Information Technology: Cloud Computing Industry Analysis (Research Paper Sample)

Information Technology: Cloud Computing Industry Analysis Name Institution Course Date Table of Contents TOC \o "1-3" \h \z \u Cloud Computing Industry Analysis PAGEREF _Toc477649381 \h 2Overview and boundaries PAGEREF _Toc477649382 \h 2Economic characteristics of the industry PAGEREF _Toc477649383 \h 3Size and Growth Rate PAGEREF _Toc477649384 \h 3Barriers to entry and exit PAGEREF _Toc477649385 \h 4Cost structure of the industry PAGEREF _Toc477649386 \h 5Organizations Revenue Generation PAGEREF _Toc477649387 \h 5Potters five forces PAGEREF _Toc477649388 \h 6Industry leaders PAGEREF _Toc477649389 \h 7Future of the industry PAGEREF _Toc477649390 \h 9Economic PAGEREF _Toc477649391 \h 10Social PAGEREF _Toc477649392 \h 10Technological PAGEREF _Toc477649393 \h 10Opportunities and Threats PAGEREF _Toc477649394 \h 11Opportunities PAGEREF _Toc477649395 \h 11Growing need for the Cloud PAGEREF _Toc477649396 \h 11Online payment systems PAGEREF _Toc477649397 \h 11Increased connection speeds PAGEREF _Toc477649398 \h 11Decreased data storage costs PAGEREF _Toc477649399 \h 11Threats PAGEREF _Toc477649400 \h 12Security PAGEREF _Toc477649401 \h 12Competition PAGEREF _Toc477649402 \h 12Changing consumer needs PAGEREF _Toc477649403 \h 12Low-cost retainer products PAGEREF _Toc477649404 \h 12Key Success Factors PAGEREF _Toc477649405 \h 13Security PAGEREF _Toc477649406 \h 13Value PAGEREF _Toc477649407 \h 13Expertise PAGEREF _Toc477649408 \h 13Growth PAGEREF _Toc477649409 \h 13Availability PAGEREF _Toc477649410 \h 14Partnerships PAGEREF _Toc477649411 \h 14Conclusion PAGEREF _Toc477649412 \h 14References PAGEREF _Toc477649413 \h 15 Cloud Computing Industry Analysis Overview and boundaries Cloud computing is an industry within the bigger umbrella of the Information Technology (IT) Industry. Computer software, hardware, computer networks and telecommunication technologies are some of the subset industries in the information technology sector. As a result, the IT sector is very broad and complicated which explains why this paper was narrowed down to cloud computing industry for the purpose of offering a realistic industry analysis. The term “cloud” has been existent for many years because it was borrowed from the meteorological agglomeration of liquid and frozen crystals masses suspended in the sky. The word agglomeration here explains why the term cloud was first used in computer networks in 1977 and 1981 by ARPANET AND CSNET respectively. Agglomeration is a collection or combination of objects which brings us to the definition of cloud computing which is an internet-based distributed network that provides a pool or collection computer resources such as servers, storage and applications among others to clients and end-users. These services and products are provided in three major models which are; service, software, and platform oriented. Cloud computing resulted in reduced costs for cloud providers and user flexibility since it supported location independence and multi-tenancy which explains the quick growth of the industry since 2000. For example, in 2006 Amazon introduced Elastic Compute Cloud, 2008 Google implemented Google App Engine, 2011 IBM brought about the Smart Cloud, and 2012 Oracle introduced the Oracle Cloud. Each of these new developments had unique and better characteristics which proof that the cloud computing industry is growing fast. A study by Forrester anticipated that the total revenue of cloud computing would grow to more than $200 billion by the year 2020 from a total revenue of $ 58 billion of the year 2013 (Samani, Honan, Reavis, & Jirasek, 2015). By the year 2017, global cloud revenues are anticipated to reach $147 billion with cloud providers such as Amazon, Microsoft, IBM, Google, Salesforce and Oracle among other setting the pace for more future growth and advancements in the industry. Economic characteristics of the industry Size and Growth Rate Cloud computing continues to grow, and shortly, it might rule the computing technology. Since 2008, the industry has posted a positive growth margin with the principal players increasing their influence in the field. Governments, private institutions, and individual users have increased the rate of subscription for cloud computing services. Currently, the industry segments continue to grow in economies of scale with IaaS and PaaS, cloud “middleware,” and SaaS global purchase hitting $146 billion in 2016. Similarly, the growth rate of the cloud segments according to Forrester research (2014) indicates IaaS and PaaS will by 27% by 2020 and revenue reach $64 billion. On the other hand, Middleware is expected to garner $14 billion in revenue by 2020 presenting a 6% growth rate (Richman, 2016). Dan further posits that SaaS is projected to grow by a 67% and account for $162 billion in revenue increase by 2020. As a result, the combined purchases income from the industry is expected to hit $236 billion affirming the positive future it presents to the world of information technology. Below is a graphical representation of the projected growth of the cloud computing industry. The Graph represents the purchases made by consumers globally outlining revenues generated from the transaction from 2008 (Richman, 2016). In 2017, it is forecasted the industry will generate $146 billion, with a future projection of $236 billion by the year 2020. Figure 1: Cloud Purchases (Retrieved from Richman, 2016; Charts) Barriers to entry and exit Participating in the cloud computing industry for some is not easy, and the endeavor to join is coupled with a myriad of obstacles (Williams, 2012, p.65). First, limited financial resources is one of the factors preventing the company from participating in cloud computing. Small users and start-up companies find it hard to penetrate the market since the lack the necessary capital to implement and sustain the needed software. Another barrier to entry is the high concentration of big firms that form almost 99% of the market. Google, Amazon, and Microsoft currently hold the largest share of the computing services (Richman, 2016). With such an extensive coverage, entry by new firms is almost possible. Currently, to penetrate the market, one needs to have a strong business plan backed by a skilled workforce and to competent with the major market players. Cost structure of the industry Being a new product in the market, cloud computing still faces the challenge of providing a reliable cost structure that benefits both the service provider and the users. As a result, the industry has encouraged the adoption of pay as you use a model that requires the user to pay for what they consume and not in advance. For organizations, a fixed pricing mechanism is the best to manage its cost. This calls for businesses and big enterprises using cloud services to pay on a monthly or yearly basis. Another cost structure cloud experts encourage usage include latest pricing technologies like a virtual machine that offers access to the cloud at a lower cost. Chargeback service is another (Kevin L, 2011, p.57). The last approach encouraged is the spot pricing where a consumer is a help to pay for services when they start to use depending on the market demand rate. The chart below provides further analysis of the pricing mechanism adopted by the industry. Cloud pricing model (Retrieved from CloudTweaks, 2012) Organizations Revenue Generation The leading companies in focus in the analysis include the Amazon, Microsoft, Google, IBM, and Salesforce (CloudTweaks, 2012). Over the years, these organizations have adopted various mechanisms to generate their revenue such as user subscriptions, spot pricing, and hidden charges that are set based on the agreement. Some of the biggest expenditure within the cloud industry originates from the capital investment to gain access to the services and information. The internet service is also an area that costs users a lot since to access the cloud, and they must pay the service provider. CloudTweaks (2012) notes that some of the highs and lows that companies can experience in their effort to achieve profitability include the cost for expansion, security threats, limited internet coverage, storage, cables, and installation. Despite the challenges experienced, the prospects of the growth of the industry remain bright thus spending on improvement is a value addition approach. Competitive characteristics of the industry Potters five forces Buyer power Buyers in the industry have several options to choose from due to a large number of players in the industry. What is more, the outlook for the industry promises more entrants; therefore, the alternatives for the buyers will continue to increase. The sum effect of such developments is a high buyer power that is likely to remain even in the future. Supplier power The three groups of suppliers in the industry are infrastructure as a service, software as a service and platform as a service. The individual companies in each of the three groups are many. For instance, in the software as a service category, the total number of major players exceeds 200 (Bakri et al., 2012). The result of a large number of players is increased competition for the few limited consumers. Therefore, the supplier power remains low. Threat of new entrants Information technology is improving at an alarming rate. Additionally, thanks to innovation, the costs of the upcoming technologies are reducing in price. Consequently, the threat of new entrants in the cloud computing industry, and the I.T. industry, in general, is high. However, the threat varies in each of the subcategories of the cloud computing industry. In that regard, the threat is lower for the Infrastructure As a service category, as compared to the software as a service category, due to huge capital costs needed to invest in the former. The limited number of barriers to entry in the industry further increases the threat of ...