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TECHNOLOGY Consumers and the Cloud Quantifying and exploiting the consumer cloud market opportunity, 2010-2018 By
TECHNOLOGY Consumers and the Cloud Quantifying and exploiting the consumer cloud market opportunity, 2010-2018 By

TECHNOLOGY

Consumers and the Cloud

Quantifying and exploiting the consumer cloud market opportunity, 2010-2018

By Andrew Nuttney & Gary Eastwood

Andrew Nuttney

Andrew Nuttney is a freelance business analyst with two decades of experience advising corporate clients in the areas of consumer behaviors and technology adoption. His previous roles have included Technology Research Director at Datamonitor and Lead Partner at The Research & Advisory Group.

Gary Eastwood

Gary Eastwood is a freelance business analyst with over 15 years’ experience of covering ICT subjects. He has contributed to numerous leading IT publications and magazines, and held full-time, senior editorial positions on several. Gary has also worked with organizations, such as the UK Department of Trade & Industry, the Confederation of British Industry, Microsoft, IBM, CSC, Oracle and Intel, on a variety of technology communications projects.

Copyright © 2010 Business Insights Ltd

This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd.

The views expressed in this Management Report are those of the publisher, not of Reuters. Reuters accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon.

While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy.

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Table of Contents

Consumers and the Cloud

Executive summary

10

Consumer cloud market context

10

Consumer cloud market opportunity analysis

10

Consumer cloud competitive situation analysis

11

Business response

13

Chapter 1

Consumer cloud market context

16

 

Summary

16

Introduction

17

Who is this report for?

17

Demystifying the cloud

19

The symbolic language of the cloud

19

A

simpler definition of cloud computing

20

The cloud the consumer sees

21

Consumer cloud information flows

22

Is

the cloud a myth?

23

Issues facing the development of the consumer cloud market

24

Bandwidth

25

Access devices

25

Personal information integration

26

Security

26

Privacy

27

Conclusion

28

Chapter 2

Consumer cloud market opportunity analysis

30

Summary

30

Market overview

31

iii

Market scope and definition

34

Email

36

Storage / backup

36

VoIP

36

Mobile applications (mApp) revenues

36

Online social networking (excl. gaming)

37

Online gaming

37

Paid music content

37

Notes on data and sources

38

Market drivers and enablers

41

Broadband penetration

41

3G

42

Access devices

45

Smartphones

47

Social networking

49

Market sizing and forecasts (2010-18)

52

Total cloud services revenues

52

Private cloud vs public cloud

55

Consumer cloud market revenues

57

Global total

57

By region

58

By major geographical market

62

By market category

68

Market category by major geographical market

70

Conclusions

82

Chapter 3

Consumer cloud competitive situation analysis

86

Summary

86

Competitive overview

87

Introduction

87

Competitive analysis and vendor profiles

89

Google vendor profile

92

Apple vendor profile

95

Facebook vendor profile

98

Microsoft vendor profile

101

Salesforce.com vendor profile

105

Nokia vendor profile

108

Amazon Web Services (AWS) vendor profile

111

Opera Unite vendor profile

114

Box.net vendor profile

117

iv

Chapter 4

Business response

124

Summary

124

Overview

125

Business response analysis

126

Traditional consumer technology OS firms

126

Responses of established Web firms

129

Response of telephone operators

131

Response of media and other content providers

133

Response of applications developers

135

Responses of device manufacturers

137

Conclusions

139

Index

141

v

List of Figures

Figure 1.1:

Consumer cloud information flows

22

Figure 2.2:

Consumer cloud revenue categories

35

Figure 2.3:

Global 3G subscribers and penetration, 2010-18

44

Figure 2.4:

Access device shipments (units, m), 2010-18

46

Figure 2.5:

Social network user growth by region (users m), 2009-15

51

Figure 2.6:

Global total cloud services revenues ($bn), 2010-18

52

Figure 2.7:

Total cloud services revenues by major geographical market ($bn), 2010-18

53

Figure 2.8:

Share of total cloud services revenues by major geographical market (%), 2010-18

55

Figure 2.9:

Total cloud services revenues, private vs public cloud ($bn), 2010-18

56

Figure 2.10:

Global consumer cloud revenues as a percentage of all cloud services revenues ($bn),

2010-18

57

Figure 2.11:

Consumer cloud services revenues by region ($bn), 2010-18

60

Figure 2.12:

Share of total consumer cloud services revenues by region (%), 2010-18

61

Figure 2.13:

Consumer cloud services revenues by major geographical market ($bn), 2010-18

63

Figure 2.14:

Consumer cloud services market share by major geographical market (%), 2010-18 66

Figure 2.15:

Consumer cloud services revenues as a percentage of total cloud services revenues, by

major geographical market (%), 2010-18

67

Figure 2.16:

Consumer cloud services revenues by market category ($bn), 2010-18

69

Figure 2.17:

Consumer cloud mobile application revenues by major geographical market ($bn),

2010-18

71

Figure 2.18:

Consumer cloud gaming revenues by major geographical market ($bn), 2010-18

73

Figure 2.19:

Consumer VoIP revenues by major geographical market ($bn), 2010-18

74

Figure 2.20:

Consumer paid music downloads revenues by major geographical market ($bn), 2010-

18

76

Figure 2.21:

Consumer cloud SN revenues by major geographical market ($bn), 2010-18

78

Figure 2.22:

Consumer storage and backup revenues by major geographical market ($bn), 2010-18

 

79

Figure 2.23:

Consumer cloud email revenues by major geographical market ($bn), 2010-18

81

Figure 3.24:

Converging cloud business models

88

Figure 3.25:

Google SWOT analysis

94

Figure 3.26:

Apple SWOT analysis

97

Figure 3.27:

Facebook SWOT analysis

100

Figure 3.28:

Microsoft SWOT analysis

104

Figure 3.29:

Salesforce.com SWOT analysis

107

Figure 3.30:

Nokia SWOT analysis

110

Figure 3.31:

Amazon Web Services SWOT analysis

113

Figure 3.32:

Opera Unite SWOT analysis

116

Figure 3.33:

Box.net SWOT analysis

119

Figure 3.34:

Cloud stakeholder strategy comparisons

121

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List of Tables

Table 2.1:

Ranking of country broadband penetration and ubiquity (subscribers per 100

inhabitants), 2009

42

Table 2.2:

Global 3G subscribers and penetration, 2010-18

44

Table 2.3:

3G penetration by country, 2010

45

Table 2.4:

Access device shipments (units, m), 2010-18

47

Table 2.5:

Social network user growth by region (users m), 2009-15

51

Table 2.6:

Global total cloud services revenues ($bn), 2010-18

53

Table 2.7:

Total cloud services revenues by major geographical market ($bn), 2010-2018

54

Table 2.8:

Share of total cloud services revenues by major geographical market (%), 2010-18

55

Table 2.9:

Total cloud services revenues, private vs public cloud ($bn), 2010-18

56

Table 2.10:

Consumer cloud revenues as a percentage of all cloud services revenues globally

($bn), 2010-18

58

Table 2.11:

Consumer cloud services revenues by region ($bn), 2010-18

60

Table 2.12:

Share of total consumer cloud services revenues by region (%), 2010-18

61

Table 2.13:

Consumer cloud services revenues by major geographical market ($bn), 2010-18

63

Table 2.14:

Consumer cloud services market share by major geographical market (%), 2010-18 66

Table 2.15:

Consumer cloud services revenues as a percentage of total cloud services revenues, by

major geographical market (%), 2010-18

67

Table 2.16:

Consumer cloud revenues by market category ($bn), 2010-18

69

Table 2.17:

Consumer cloud mobile application revenues by major geographical market ($bn),

2010-18

72

Table 2.18:

Consumer cloud gaming revenues by major geographical market ($bn), 2010-18

73

Table 2.19:

Consumer VoIP revenues by major geographical market ($bn), 2010-18

75

Table 2.20:

Consumer paid music downloads by major geographical market ($bn), 2010-18

76

Table 2.21:

Consumer cloud SN revenues by major geographical market ($bn), 2010-18

78

Table 2.22:

Consumer storage and backup revenues by major geographical market ($bn), 2010-18

 

80

Table 2.23:

Consumer cloud email revenues by major geographical market, ($bn), 2010-18

81

Table 3.24:

Google key metrics, Q1 2010

92

Table 3.25:

Apple key metrics, Q1 2010

95

Table 3.26:

Facebook key metrics, Q1 2010

98

Table 3.27:

Microsoft key metrics, Q1 2010

101

Table 3.28:

Salesforce.com key metrics, Q1 2010

105

Table 3.29:

Nokia key metrics, Q1 2010

108

Table 3.30:

Amazon Web Services key metrics, Q1 2010

111

Table 3.31:

Opera Unite key metrics, Q1 2010

114

Table 3.32:

Opera Unite key metrics, Q1 2010

117

vii

Executive summary

9

Executive summary

Consumer cloud market context

At its simplest, ‘the cloud’, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device.

From the perspective of the consumer, therefore, the cloud has significance in three simple areas:

The personal devices used by the consumer to access data, or utilize software and services – such devices are increasingly cloud dependent;

The capacity for remote personal information storage, backup, retrieval and software and service access (the ‘personal cloud’);

The third party information the consumer wishes to retrieve and use (the ‘vertical cloud’).

The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device.

Consumer cloud market opportunity analysis

One of the most important factors in the uptake and growth of consumer cloud services will be the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant.

10

The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018.

Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by 2018.

Consumer cloud revenues are predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by the end of the forecast period.

The share of consumer cloud revenues, as a percentage of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for nearly one-quarter (23.7%) of total cloud services revenues by 2018.

The US and UK will be the largest major markets during the same period, growing at a CAGR of 20.1% and 25.4%, respectively, to reach $30.7bn and $14.3bn by

2018.

The UK will derive 30.8% of all cloud services revenues from consumers, the largest proportion of any of the major global markets.

China will be the fastest growing major geographical market for consumer cloud services revenues between 2010 and 2018, growing from $0.1bn to $5.9bn (at a CAGR of 55.5%) over the forecast period.

By 2018, mobile applications will account for $32.5bn, or just under 46% of all consumer cloud services revenues (up from 31 % in 2010).

Online gaming will see a CAGR of nearly 25% between 2010 and 2018, to account for $19.4bn of revenues and 27% of all consumer cloud services revenues.

Consumer cloud competitive situation analysis

There are several reasons to suggest that no single company will dominate the cloud: the sheer size of the cloud; the ‘fuzzy’ definition of what constitutes a consumer cloud service; and, most importantly, demand from consumers for data

11

portability across services regardless of the ‘provider’ and for a broad choice of services and device accessibility in a non-proprietary environment.

ISPs, mobile and fixed operators, Internet brokers and media companies have all historically operated separate business models in order to optimize their own respective value chains.

The next five years will see a shakeout in the cloud, whereby the business models of these companies steadily converge, with content and data at the heart of that convergence.

As the cloud evolves, the most successful companies are likely to be those that play a number of roles, or that can provide a large part of the cloud jigsaw – from infrastructure to devices, and from software platform to consumer services and applications.

While cloud computing as a concept, and as a working business model, is still in its infancy, Google undoubtedly has the reach, brand, infrastructure and strategy to be one of the leading players – alongside Apple and, potentially, Microsoft – for the foreseeable future.

Social networking is likely to form the core of many successful cloud strategies.

Microsoft could be the potential game-changer, with consumer-orientated cloud services that Apple lacks (currently), and an enterprise presence and footprint that Google can only dream about.

The cloud is likely to create a previously unknown and new set of stakeholders, with unique business models.

12

Business response

The companies likely to dominate in the cloud are those that can provide a consumer touch point at every step of the cloud experience, from device and device OS to premium content and services.

Traditional technology OS players, such as Microsoft and Apple, have a significant opportunity to transfer their desktop dominance to the cloud.

The consumer gateway, or portal, has little potential in the cloud value chain for generating direct revenues, but is arguably the most important in terms of cementing the consumer relationship, and the ability to create cloud ‘brokers’.

Strategies to monetize the consumer relationship enabled by the gateway should focus on extending the consumer touch points throughout the cloud value chain – as in the case of Google and its broad set of differentiated offerings – or monetization through indirect routes, such as advertising and third-party services and applications.

One of the most important strategies for mobile operators will be to offer appealing content, possibly through partnerships, and through open interfaces.

The cloud also promises the potential for application developers to retain a higher percentage of revenues from application sales, as it allows them to bypass application stores.

With such a bewildering array of content available within the cloud, consumers are likely to seek out more relevant and personalized content through familiar gateways and portals, in order to avoid ‘content overload’.

The cloud lowers the cost of developing, with its interoperable and open nature meaning that less work is required to customize each application for different mobile platforms.

13

CHAPTER 1

Consumer cloud market context

15

Chapter 1

Summary

Consumer cloud market context

At its simplest, ‘the cloud’, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device.

From the perspective of the consumer, therefore, the cloud has significance in three simple areas:

The personal devices used by the consumer to access data, or utilize software and services – such devices are increasingly cloud dependent;

The capacity for remote personal information storage, backup, retrieval and software and service access (the ‘personal cloud’);

The third party information the consumer wishes to retrieve and use (the ‘vertical cloud’).

The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device.

From the perspective of other stakeholders in the value chain, the potential promise of the Personal Cloud to consumers significantly raises end user expectations, and thus threatens established consumer communications and technology value propositions, and the competitive landscape.

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Introduction

This report seeks to scope, size and demystify the business opportunities presented by the consumer application of cloud computing technology. Specifically, the report aims to:

Define what ‘cloud computing’ means in the consumer space;

Translate and demystify the cryptic language typically used to describe the cloud into real-world, business and marketing language;

Qualify and quantify commercial opportunities in consumer cloud applications over the immediate to mid-term;

Clarify the current competitive positioning in the consumer cloud value chain;

Evaluate business responses to these opportunities, and outline optimal business models for the near term and beyond.

Who is this report for?

This report is intended to serve a range of executives, marketers and commercial professionals targeting consumer technology markets. The report is of principal value to executives focused on consumer markets and the servicing of, or infrastructure to support, those markets in:

Telco operators, both fixed and mobile;

Mobile device manufacturers;

PC, notebook and netbook manufacturers;

Applications developers

Gaming software houses and hardware manufacturers;

17

Companies in the social networking value chain;

Media companies and other content owners;

Developers, cloud service providers and other software and service companies;

Web companies;

Hardware manufacturers.

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Demystifying the cloud

The symbolic language of the cloud

Over the past several years it has become commonplace to use the term ‘Cloud’ as symbolic language for online hosted technology services offered on a multi-user basis.

At one level, this language has been very helpful, clarifying the core selling point of online accessed hosted services – that is, that the computing power driving the delivery service need not physically exist within end user devices, but can, instead, be provided from anywhere within the internet ‘cloud’. This visual imagery has made an impact, and helped to familiarize potential enterprise users, in particular, with the idea of flexible, multi-user, externally hosted technology services.

For most observers, however, the language of ‘the cloud’ is, like the symbol itself, opaque, insubstantial and intransient. Moreover, it fails to offer any clear understanding of what the cloud in fact is and / or does – and whether it differs from existing online hosted services. Even less helpfully, explanations are often couched either in terms of cryptic acronyms (such as SaaS, IaaS, PaaS) or abstract notions, such as ‘private cloud’ or ‘public cloud’. The language currently associated with the cloud can seem mystifying.

Furthermore, most descriptions of cloud computing and the sub-service categories – such as Software as a Service (SaaS), Infrastructure as a Service (IaaS), or Platform as a Service (PaaS) – that are offered by cloud service providers, are most directly relevant to enterprise or governmental users of these services. That is, those making decisions based on achieving ICT scale, flexibility and cost-effectiveness by purchasing cloud services instead of investing in proprietary data centers and information management and storage. Such language has little or no relevance to those services offered to cloud services consumers, or the users of those services.

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A simpler definition of cloud computing

The central definition of cloud computing is simply the provision of hosted services accessed online (via the Internet). Thus, the cloud computing market is the market for the provision of online hosted services and the ‘consumer cloud market’ is defined as the market for the provision of online-hosted services to consumers. But how does cloud computing differ from hosted services?

In practice, cloud computing differentiates itself from previous hosted solutions by virtue of three (and nearly always four) additional factors. Cloud computing is defined by:

Multi tenancy – with IT resources being shared between different user customers;

A service, rather than product-based, value proposition – customers pay for the provision of the end service, rather than for a software license, for example;

On-demand usage – use can be scaled up and down seamlessly and immediately;

Finally, information hosted on this multi-tenant, service-based, on-demand basis is in almost all circumstances backed up and stored ‘in the cloud’, that is, at the service providers’ data center location.

The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device. The offered benefits of interoperability and easier user-device management are distinct from earlier hosting service offers and will have particular resonance in the consumer space supporting, as they promise to do, the ‘personal cloud’ and ‘vertical cloud’, as described in the following section.

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The cloud the consumer sees

Indeed, from the perspective of the consumer – defined here as an individual interacting with technology outside of a working environment – the cloud is a rather simpler matter, involving access to information and data through a range of access devices. At its simplest, ‘the cloud’, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device.

From the perspective of the consumer, therefore, the cloud has significance in three simple areas:

The personal devices used by the consumer to access data, or utilize software and services – such devices are increasingly cloud dependent;

The capacity for remote personal information storage, backup, retrieval and software and service access (the ‘personal cloud’);

The third party information the consumer wishes to retrieve and use (the ‘vertical cloud’).

As the vertical cloud gains scale and complexity, and as the Personal Cloud gains mainstream currency, so the potential offered by consumer cloud applications will multiply, both in scale and complexity. This will open new opportunities for Cloud brokers.

These themes are illustrated below in Figure 1.1.

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Consumer cloud information flows

Figure 1.1: Consumer cloud information flows Source: Business Insights Business Insights Ltd
Figure 1.1: Consumer cloud information flows
Source: Business Insights
Business Insights Ltd

22

There are two parallel aspects to consumer cloud computing:

The personal cloud: consumer personal information hosted (and probably backed

up and stored) on a multi-tenant, service-based, on-demand basis;

The vertical cloud: Third party applications, independent of the consumer, accessed

via the Internet and hosted in the cloud on a multi-tenant, service-based, on-demand

basis.

Is the cloud a myth?

There is a very real concern, famously highlighted by Oracle’s Larry Ellison, that the cloud is a myth, at best a fad of words. Ellison is widely quoted as saying: “The computer industry is the only industry that’s more fashion-driven than women’s

fashion

I have no idea what anyone’s talking about, I mean it’s really just gibberish

what the hell is cloud computing?”

While we have defined the cloud, above, as online hosted services provided on a multi-

tenant, service-based, on-demand basis, the only real novelty in this definition is the

scale of the ‘multi-tenant’ component. As stated earlier, data centers provide the

potential to offer interoperability (of device, OS, application, information and content);

while high bandwidth mobile and fixed line connections permit technological

processing power and memory/storage scalability to be located in the data center, and

thus away from the access device and the user. These twin benefits of interoperability

and easier user-device management are indeed distinct from earlier hosting service

offers.

From the perspective of the end consumer there is a real difference provided by the

promise of device, OS, application and data interoperability – the personal cloud

coming to fruition.

Importantly, however, from the perspective of other stakeholders in the value chain, the

potential promise of the personal cloud to consumers significantly raises end user

23

expectations, and thus threatens established consumer communications and technology value propositions, and the competitive landscape. Furthermore, many of these value propositions are based around the value resident within fixed, proprietary levels of the value chain – such as the desktop operating system for Microsoft, or keyboard and mouse access design for PC manufacturers. Taking power away from these devices and relocating it to a neutral infrastructure layer is both a direct threat to incumbents and a great opportunity to those who can redefine resident value – these players include online services brokers, a category that in this instance encompasses players such as Google and Facebook, alongside traditional ISPs.

Issues facing the development of the consumer cloud market

This raises a number of issues, or potential barriers, which are apparent in the development of the consumer cloud:

Bandwidth;

Access devices;

Personal data integration;

Security;

Privacy.

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Bandwidth

Bandwidth is potentially the most important limiting factor in the development and evolution of the cloud and the consumer services it may provide. In the cloud environment, data, processing power and storage resides away from the user device, therefore accessing information and resources – such as games, video content, applications, and so on – inherently requires ample bandwidth, whether fixed or wireless.

While 3G offers mobile device and laptop users access to cloud services, coverage is still patchy, or non-existent in many countries around the world, particularly in rural regions. Fixed broadband penetration, meanwhile, is by no means at 100% (as outlined in Chapter 2). Wi-Fi ‘hot spots’ are confined to specific urban areas, and 4G technologies such as LTE and WiMAX are still a long way from mainstream status. The evolution of the cloud is dependent on bandwidth availability.

Access devices

The rapid growth in the popularity of smartphones, netbooks and tablets reflects the type of device that consumers will increasingly demand in future in order to access their personal cloud, with sufficient processing power to run the applications they require.

Therefore, cloud access devices will require an increasing range of connectivity options, from 3G to Wi-Fi, and in future, Wi-Max and 4G, as consumers will become increasingly reliant on access to the cloud and will therefore demand ubiquitous connectivity to their own personal cloud, and the information, content, applications and services residing within it. The evolution of the cloud is also likely to spawn new device formats – witness the interest around the iPad. As well as connectivity options, cloud access devices will require easy-to-use interfaces (which are consistent across multiple devices), clear screens of a sufficient size, battery life (to last throughout the waking day) and open, optimized operating systems, all bundled within a lightweight

25

and convenient (possibly pocket-sized) format. Indeed, device manufacturer Nokia has already witnessed this changing trend in consumer access devices, having posted its first ever quarterly loss (in the first three months of 2010), compared to the rampant sales of the iPhone.

Personal information integration

Data portability will be a critical issue for the evolution of consumer cloud computing. The very nature of the cloud requires an open and interoperable platform that allows consumers to create a single ‘identity’, or personal cloud, that is consistent throughout the cloud, regardless of the service broker, access device, content, application, and so on. Consumers will demand interoperability.

This interoperability and integration of personal information is already changing business models – for example, despite Apple’s current success, the company’s iTunes/App Store is based on a proprietary model. Compare this to Google’s open (source) approach. However, rumors abound that Apple is preparing to open up its business model, by creating a cloud-based iTunes service and fully embracing the open nature of the cloud.

Security

Consumer cloud services collect and centrally store large amounts of personal and, potentially, sensitive data on centralized online servers – with consumers readily uploading this data in blissful ignorance of the potential security threats to them. If consumers are to have a single ‘cloud identity’ then it leaves them vulnerable to multiple security attacks. Furthermore, the nature of the cloud means that this information is optimized to be easily shared with others. As a result, the cloud is becoming a target for increasing numbers of cyber criminals.

So far, there are no formal or legal requirements for how information is protected or for processes such as user authentication. However, the US Federal Trade Commission (FTC) has already stated its concerns over the potential security threats posed by cloud

26

computing and, in particular, the lack of consumer awareness around the risks of uploading personal data to the cloud. It can be assumed that at some point in the future, a major security event(s) will lead to the tightening of controls governing the security of personal data within the cloud.

Privacy

Like security, the cloud throws up concerns surrounding the privacy of personal consumer information and data. Whose responsibility is it to protect the privacy of consumers? To most, it is the responsibility of the infrastructure and service providers, rather than the consumers themselves. Indeed, Facebook has been at the centre of numerous concerns over its privacy policy, and as a result has damaged its consumer relationships. For example, the company famously changed the privacy policy settings of all its users in late 2009, removing a privacy option from the site, without informing any users – essentially, pushing users to remove privacy protection against their wishes. The change even revealed personal photos and information of its own CEO, Mark Zuckerberg. The ensuing backlash resulted in the company quietly redefining its privacy settings and policy in 2010.

Facebook was also ‘hacked’ by security consultant Ron Bowes in July 2010, who used code to collect personal data from 100m user profiles on the site – data that was not hidden by the user’s privacy settings. Bowes then listed this data on the web, where anyone could download the information. He claims he wanted to highlight the privacy concerns around Facebook, while the company itself claims the information was public anyway.

Of course, as the most popular website in the US, and with 500m registered users (as of July 2010), Facebook is a target to take aim at. However, the issue of privacy is in no way confined to Facebook, and any service broker or provider that cannot guarantee consumer data privacy will not earn the trust of the consumer, and in serious cases draw the ire of privacy organizations and governments alike. Currently, the system is heading towards an ‘opt-in’ process for privacy, whereby it is the responsibility of the

27

user to ensure and maintain their privacy settings. However, critics claim that many consumers presume that the service provider is responsible for maintaining users’ privacy.

In the face of such prevalent security and privacy concerns, companies operating in the cloud space will need to continually enhance security processes and privacy agendas. Such measures are likely to cause problems for companies such as Facebook that depend on user visibility as part of the core business model – they need to reach a happy medium between satisfying the consumer’s privacy and security requirements and providing enough data for developers and advertisers to make use of.

Conclusion

Despite the valid assertion that ‘cloud computing’ is little more than a new spin, or marketing term, for long-established (hosting) services, the cloud is real and a significant threat (… and opportunity) to incumbents in the consumer technology and communications markets:

The cloud is real, in the sense that greater shares of ever increasing data production, processing, storage and sharing needs are, and will be, delivered via multi-user hosting services online – Chapter 2 seeks to quantify this reality;

The cloud is also real in the sense that the nature in which the market grows touches the whole range of stakeholders in the technology value chain – Chapter 3 seeks to illustrate current competitive positioning;

The cloud is very real, in the sense that it is already challenging established resident value and overthrowing patterns of incumbency in consumer technology markets – Chapter 4 will outline and discuss appropriate business models that are likely to be required to become a new incumbent.

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CHAPTER 2

Consumer cloud market opportunity analysis

29

Chapter 2

Summary

Consumer cloud market opportunity analysis

One of the most important factors in the uptake and growth of consumer cloud services will be the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant.

The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018.

Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by 2018.

Consumer cloud revenues are predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by the end of the forecast period.

The share of consumer cloud revenues, as a percentage of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for nearly one-quarter (23.7%) of total cloud services revenues by 2018.

The US and UK will be the largest major markets during the same period, growing at a CAGR of 20.1% and 25.4%, respectively, to reach $30.7bn and $14.3bn by 2018.

The UK will derive 30.8% of all cloud services revenues from consumers, the largest proportion of any of the major global markets.

China will be the fastest growing major geographical market for consumer cloud services revenues between 2010 and 2018, growing from $0.1bn to $5.9bn (at a CAGR of 55.5%) over the forecast period.

By 2018, mobile applications will account for $32.5bn, or just under 46% of all consumer cloud services revenues (up from 31 % in 2010).

Online gaming will see a CAGR of nearly 25% between 2010 and 2018, to account for $19.4bn of revenues and 27% of all consumer cloud services revenues.

30

Market overview

This chapter provides a detailed quantified analysis of the current and future scale and reach of the consumer cloud market. Furthermore, it provides analysis of the current and future direction, and state of maturity of the consumer cloud computing market on both a regional and major geographical market basis.

The following sections illustrate the degree to which direct consumer cloud revenues, which are already significant, will continue to grow over the period from 2010 to 2018. In parallel, cloud enabling revenues, such as device sales, technology infrastructure sales and online advertising revenues are also set to continue to drive cloud-derived revenues. These ‘indirect’ revenues are significant in their own right – for example, the promise of cloud technology will create direct consumer revenues of $71.4bn by 2018, however this growth will support a sum multiple times larger in indirect revenues.

Consumer cloud market growth is also significant in a wider strategic sense – as the balance of power shifts away from the desktop towards mobile communications and remote locations, access devices will be used in different ways, different access devices will be adopted, and consumer expectations of the personal cloud and vertical cloud are likely to soar. In these conditions, the rise of consumer cloud applications presents a dramatic challenge to all stakeholders in today’s technology value chain. The role of each stakeholder is examined below.

Telco operators, both fixed and mobile. The role of the operators will be to provide the connectivity and bandwidth upon which connection to the cloud relies – in the UK, for example, O2 is currently marketing itself as the operator that built the ‘data network’. In the cloud environment, where ‘content is king’ there is an opportunity for data traffic revenues and for service bundling, as a counterbalance to the commoditization of bandwidth;

Mobile device manufacturers. As the cloud evolves, it will be the applications, services and access to content that will define success, with access device

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capability one of the least important factors in the consumer decision. However, cloud access devices will need to provide a number of capabilities, including:

screen size and resolution, battery life, a range of connectivity options, portability and an optimal user interface;

PC, notebook and netbook manufacturers. The future of the cloud suggests mobility, rather than desktop. Indeed, notebooks and netbooks are one of the fastest growing hardware sectors, and there is a strong opportunity for portable but intelligent access devices that can offer a more powerful (and larger) alternative to the smartphone. Devices need to be cloud-optimized, but face portability issues compared to smartphones;

Apps developers. Mobile applications and open source are the future for applications developers. However, with the vast majority of applications currently sold through large application stores, such as Apple’s AppStore, margins are relatively small. Large volume, low margin is the name of the game. However, the cloud does provide the option of ‘do-it-yourself’ application publication if the developer can gain access to the consumer;

Gaming companies. Gaming will account for a significant proportion of consumer cloud revenues over the next five to 10 years. Games will need to be optimized for use on mobile devices, and for the mobile lifestyle (‘quick hits’), and incorporate new capabilities suited to the media, such as motion control;

Companies in the social networking value chain. There is a significant opportunity for social networking (SN) companies to place themselves at the core of cloud strategies, providing a ‘gateway’ and a familiar interface for consumers from which to navigate, as well as being incorporated into business collaboration tools. The challenge is to monetize this consumer relationship, which is likely to be through indirect sources such as advertising, as SN sites are able to collect large amounts of consumer data and information;

Media companies and other content owners. The future of the cloud is content, however, making the consumer pay for this content will be the biggest challenge.

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Premium content is likely to be the way forward, along with content bundling. Media and content companies are likely to play a ‘supporting’ role in the cloud;

Cloud service and software providers. The cloud will spawn large numbers of small, specialist service and software providers, offering new applications, services, supporting software, and so on. However, the main players will see this as a small piece of the cloud jigsaw;

Web companies. Companies such as Google, Yahoo! and Amazon will play a significant role in shaping the face of the cloud, acting as internet ‘brokers’ between the consumer and the cloud. The winners here have a significant opportunity to act as the gatekeeper to the cloud. However, offering just a ‘gateway’ will not be enough to monetize their internet presence – for example, Google can provide consumers with the rest of the cloud jigsaw, from the gateway, to the access device and its OS, to applications and services, and beyond;

Infrastructure companies. Central to the success of the cloud, which requires centralized processing and storing (data centers) and extensive bandwidth coverage (fixed and mobile). Indeed, during the next five years (the shakeout phase) the infrastructure companies are likely to see the most benefit (in terms of revenues) from the cloud. However, once the infrastructure is built, one of the few options left will be to become a data and content provider.

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Market scope and definition

As discussed in Chapter 1, the consumer cloud is defined as ‘online hosted consumer services provided on a multi-tenant, service-based, on-demand basis’. Consumer cloud revenues derived from these services are taken to encompass direct revenues only – that is service fees, metered payments, and the direct sale of virtual goods for use with the hosted service, as in gaming or avatar applications.

Additional revenues may be traced to consumer cloud applications. These revenues are seen as incremental, and encompass advertising revenues, and revenues for third party providers of the technology infrastructure required to run a cloud hosted service.

This report considers consumer cloud revenues in terms of these direct and incremental revenues, and also divides total revenues into seven major revenue categories, as illustrated in the figure below.

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Figure 2.2: Consumer cloud revenue categories

 

Constituent revenues

Constituent revenues

 

Direct revenues

Direct revenues

Direct revenues

Incremental revenues

Incremental revenues

Incremental revenues

Period-based

Period-based

Period-based

service fees

service fees

service fees

Metered

Metered

Metered

payment

payment

payment

Online virtual

Online virtual

Online virtual

goods

goods

goods

Advertising

Advertising

Advertising

Enabling

Enabling

Enabling

technology

technology

technology

purchase

purchase

purchase

Technology

Technology

Technology

infrastructure

infrastructure

infrastructure

Email

Email

   

Storage /

Storage /

 

backup

backup

VoIP

VoIP

Mobile App

Mobile App

   

revenues

revenues

Online SN

Online SN

(excl. gaming)

(excl. gaming)

Online

Online

gaming

gaming

Paid music

Paid music

 

content

content

Source: Business Insights

Business Insights Ltd

Direct revenues are those specifically paid to or through cloud service providers for dedicated services. All these revenues are quantified and forecast in this report. Indirect revenues are a share of wider revenues related to internet technology, such as advertising, access device purchase or investment in the technology infrastructure required to support online hosting. These revenues are not specific to cloud computing, and are not detailed in this report.

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Email

Consumer cloud direct email revenues relate to service fees and one-off payments made to email service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of e-mail advertising revenues, as well as a proportion of access device purchase or rental revenues, and of technology infrastructure revenues.

Storage / backup

Consumer cloud direct storage and backup revenues relate to service fees and one off payments made to storage and backup service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.

VoIP

Consumer cloud VoIP revenues relate to service fees and one off payments made to VoIP service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.

Mobile applications (mApp) revenues

Consumer cloud direct mApp revenues relate to service fees and one off payments made to mobile app stores and other providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of mobile in- App advertising revenues, as well as a proportion of mobile device purchase or rental revenues and of technology infrastructure revenues.

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Online social networking (excl. gaming)

Consumer cloud direct social networking revenues relate to service fees and one off payments made to social networking platforms, and app purchases through those platforms, where the platforms and services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.

Online gaming

Consumer cloud direct online gaming and gambling revenues relate to service fees and one off payments made to gaming service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of in- game advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.

Paid music content

Consumer cloud direct paid music content revenues relate to service fees and one off payments made to download digital music from stores and other service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of in-store advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.

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Notes on data and sources

Establishing market sizes and assessing revenues with accuracy for cloud technology and services is notoriously challenging. Current top level estimates from the most heavily resourced research houses vary wildly, mainly due to definitional differences. The following list outlines predictions and forecasts from a variety of such sources:

Microsoft’s Steven Ballmer famously justifies his companies’ aggressive push into the cloud by describing it as a potential $3.3 trillion market;

A Q1 2010 study by analyst house IDC, sponsored by EMC, asserts that, with one- third of all digital information passing through the cloud by 2020, ‘incremental business revenues’ associated with cloud computing will exceed $1tr by 2014. However, this is a rough estimate for all IT innovation expenditure, including new hardware, developer time and a range of enterprise in-house expenditure, which bears little relation to revenue generated by the provision of cloud services;

IDC itself, in a September 2009 study, suggests that total cloud services revenues will be capped at just $44.3bn, by 2013. Again, however, these data relate only to direct cloud hosting service revenues, being narrowly defined around IaaS;

Gartner’s 2010 Cloud Computing study benchmarks the global revenues from more broadly defined cloud computing services at a more robust $148.8bn by 2014, a data point that is backed by massive vendor research, and which at least tries to refine its scope to direct cloud services revenues, but does include SaaS revenues;

IDC’s assessment of public cloud revenues also includes SaaS revenues and forecasts these service revenues at $55.5bn by 2014 – which reflects the Gartner data. IDC also predicts that cloud technology expenditure will grow from 12% to 25% of all IT expenditure between 2009 and 2014;

ITCandor, meanwhile, estimates that UK expenditure on Cloud computing (vaguely defined) will reach £76bn in 2010, and £119 by 2013, both data points being more

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than 250% in excess of all other estimates and forecasts. These data take the broadest definition, and include a large share of device purchase costs, as well as broadband installation and service fees. IDC would call such revenues ‘incremental’ revenues. By this expanded definition, consumer revenues would drive up to 60% of total cloud revenues.

The definition of cloud computing taken for this report – of ‘computing over the internet, with on-demand access to a shared pool of configurable resources (hardware, software and apps)’ – rejects the very widest definitions used above, and retains a definition of cloud computing revenues as those paid directly for access to cloud-based services. This report therefore defines ‘other revenues’, such as investment in access devices, as incremental and non-core, cloud revenues.

Of the third party sources, therefore, Gartner’s data appears most reliable, both on grounds of definition and when triangulated versus data for component parts. These data have therefore been taken as a base from which to assess the scale of all direct cloud revenues. However, apart from the overstated ITCandor data, none of the above data sets are of much help for sizing and scoping the consumer cloud market. This report intends to fill that gap.

In assessing consumer cloud revenues, a ‘bottom-up’ approach has been taken, sourced by interrogation of the major vendors and service providers within any given segment. For categories such as voice-over-IP (VoIP), online social networking or online gaming, for example, research has focused upon the degree to which major vendors are utilizing cloud resources to deliver a service, as opposed to maintaining service entirely on in-house platforms. This factor excludes most businesses in China from being counted as cloud revenue, for example.

For the purposes of this report, where well-sourced, third party data exists and has stood up to triangulation tests, it has been used as a base from which Business Insights has estimated forecast revenues, based upon vendor and other stakeholder research as

39

illustrated above. The principal examples of this sourcing come from Ovum, for all consumer VoIP, from Laxard Freres on the online gaming industry, and from Juniper Research for a snapshot of total consumer mobile application revenues. In each of these cases, Business Insights has cross-checked the source data against the revenues of major vendors and other stakeholders, and has conducted research with these vendors and stakeholders to support a division of total category revenues into cloud-enabled and non-cloud-enabled revenues. In addition, this report extends forecasts to 2018 and developed regional and country segmentation.

Forecasts and geographic segmentations have been supported by an analysis of key enablers, which, in this case, are:

Broadband and 3G coverage expansion;

Device availability;

Consumer attitudes and uses of services;

Competitor and stakeholder engagement for any given geography;

Regulatory attitudes.

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Market drivers and enablers

Broadband penetration

One of the most important factors in the uptake and growth of consumer cloud services is the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant. In turn, the growing penetration of wireless broadband is driving sales of smartphones, mobile phones and other, newer access devices (such as the iPad), from which consumers can access cloud services, from music downloads to social networking. Quite simply, without broadband, there is no cloud.

The following table shows the number of broadband subscribers per 100 inhabitants within OECD [Organization for Economic Co-Operation and Development) countries. All of the largest markets for consumer cloud services, including the US, UK, Japan and Korea (as discussed later in this chapter) are seen to have high levels of broadband penetration. Interestingly, if the table was to include total numbers of broadband subscribers, then the rankings would read, from the largest: the US, Japan, Germany, France, the UK, and Korea – again, the largest markets for consumer cloud services are those with strong broadband penetration levels. However, there are two exceptions:

Germany and France – which as will be discussed later in this chapter, lag behind in terms of consumer cloud services market revenues, for reasons unrelated to broadband penetration, but which include consumer apathy and a current lack of service provider focus on these markets.

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Table 2.1:

Ranking of country broadband penetration and ubiquity (subscribers per 100 inhabitants), 2009

 

Fibre/

Fixed

Rank

DSL

Cable

LAN

Other

Wireless

Total

1

Denmark

22.4

10.1

4.2

0.3

0.5

37.5

2

Netherlands

22.1

14.2

0.8

0.0

0.0

37.1

3

Switzerland

25.1

10.0

0.3

0.3

0.0

35.6

4

Norway

20.9

8.6

4.3

0.1

0.7

34.6

5

Iceland

30.7

0.0

2.2

0.0

0.7

33.5

6

Korea

6.6

10.6

16.4

0.0

0.0

33.5

7

Sweden

17.8

6.2

7.4

1.0

0.0

32.4

8

Luxembourg

26.5

5.2

0.1

0.1

0.0

31.9

9

Canada

13.2

16.4

0.0

0.0

0.9

30.5

10

Germany

27.4

2.8

0.2

0.0

0.1

30.4

11

France

28.7

1.6

0.1

0.0

0.0

30.4

12

United Kingdom

23.3

6.2

0.0

0.0

0.0

29.5

13

Belgium

16.5

12.3

0.2

0.1

0.2

29.2

14

Finland

22.2

4.2

0.2

0.1

0.6

27.3

15

United States

10.7

14.1

1.3

0.3

0.5

26.9

16

Japan

7.9

3.4

13.5

0.0

0.0

24.8

17

Australia

19.0

4.2

0.0

0.0

1.0

24.3

18

New Zealand

21.7

1.5

0.0

0.0

0.9

24.1

19

Austria

15.1

6.8

0.1

0.1

0.4

22.4

20

Ireland

16.0

3.4

0.1

0.0

2.4

21.9

21

Spain

17.1

4.0

0.1

0.0

0.1

21.3

22

Italy

19.9

0.0

0.6

0.0

0.1

20.6

23

Czech Republic

7.4

4.2

1.3

0.0

6.5

19.3

24

Portugal

10.4

7.2

0.3

0.0

0.2

18.1

25

Hungary

8.2

8.4

1.1

0.1

0.0

17.8

26

Greece

17.0

0.0

0.0

0.0

0.0

17.0

27

Slovak Republic

6.8

1.5

3.3

0.0

2.7

14.3

28

Poland

8.1

3.9

0.1

0.0

0.0

12.1

29

Chile

9.6

0.0

0.0

0.0

0.0

9.6

30

Mexico

6.8

2.0

0.0

0.5

0.0

9.2

#N/A

Turkey

8.6

0.2

0.1

0.1

0.0

9.0

Source: OECD, December 2009

 

Business Insights Ltd

3G

As previously described, 3G rollout will be essential to the growth of the consumer

cloud market, providing high-speed, wireless connectivity to the cloud for multiple

access devices. Currently, 3G coverage is largely confined to well-populated and,

mainly, urban regions – a relatively consistent observation in every region. As shown

in

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Figure 2.3, the number of 3G subscribers is predicted to grow from just over 1bn in 2010 to 2.78bn by 2018 (a CAGR of just under 11%). Likewise, 3G penetration will spread from urban areas to provide more overall coverage, growing from a global penetration level of 21% now to 43% by 2018.

According to the OECD, and illustrated in Table 2.3, there is currently a wide variation in 3G coverage within regions, such as Europe, as well as between continents. Notably, all of the major geographical markets, including the US (92.3%), the UK (90%), Japan (100%) and Korea (99%) have 3G penetration levels of at least 90%. However, while 3G penetration is a prerequisite of cloud computing markets, it does not necessarily presume a consumer cloud market, as highlighted by countries with near-ubiquitous penetration (more than 98%) – such as Australia, New Zealand, Portugal and Sweden – but little or absent consumer cloud revenues. Of course, the success of the cloud depends on multiple factors, such as existing infrastructure, provider focus, consumer demand, and so on, which are currently far more advanced in North America, the UK, and parts of Asia.

China is expected to see very rapid growth in 3G coverage over the next 12 months, according to the Ministry of Industry and Information Technology, growing from 20m subscribers in 2010 to 150m users by 2011, accounting for 1.5% and 10.7% of the population, respectively – a massive ten-fold growth in just one year. To a certain extent such figures demonstrate the lack of reliable data surrounding the Chinese market, but it does emphasize the size of the opportunity in China. 10% population coverage may appear to be a small market, but even a niche in the Chinese market is a very large opportunity in global terms.

43

Figure 2.3: Global 3G subscribers and penetration, 2010-18 Global subscribers Global subscribers Global subscribers
Figure 2.3: Global 3G subscribers and penetration, 2010-18
Global subscribers
Global subscribers
Global subscribers
Global penetration
Global penetration
Global penetration
3
3
50%
50%
2.5
2.5
40%
40%
2
2
30%
30%
1.5
1.5
20%
20%
1 1
10%
10%
0.5
0.5
0
0
0%
0%
2010
2010
2012
2012
2014
2014
2016
2016
2018
2018
Source: Major platforms, comScore
Business Insights Ltd
Subscribers (bn)
Subscribers (bn)
Penetration (%)
Penetration (%)

Table 2.2:

Global 3G subscribers and penetration, 2010-18

 

2010

2012

2014

2016

2018

CAGR

Global subscribers (bn) Global penetration (%)

1.06

1.50

1.93

2.35

2.78

10.9%

21%

27%

33%

38%

43%

8.3%

Source: OECD

Business Insights Ltd

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Table 2.3:

3G penetration by country, 2010

Country

3G coverage (%)

Australia

99.0

Austria

84.0

Belgium

89.9

Canada

78.0

Czech Republic

89.8

Denmark

97.0

Finland

80.0

France

72.5

Germany

80.0

Greece

88.0

Hungary

56.1

Iceland

63.0

Ireland

89.0

Italy

92.0

Japan

100.0

Korea

99.0

Luxembourg

90.0

Netherlands

90.0

New Zealand

97.0

Norway

90.0

Poland

25.5

Portugal

98.0

Slovak Republic

81.0

Spain

83.0

Sweden

100.0

Switzerland

91.0

Turkey

0.0

United Kingdom

90.0

United States

92.3

Source: OECD

Business Insights Ltd

Access devices

As the ‘mobile lifestyle’ spreads throughout almost every global market, consumers no longer want to be tied to a desktop device in order to access information, media, applications and other services. Instead, consumers are increasingly expecting constant access to the Internet and cloud services regardless of time, location and access device. Growing broadband penetration, improved 3G coverage, a developing network of Wi- Fi ‘hotspots’, and other enabling access technologies are driving the use of a growing range of powerful and (as processing power increasingly resides within the cloud)

45

‘dumb’ access devices. Indeed, during the forecast period covered in this report, it is likely that new format devices are likely to evolve, with the iPhone and iPad currently showing the way. Touch-screen technology is likely to become ubiquitous – at least until newer, more natural ways of interfacing with technology are developed, such as voice and gesture.

This trend is highlighted in Figure 2.4, which compares the predicted drop-off in sales of desktop PCs between 2010 and 2018, to the rapid and strong growth in sales of portable access devices such as notebooks, netbooks, tablets and smartphones during the same period. As shown, Tablet PCs (such as the iPad) and smartphones are predicted to enjoy strong growth from now until 2018, with CAGR rates of 26.5% and 16.0%, respectively, throughout the forecast period – compared to just 0.5% for desktop PCs.

Figure 2.4: Access device shipments (units, m), 2010-18

Smartphone SmartphoneSmartphone Smartphone Notebook PC Notebook PC NotebookNotebook PCPC DesktopDesktop PCPC
Smartphone
SmartphoneSmartphone
Smartphone
Notebook PC
Notebook PC
NotebookNotebook PCPC
DesktopDesktop PCPC
Desktop PC
Desktop PC
Netbook
Netbook
NetbookNetbook
Tablet PC
Tablet PC
TabletTablet PCPC
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800 800
600 600
400 400
200 200
0 0
2010 2010
2012
2012
2014
2014
2016
2016
2018
2018
Source: Business Insights
Business Insights Ltd
Unit shipments (m)
Unit shipments (m)

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Table 2.4:

Access device shipments (units, m), 2010-18

Shipments (m)

2010

2012

2014

2016

2018

CAGR

Smartphone

255

350

490

650

840

16.0%

Notebook PC

230

260

290

320

365

5.9%

Desktop PC

130

140

150

150

135

0.5%

Netbook

51

66

83

102

122

11.5%

Tablet PC

7

22

30

39

46

26.5%

Source: Business Insights

 

Business Insights Ltd

Smartphones

The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018. Indeed, the figures in Table 2.4 show that annual sales of smartphones are predicted to surpass the combined sales of desktop and notebook PCs as early as 2012-13.

At the same time, smartphones are expected to become increasingly sophisticated, powerful and to incorporate new and innovative access technologies. For example, according to figures from specialist electronics market intelligence provider iSuppli, the share of smartphones considered to be MIDs devices will grow from 60% today to 100% by 2012. MIDs devices are classified as having “integrated connectivity for Wireless Local Area Network (WLANs), Wireless Metropolitan Area Networks (WMANs) or 3G-or-higher Worldwide Wide Area Networks (WWANs), and a maximum-sized display of 8-inches in the diagonal dimension, an instant-on function, an always-connectable capability and a full day's worth of battery life under typical usage scenarios”. This highlights the increasing importance that consumers are placing on always-on connectivity, regardless of the access technology and location.

While smartphones have shown dramatic take-off levels in recent years – driven by the success of popular devices such as the iPhone (and corresponding App Store), Blackberry, Nokia (the leading device manufacturer) and newer entrants such as Google – it is not the hardware capabilities of smartphones that will drive growth in the

47

cloud. Now, and in the future, hardware capability will become increasingly irrelevant as the cloud grows and evolves. Rather, the critical differentiating factors for smartphones will become the software and OS they run, the power of the branding and styling, and – most importantly – the cloud-based applications and services to which they will provide access.

The growing importance of the applications and online services offered, versus the capabilities of the device, is aptly highlighted by figures from industry market research specialist AdMob, which show that while Apple and Android only account for a 15% and 10% market share of handset sales respectively, they correspondingly account for 40% and 26% of mobile web and applications usage worldwide. (AdMob uses mobile ad requests to compile its figures, rather than device sales). Compare this to Symbian, which according to AdMob accounts for the largest share of handset sales (44%), but just 24% of mobile web and application usage market share. Services, not hardware, will increasingly become the critical differentiating factors in the cloud – and arguably already are.

These shifting patterns of information consumption are also dramatically shaking up the competitive landscape in the mobile industry, with far-reaching consequences. Apple’s iOS currently has the largest market share of mobile operating systems, followed by Google’s Android – and both continue to grow. Indeed, on its launch in June 2010, Apple’s iPhone 4 sold 1.7m units in three days. Likewise, Google’s Android operating system has overtaken Microsoft’s Windows Phone. Blackberry has a foothold in the enterprise / consumer market and is holding steady, however, Microsoft is struggling to keep pace – for example, the company recently dropped its Kin phones after two months following a senior management shake-up.

Notably, the historical leading device manufacturer Nokia has seen its position of dominance steadily eroded by the likes of the iPhone and Android phones, as well as HTC and other device players. As a result, in the first three months of 2010, Nokia announced its first ever quarterly loss. Nokia has responded by dropping its significant and long-term investment in the Symbian mobile OS, and launching a range of new

48

high-end smartphones based on a Linux-based mobile OS called MeeGo, in order to go head-to-head against Apple’s iOS.

As a consequence, the market for smartphones is likely to see a continually shifting dynamic in the next few years, with Apple and the iPhone grappling with the likes of Google’s Android, Blackberry, Symbian… and the not-to-be-written-off old foe; Microsoft. Importantly, such competitive flux is likely to encourage stakeholders to embrace openness in relation to app access. What is clear is that shifting consumption patterns are significantly changing the competitive landscape of the mobile industry, and will leave a permanent mark on the face of the mobile device industry.

Social networking

Online social networks are becoming a key tool for enabling users to access and navigate information and content within the cloud, with social networking functionality increasingly being placed at the centre of the value offerings of device manufacturers, and software and applications developers. Indeed, in mid-2010, the largest social network site of them all, Facebook, announced its 500 millionth user – an indicator of the popularity and potential influence that social networking will have on the evolution of the cloud. Figure 2.5 shows the global regional growth of social networking between 2009 and 2015.

As discussed previously, success in the cloud will be measured and driven by those companies that ‘own’ the consumer relationship, rather than technology sales. So those companies that act as a ‘gateway’ or ‘portal’ to the Internet or cloud will be in the strongest position to influence and monetize that consumer relationship. Social networking tools are also being integrated into business collaboration and productivity tools, such as Salesforce’s social networking tool for the enterprise, Chatter.

SN providers therefore envisage a cloud future, whereby consumers use them as their portal of choice for navigating and accessing cloud-based information, content,

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applications and services throughout the cloud for both consumers and enterprise users. At the same time, social networking provides a way to gather useful customer information and data, which can then be used for monetization purposes, such as targeted content and advertising to users – as well as to their social groups and peers. Social networking thus provides a powerful tool for influencing and maintaining the consumer relationship within the cloud.

Of course, Facebook will not have it all its own way, and decelerating global growth is forcing it to look eastwards for expansion in markets such as China, South Korea, Japan and Russia – the four remaining markets in which Facebook is not the dominant player. However, it is likely to be overshadowed in these markets by strong local competitors, which understand the local markets better, and adhere to stricter regulatory restrictions than those that Facebook has been used to – indeed, the site is already censored in some global markets, and the Chinese government has blocked access to a number of foreign SN sites, including Facebook, Twitter, You Tube, WordPress and Picasa, in turn restricting their growth in favor of local competitors.

Currently, Facebook has about 1m users each in Russia, Japan and South Korea, lagging behind local players such as Mixi in Japan, Cyworld in South Korea and Vkontakte in Russia. In China, in particular, social networking has taken off in a big way, with 124m users by the end of 2009, according to projections in a 2009 study undertaken by the Chinese Internet Network Information Center. The study revealed that the social networking space was dominated by local brands QQ XiaoYou, RenRen, Sina Space, 51.com and KaiXin001, with 50% of all respondents having an account with QQ XiaoYou, while RenRen and Sina Space registered about 37% each.

50

Figure 2.5: Social network user growth by region (users m), 2009-15 2,500 2,500 Asia AsiaAsia
Figure 2.5: Social network user growth by region (users m), 2009-15
2,500
2,500
Asia
AsiaAsia
Asia
Western Europe
WesternWestern EuropeEurope
Western Europe
North America
NorthNorth AmericaAmerica
North America
2,000
2,000
Central & South America
CentralCentral && SouthSouth AmericaAmerica
Central & South America
Central & Eastern Europe
CentralCentral && EasternEastern EuropeEurope
Central & Eastern Europe
RoW
RoWRoW
RoW
1,500
1,500
1,000
1,000
500
500
0
0
End 2009
End 2009
End 2011
End 2011
End 2013
End 2013
End 2015
End 2015
Source: Major platforms, comScore, Business Insights analysis
Business Insights Ltd
Unique SN users (m)
Unique SN users (m)
 

Table 2.5:

Social network user growth by region (users m), 2009-15

Unique SN users (m)

End 2009

End 2011

End 2013

End 2015

Asia Western Europe North America Central & South America Central & Eastern Europe RoW

392.0

660.0

898.0

1,059.0

144.5

188.0

231.0

240.0

157.1

197.0

221.0

230.0

113.0

158.0

185.0

200.0

87.0

124.0

160.0

195.0

23.4

31.8

43.1

47.2

Total

917.0

1,358.8

1,738.1

1,971.2

Source: Major platforms, comScore, Business Insights analysis

Business Insights Ltd

51

Market sizing and forecasts (2010-18)

The following section provides detailed quantitative analysis and forecasts for the global consumer cloud market from 2010 to 2018. Market figure predictions are broken down into market segment, region, and major geographical market.

Total cloud services revenues

Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by the end of the forecast period, as illustrated in Figure 2.6 below.

Figure 2.6: Global total cloud services revenues ($bn), 2010-18 350 350 300 300 CAGR: CAGR:
Figure 2.6: Global total cloud services revenues ($bn), 2010-18
350
350
300
300
CAGR:
CAGR:
17.9%
17.9%
250
250
200
200
150
150
100
100
50
50
0
0
2010
2010
2012
2012
2014
2014
2016
2016
2018
2018
Source: Analyst consensus, Business Insights analysis
Business Insights Ltd
Revenues ($bn)
Revenues ($bn)

52

Table 2.6:

Global total cloud services revenues ($bn), 2010-18

Revenues ($bn)

2008

2009

2010

2011

2012

CAGR

Total cloud revenues

68.3

104.0

148.8

211.0

301.0

17.9%

Source: Analyst consensus, Business Insights analysis

 

Business Insights Ltd

These revenues will remain concentrated within a relatively small number of

geographies, as illustrated in Figure 2.7. Geographic reach for cloud revenues will

remain limited because of barriers in the enterprise and government markets relating to

cost, privacy and security concerns, as well as bandwidth availability. However,

markets such as the US and the UK have made cloud adoption a strategic choice (in the

US to lower business costs, and in the UK, as a drive towards cheaper government).

Figure 2.7: Total cloud services revenues by major geographical market ($bn), 2010-18 350 350 US
Figure 2.7: Total cloud services revenues by major geographical market
($bn), 2010-18
350
350
US
USUS
US
UK
UKUK
UK
300
300
Japan
JapanJapan
Japan
OtherOther WesternWestern EuropeEurope
Other Western Europe
Other Western Europe
250
250
CanadaCanada
Canada
Canada
ChinaChina
China
China
Korea
KoreaKorea
Korea
200
200
RoW
RoWRoW
RoW
150
150
100
100
50
50
0
0
2010
2010
2014
2014
2018
2018
Source: Analyst consensus, Business Insights analysis
Business Insights Ltd
Revenues ($bn)
Revenues ($bn)

53

Table 2.7:

Total cloud services revenues by major geographical market ($bn), 2010-2018

Revenues ($bn)

2010

2014

2018

CAGR

US

39.9

74.7

138.3

14.8%

UK

11.3

28.9

46.3

17.0%

Japan

7.1

17.9

32.6

18.4%

Western Europe

5.0

15.2

47.7

28.5%

Canada

1.4

2.8

5.2

15.8%

China

1.3

5.1

22.3

37.7%

Korea

2.1

3.7

6.7

13.6%

RoW

0.3

0.6

2.0

23.8%

Total

68.3

148.8

301.0

17.9%

Source: Analyst consensus, Business Insights analysis

Business Insights Ltd

As can be seen, the US is, and will continue to be, the major market for cloud services,

followed by the UK and Japan. Western Europe is currently lagging behind the UK and

Japan, due to consumer resistance, a focus on the major markets, and the complexity of

different operators, service providers, regulatory regimes and existing infrastructure.

However, by 2018, Western Europe as a combined entity is forecast to outgrow British

and Japanese markets, likely as a result of the emergence of new European domestic

players, taking advantage of the current apparent apathy in the region. Figure 2.8 shows

the percentage market share of total cloud services revenues by geographical region in

2010, 2014 and 2018.

54

Figure 2.8: Share of total cloud services revenues by major geographical market (%), 2010-18

201020102010

2010

US201020102010 2010 USUS US US Canada CanadaCanada Canada Canada UK UKUK UK UK Japan JapanJapan Japan

USUS

US

US

Canada201020102010 2010 US USUS US US CanadaCanada Canada Canada UK UKUK UK UK Japan JapanJapan Japan

CanadaCanada

Canada

Canada

2010 US USUS US US Canada CanadaCanada Canada Canada UK UKUK UK UK Japan JapanJapan Japan
2010 US USUS US US Canada CanadaCanada Canada Canada UK UKUK UK UK Japan JapanJapan Japan

UK

UKUK

UK

UK

USUS US US Canada CanadaCanada Canada Canada UK UKUK UK UK Japan JapanJapan Japan Japan China

Japan

JapanJapan

Japan

Japan

Canada Canada UK UKUK UK UK Japan JapanJapan Japan Japan China ChinaChina China China OtherOther westernwestern

China

ChinaChina

China

China

UK Japan JapanJapan Japan Japan China ChinaChina China China OtherOther westernwestern EuropeEurope Other western Europe
UK Japan JapanJapan Japan Japan China ChinaChina China China OtherOther westernwestern EuropeEurope Other western Europe

OtherOther westernwestern EuropeEurope

Other western Europe

Other western Europe

Other western Europe

Korea

Korea

KoreaKorea

Korea

Europe Other western Europe Korea Korea KoreaKorea Korea RoW RoWRoW RoW RoW 2014 201420142014 2018 2

RoW

RoWRoW

RoW

RoW

2014

201420142014

western Europe Korea Korea KoreaKorea Korea RoW RoWRoW RoW RoW 2014 201420142014 2018 2 0 1

2018

201820182018

western Europe Korea Korea KoreaKorea Korea RoW RoWRoW RoW RoW 2014 201420142014 2018 2 0 1

Source: Analyst consensus, Business Insights analysis

 

Business Insights Ltd

Table 2.8:

Share of total cloud services revenues by major geographical market (%), 2010-18

Revenues (% share)

2010

2014

2018

US UK Japan Other Western Europe Korea Canada China RoW

58.4%

50.2%

45.9%

16.5%

19.4%

15.4%

10.4%

12.0%

10.8%

7.3%

10.2%

15.9%

3.1%

2.5%

2.2%

2.0%

1.9%

1.7%

1.8%

3.4%

7.4%

0.4%

0.4%

0.7%

Source: Analyst consensus, Business Insights analysis

Business Insights Ltd

Private cloud vs public cloud

There is a real question as to whether private cloud networks are cloud networks at all.

The principal point is that shared infrastructure can be privately owned or publicly

owned, but still offers the benefits of being shared. However, despite doubt over the

55

validity of ‘private cloud’ networks, within the definition outlined in this report, Figure

2.9 breaks out the figures for private vs public cloud networks revenues. While private

cloud networks are expected to generate the majority of revenue over the coming years,

by 2016 the public cloud will start to narrow the gap.

Figure 2.9: Total cloud services revenues, private vs public cloud ($bn), 2010-

18

PublicPublic cloudcloud Public cloud Public cloud PrivatePrivate cloudcloud Private cloud Private cloud Difference
PublicPublic cloudcloud
Public cloud
Public cloud
PrivatePrivate cloudcloud
Private cloud
Private cloud
Difference
DifferenceDifference
Difference
180 180
$14.2bn
$14.2bn
160 160
140 140
$27.0bn
$27.0bn
120 120
$37.8bn
$37.8bn
100 100
80 80
$34.0bn
$34.0bn
60 60
$29.5bn
$29.5bn
40 40
20 20
0 0
2010 2010
2012
2012
2014
2014
2016
2016
2018
2018
Source: Analyst consensus, Business Insights analysis
Business Insights Ltd
Revenues ($bn)
Revenues ($bn)

Table 2.9:

Total cloud services revenues, private vs public cloud ($bn), 2010-

 

18

Revenues ($bn)

2008

2009

2010

2011

2012

CAGR

Public cloud

19.4

35.0

55.5

92.0

143.4

24.9%

Private cloud

48.9

69.0

93.3

119.0

157.6

13.9%

Total

68.3

104.0

148.8

211.0

301.0

17.9%

Source: Analyst consensus, Business Insights analysis

 

Business Insights Ltd

56

Consumer cloud market revenues

Global total

Globally, consumer cloud services revenues are set to take an increasingly large share

of total cloud services revenues. As shown in Figure 2.10, consumer cloud revenues are

predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by

the end of the forecast period. The share of consumer cloud revenues, as a percentage

of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for

nearly one-quarter (23.7%) of total cloud services revenues by 2018.

Figure 2.10:Global consumer cloud revenues as a percentage of all cloud services revenues ($bn), 2010-18
Figure 2.10:Global consumer cloud revenues as a percentage of all cloud
services revenues ($bn), 2010-18
ConsumerConsumer cloudcloud revenuesrevenues
Consumer cloud revenues
Consumer cloud revenues
%
%
%% ofof totaltotal cloudcloud revenuesrevenues
of total cloud revenues
of total cloud revenues
80
80
25%
25%