasts. For example, iKS-Consulting envisions a 2.5-time increase in the segment by the end of 2022, totaling up to ₽155 billion. The reason behind this consensus is that the market is far from saturation. Slightly more than half of Russian companies use IaaS, but this amount will climb up to 78% in the next two years.

IaaS, which has increased by more than 30% on average over the past five years, is persistently being pushed away from the market by SaaS. Such booming demand thrives on high prices for enterprise class equipment and customer reluctance to carry routine hardware administration tasks on their shoulders. Still, our experience shows that pure IaaS within the enterprise segment is quite rare. A hybrid model is the top pick. Customers host some systems in a public cloud, while others stay either in data center's dedicated equipment or on premises. Indeed, this is a practical and economically viable model. Our projects yielded multiple cases proving that services with dynamic load benefit more from clouds. E-commerce is a classical example. Meanwhile, when the load is generally stable, it makes sense to opt for physical equipment in an outsourced data center.

PaaS is worth mentioning too. This service was not in demand until the recent year when the game changed. Today, customers show added interest in systems such as Kubernetes, and it’s no surprise. Environments to develop and test new products are trending globally, and Russia is no exception. Going into details, this service in Russia is especially popular among test & dev engineers and product managers from large businesses, as well as among all kinds of startups focused on creating new digital services. It is likely that the drive for the digital economy will keep motivating customers to use PaaS and microservice architectures in the cloud.

Finally, there is another trend that deserves to be highlighted: today's customers are not satisfied with high-performance and reliable infrastructure only. As clouds won more trust, customer appetite for extra services increased. For example, before migrating Castorama product catalog, we optimized the system first, thus accelerating the business service. Some companies also enjoy our managed services to support systems even at the application software level: back office infrastructure, 1C-powered financial apps, etc. Before migrating data to the cloud, we recommend having a complete infrastructure audited and compiling a roadmap for system development in the cloud, just like SBI Bank did. This helps design an infrastructure ready for loads in the upcoming three to five years. Such services are outside of the conventional cloud provider competencies, but they help improve service quality and establish a single point of contact for all issues related to the support and development of business services in the cloud.

Buzzkill
Are there factors slowing down Russian cloud market development? Yes, there are some, according to analysts. First, a lot of managers still have a low opinion of cloud data protection and confidentiality. Banking sector is the most skeptical about clouds, and that's no wonder, because finance entities are rather conservative when transmitting data anywhere outside.

Second, the cloud adoption of common business apps is decelerated by their obsolete architectures, making them either non-migratable "as is" or migratable only after an architecture makeover to operate productively in a new environment.

A customer survey revealed the third decelerator –the shortage of skilled personnel knowing how to deploy and administer systems in a cloud.

Frankly speaking, nothing mentioned above is unsolvable. There is a wealth of technical solutions to protect cloud-based data and plenty of operational processes based on global best practices to minimize the risk of data leaks. Legacy systems are indeed not worth a cloud migration, though you can rebuild any app to the extent possible and make it nearly cloud native – and we have done that before. One last thing, you can tackle any kind of staff shortage by resorting to a cloud provider with its qualified engineers.

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