Emerging markets set to bypass traditional IT for Cloud

Rapidly growing demand for new IT capacity and a lack of existing infrastructure, will drive dramatic growth in emerging market cloud ICT services over the next four years.

Emerging economies will see cloud ICT revenues grow by 382% between 2012 and 2017, rising from $2.2bn to $10.4bn, according to Generation Next, a study identifying the five biggest TMT growth trends in emerging markets, commissioned by global law firm Linklaters.

This rapid increase will be driven largely by new business demand, rather than the cannibalisation of existing managed service ICT revenues. However, cloud growth is predicted to outstrip the existing managed services market as businesses bypass traditional IT investments.

Cloud ICT is forecast to grow at a compound annual growth rate (CAGR) of 37%, compared with typical single-digit growth for established managed network and IT services.

Julian Cunningham-Day, Telecoms co-leader at Linklaters, comments: “Cloud services have been a game-changer in developed economies and they are now set to do the same in emerging economies. This presents a huge opportunity for TMT companies to work together to bring enterprise class cloud services to the emerging market businesses of tomorrow.”

The cloud environment

The report breaks down the expected growth across the major cloud categories of infrastructure, platform and software as a service (IaaS, PaaS and SaaS).

SaaS currently dominates emerging market revenues and is forecast to experience more significant growth as connectivity improves. Between 2012 and 2017 SaaS revenues will grow by 274%, to $7bn.

IaaS and PaaS will also see revenues skyrocket, as businesses increasingly adopt hybrid approaches to cloud. These services will see revenues grow to $3.1bn combined, from a base of just $288m today. This will rebalance the picture for emerging market cloud ICT with IaaS and PaaS making up almost a third of all service revenues.

The five big bets for cloud

The study also identifies the five largest growth markets for cloud ICT as China, India, Brazil, Russia and Malaysia. China and India alone are expected to account for almost one third (31%) of all emerging market cloud ICT revenues by 2017.

However, the authors signal a word of caution, ranking the risk environment for cloud investment in each growth market. China, for example, is ranked as a high-risk environment due to potential challenges around infrastructure, regulation and censorship.

Making it happen

While the potential revenue in cloud is huge, global vendor and service providers need to have a product rollout plan and a services organisation that can support locally emergent, as well as existing western, business customers expanding into emerging markets.

The report notes that strategic collaboration in the shape of contractual partnerships, joint ventures, or in some cases M&As, will be vital to creating the services that businesses demand. The study also identifies five major growth considerations for cloud service providers:

1. Invest in infrastructure with future cloud in mind: cloud services can only work with robust network connectivity. Service providers must invest with this in mind, considering future cloud ICT needs, such as multichannel contact centres and virtual datacentre requirements.

2. Develop new types of contracts: in pay as you go ICT, the right contract is vital. Service providers should test the market to create agreements that cover their capital investments whilst giving customers the assurances they need on cross border data flows.

3. Implement robust service level agreements: cloud ecosystems do not easily permit full management controls, making SLAs hard to guarantee. Customers will need global service support, network performance, account management and product expertise that few can offer. Emerging market operators need to quickly develop processes that enable service excellence in these areas.

4. Partner with regional players: regional telcos already have a lot to offer with many having cloud ICT systems of their own. Partnerships between them and B2B telco providers hold much potential, while new market entrants can learn from their regional cloud ICT rollouts.

5. Develop a software and technology roadmap: to develop a full cloud ICT offer, TMT service providers need to have a roadmap towards true SaaS. This will mean partnering with existing applications vendors and joining forces with vendors investing in their own regional or municipal cloud data centres.

Roger Barron, Telecoms co-leader at Linklaters, comments: “While the growth potential is huge, TMT companies won’t just be able to ride an easy wave to growth. Partnerships are absolutely vital to providing comprehensive cloud services, and TMT businesses won’t easily succeed without them.”