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The growth potential for Cloud Computing

Following our investment in Abiquo, a Cloud management software developer, this month we examine the continued growth and investment potential of the Cloud industry.

The Cloud Computing market includes many innovative, fast-growing businesses, each of which has a ready-made list of potential acquirers among the sector’s big Infrastructure providers. The global market increased from $20 billion in 2009 to $41 billion in 2011, and analysts agree that similarly rapid growth lies ahead. Research firm Gartner expects the global market to reach $149 billion by 2014, while a report by Forrester forecasts a market of $241 billion by 2020. To identify the investment opportunities associated with this growth, it is important to understand the drivers and trends in the industry.

According to a recent survey by KPMG, potential cost savings continue to be the major factor stimulating demand for Cloud services. For large companies, using ‘virtual’ servers, hosted by Infrastructure-as-a-Service providers like Citrix, Amazon and Rackspace, can cut operating costs. The Cloud also allows smaller businesses to benefit from high-specification enterprise servers with minimal initial costs and a high degree of future flexibility.

However, securing the financial benefits of Cloud technology is not straightforward, and can create a range of other IT challenges.

Many companies are concerned about protecting the security of data stored offsite. Using the Cloud can also make critical business functions dependent on a reliable internet connection. Interestingly, the fastest growth in the sector is expected to come in economies such as China and India, in correlation with a surge in reliable internet access.

Virtualised IT networks also create legal issues. Virtual servers will often be physically located in overseas territories, particularly because the Infrastructure-as-a-Service market is still dominated by the US. Rules about the storage and movement of data can vary considerably across legal jurisdictions, so companies must adopt careful data policies to ensure compliance.

IT services based in the Cloud must integrate with the data and software that a company has retained in-house, and with virtual applications sourced from other third-party providers. This can make it difficult to monitor and control the usage, cost and efficiency of a company’s overall IT architecture, with the result that the financial benefits of virtualisation are eroded by increased server administration costs.

These challenges have stimulated demand for software tools and platforms which improve the ease of accessing, integrating, monitoring and maintaining Cloud-based IT services. And as competition in the virtual hardware sector has intensified, the major Infrastructure providers have recognised that Cloud Software-as-a-Service and Platforms-as-a-Service promise more attractive margins. Amazon continues to develop a large range of software tools to supplement its infrastructure service. Citrix bought Cloud.com, a developer of Cloud deployment software, for $200m in 2011. More recently, VMWare paid a reported $100m-$150m for DynamicOps, a pioneer in software for managing multiple virtual servers.

Abiquo, the latest addition to Oxford Capital’s portfolio, is emerging as an important player in this sector. Abiquo develops a software platform which provides a single portal for accessing, managing and monitoring virtual IT services. Importantly, it addresses the challenges of working with multiple Cloud providers, and across multiple territories. The company’s customers already include major multinational companies from a range of industries, as well as Cloud Infrastructure providers who can improve their own sales proposition by offering Abiquo to end-users. We look forward to keeping our investors informed of the company’s progress.