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2 min read business

How long can public clouds keep growing?

Public Cloud Infrastructure adoption is expected to grow at CAGR 20%. What’s more interesting is seeing whether it can sustain this growth.

  • 2024 Revenue is forecasted to reach over $300B. A 20% CAGR is stellar for an industry this large.
  • Its biggest component revolves around data - Analytics, Warehousing, and Security.
  • Biggest contributor to growth (~50%) is technology adoption - meaning enterprises are still onboarding on to public cloud from private data-centers.

Source: statista

How long can its growth sustain?

In order to estimate its TAM we consider main factors of growth:

  1. Percentage of enterprise workloads already on public cloud vs private
  2. Estimated at 20% (avg of research report surveys)
  3. Workload expansion for existing install-base
  4. Drivers: AI, BI, Cybersecurity
  5. Net growth of IT industry
  6. Drivers: GDP, AI

We can take bear and bull case for each:

The conservative case assumes cloud costs will limit adoption to 50% of the workloads. There will be a pricing pressure, but offset by existing-workload-expansion. Overall, Hyperscaler growth rates will come down substantially over next 5 years.

Surveys from IDC and Gartner are highlighting Optimizing Cloud Spend as #1 concern by adopters. I have a lot of anecdotal evidence of the same. However, ROI of Cloud vs Datacenter TCO, and Cloud Managed Services vs labor-cost of talent is so high that workloads will continue to transition.

The bull case argues that a lot more workloads transition from private clouds and data centers to public cloud. For example, containerized serving infrastructure, ETL and reporting processing, and data warehousing for compliance and BI. The evidence from analysts suggests a price-elastic market. Even with price decrease, the net expansion of workload offsets revenue.

One more trend reinforcing dismantling of of private cloud data centers is coming from business reports of enterprise data and security companies (Rubrik, ZScaler). Their net growth is coming from public-cloud offerings with a decreasing spend in private and on-prem offerings, suggesting a transition of their customer’s workloads to public cloud.

However, the real factor behind bull-case is substantial workload expansion and modernization:

  • cloud modernization (adoption of serverless and container based architectures)
  • growing emphasis on data privacy and cybersecurity
  • adoption of AI services

These have been highlighted as key drivers of expansion in industry reports.

The bull-case is that market grows over 2 folds (3x) in next 5-6 years, resulting in a 1 Trillion TAM

In my view, biggest risks lie on two factors:

  1. Business impact of AI products in large enterprises
  2. Growth of Edge-computing architectures, pressurized by data-privacy regulations