Merrill Lynch: Cloud Computing Market Will Reach $160 Billion...Really?

Written by Alex Williams / November 25, 2009 11:40 AM / 8 Comments

The estimates for cloud computing can make you wonder sometimes about what to believe. Analyst firms and it looks like investment houses, can be notorious for wild estimates about market sizes.

So we have to wonder about the estimates from Merrill Lynch, which is estimating the cloud computing market to reach $160 billion by 2011.The estimate includes $95 billion in business and productivity applications.

Whoa! That makes cloud computing one of the fastest growing markets in the world.

But Merrill Lynch is not alone in its lofty estimates. Earlier this year, Gartner pegged the market at $150 billion by 2013.

In their estimate, Gartner included Google Ad Words estimates in their estimates. This seems sketchy at best. Here's what Gartner analyst Lydia Leong wrote back in May:

"Obviously, one argue whether or not it's valid to include advertising revenue, but a key point that should not be missed is that in the trend towards the consumerization of IT, it is the advertiser that often implicitly pays for the consumer's use of an IT service, rather than the consumer himself. Advertising revenue is a significant component of the overall market, part of the "cloud" phenomenon even if you don't necessarily think of it as "computing".

What's at risk is making cloud computing totally irrelevant. How can corporate IT departments make sense of the market when it appears that cloud computing is essentially tied to anything connected to the Internet?

But then you need to look at the dynamics in play. IT is built on legacy systems, custom, built to order environments. Cloud computing provides a level of automation.

From the PriceWaterhouseCoopers summer Technology Forecast:

"Legacy IT soaks up much of the available IT budget and is a primary barrier to IT responsiveness and overall business agility."

The report goes on to say that cloud will be necesssary for automating the world of IT:

"...IT must adopt an architecture that creates loose coupling between the IT infrastructure and application workloads. It also must modernize and automate IT's own internal business processes for provisioning, managing, and orchestrating infrastructure resources."

In other words, cloud computing will be huge but to call it a $160 billion market seems like a form of hype that can lead to all kinds of issues. It's almost reminiscent of the dot-com bubble.

And look what happened there.

Comments

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It is absurd to believe advertising will persuade right thinking people to align themselves with BAML a firm whose moral compass remains dysfunctional

Posted by: jjj | November 25, 2009 1:54 PM

I don't buy this forecast. Yes, cloud computing is the next big thing but a lot of companies are proceeding with caution.

Posted by: Poodle Breeders | November 25, 2009 2:50 PM

Merrill Lynch's estimate most likely does not include the rising number of smaller providers entering the SaaS marketplace. For instance, is a product from a small company but offers very simple-to-use template applications. This company along with others aim to compete at the lower end of the spectrum, off the radar of larger players like Salesforce.

Posted by: fathers day | November 25, 2009 11:27 PM

It's going to important for Cloud Computing as a whole that it overcomes the major concerns over data ownership and security.

There's no doubt it will be a big market because the demand is there, but it is so broad that there will be a lot of casualties along the way.

What's worrying is businesses are getting valued without making a penny and seemingly not knowing where the penny is going to come from.

dot.com bubble, as mentioned, is a clear indicator of what not to do, yet it seems that 10 years on lessons weren't learnt and people think that the cloud is the fast track to making a quick buck.

Posted by: Rob Hallums | November 26, 2009 4:04 AM

The value of cloud computing has nothing to do with any of these things.

Posted by: patricia | November 26, 2009 1:19 PM

1. Cloud computing shifts where the computing is done.
The particular enterprise semantics still needs to be embedded in a systems that runs in the cloud. There is no reason why this customization can not be done in the cloud with cloud system development tools.

2. Many of the smaller enterprises may have much weaker security & data governance processes than is offered by cloud provider simply because they can not afford them.

3. Much of the complexity in the modern IT world (250million IT professionals) stems from the archaic architectures employed to provide solutions. This includes relational data base systems that are in my opinion one of the most significant sources of this unnecessary complexity. We need to move to entirely new architectures to solve these problems.

Move to cloud solves only the problem of where the stuff runs, in other words moves complexity from enterprise IT department to the cloud. We still need to find great architectures that solve the problem of complexity. One should look at at semantic cloud architectures.

Pawel Lubczonok
ThoughtExpress

Posted by: pawel lubczonok | November 27, 2009 10:24 PM

How big was the off premise mainframe business? Shouldn't cloud computing be bigger than this?

Posted by: vuuch | November 28, 2009 4:30 AM

just a new buzz word. how do you define cloud computing? If connectedness is the key then corporate networks are not going to allow outside networks but if you think of localized clouds then that is already present in the name of intranet, single sign on, XML, web services.

Do you think corporates are going to use Amazon services, or google documents?

Posted by: Dashboard | December 7, 2009 1:26 PM