Hosting & Cloud Infrastructure Sector Overview: Growth Rates

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Executive Summary

There is increasing separation within the Internet infrastructure market. Certain segments are grow- ing faster than others and some geographies are outpacing others. Providers operating in mature markets like North America and western Europe, for example, are experiencing slower growth than in years past, while emerging markets in regions like the Asia-paci c are starting to tap into their growth potential.

Perhaps the clearest line of separation from the perspective of public company tracking is between massive-scale cloud and more ‘traditional’ forms of infrastructure such as colocation and managed hosting. Clouds like AWS are growing at a frenetic pace and will soon equal and then surpass the traditional infrastructure markets in terms of total size. In this report, we have separated out cloud from hosting to illustrate this trend.

Cloud’s growth is starting to impact growth trajec- tory. There are certainly cases where some level of revenue cannibalization happens, such as when a small colocation deployment or managed server moves to cloud. This is one factor, among many, contributing to the growth deceleration in the sec- tor we have seen. But in the majority of cases, this is not what is happening. Cloud growth is still pri- marily driven by new applications and workloads written for the cloud or migrations from on-prem- ise legacy infrastructure. Managed hosting and colocation remains steady and rarely churns, and most importantly, is not jumping to cloud in large numbers. What we are seeing is a large-scale shift to outsourced infrastructure with the origin being on-premise and the destinations being hosting, colocation and cloud. Cloud, of course, being an increasingly popular destination.

We have asked the question several times: are we following a period of deceleration into a new nor- mal of slower growth? The answer: likely yes, but it depends. For traditional infrastructure providers in mature markets, this is a probable scenario. For the massive-scale clouds, things are probably just getting started and there remains plenty of runway for emerging markets. The numbers show a sector that is tracking forward on an aggregate basis but with di erent constituencies driving the process at varying rates. The overall trajectory

for all the segments is positive and will remain so even as cloud starts to take up an increasingly larger portion of the pie.