Cloud computing spending: Miniscule, but fast growing

Despite the hype, cloud computing is still a tiny proportion of overall IT spending, although it is likely to grow fast.

According to analysts TechMarketView, the UK market for cloud computing reached £1.2bn in 2011, 38 percent higher than the previous year. The analysts expect cloud-computing revenues to grow by 35 percent each year to reach £3.9bn by 2015.

That sounds like a lot of money, until you realise this means that cloud accounted for a mere two percent of the UK software and IT services market in 2011. Rapid growth will see cloud build to nine percent of the market in 2015, however.

In its report, UK Software and IT Services Market Trends & Forecast 2012, the analyst house defines the cloud-computing market as composed of software, infrastructure and platform-as-a-service (PaaS), as well as application provisioning and business process-as-a-service. This definition does not include cloud consulting, or building and integrating IT and network infrastructures capable of delivering cloud computing.

Indeed, as the analyst house notes, "the term 'cloud computing' has become pervasive — indeed overused — as a service description". It said most of what is portrayed as cloud computing is still just outsourcing and hosting.

The vast majority of cloud computing revenues derive from SaaS — 72 percent in 2011, according to TechMarketView. However, it said this will decline to around 60 percent by 2015, as the volume of 'true' cloud-computing services increases from IT services suppliers.

Rough ride

According to the analysts, tech vendors will be in for a rough ride over the next few years, as the tough economic climate conspires with cloud computing, BYOD and off-shoring to drive down tech spending.

TechMarketView believes the UK IT market will continue to decline in real terms at least until 2015, at which point it would take just two more years of decline to mark a decade of recession. It warned that if the UK economy does not rebound towards three-percent growth in the next three years, the UK could "easily see" more years of decline in the software and IT services market.

"Even if technology trends and customer sentiment only add 10 percent 'headwind' each year to pricing, it's hard to see demand levels increasing by the 12 percent (including inflation) necessary to drive growth in real terms. As such, perhaps the UK [software and IT services] market is doomed to remain in recession — full stop," the analysts warn.

According to the report, there is a big difference between the public and private sectors when it comes to spending on IT. Public-sector spending cuts took more than £900m out of the market in 2010/11, and a further £350m will be cut in 2012. The public-sector share of UK IT spending will drop from 29 percent in 2010 (£11.8bn) to 27 percent in 2015 (£11.8bn).

In contrast, private-sector IT spending in 2011 grew by 3.2 percent to reach £29.7bn, which the analysts expect to grow by a further 3.4 percent this year. TechMarketView expects the UK private-sector IT market will be worth £31.8bn in 2015.