Cloudy with a chance of high ROI

Posted on Mar 2016

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Cloud continues to be one of the most exciting investment areas at the moment. According to research conducted by Gartner, the cloud services market is projected to grow from $227.8 billion in 2019 to more than $354 billion by 2022, creating massive opportunities for investors. So what do you need to know about where cloud computing is going and what the smart money is on?

Intuitus frequently evaluates cloud-based technology providers or companies with a significant dependency on cloud-based technologies and they don’t see this reducing down in the next few years.

In addition to buy-side engagements we have also delivered a number of cloud-related projects as part of our value enhancement work post-deal, as organisations seek to engineer maximum growth and value.

One of our clients that has embraced cloud through a buy and build strategy in the managed hosting space in Benelux is Waterland. Two key reasons underpin Waterland’s investment in cloud technology. Firstly, given the high degree of fragmentation in the cloud landscape, a buy and build strategy makes sense. Customers prefer large and stable suppliers rather than small and potentially unstable ones. Secondly, there are sound economies of scale in the cloud business. Waterland identifies fundamental growth, supported by a sound business model, as drivers for long-term investor interest, although they conceded that caution needs to be taken: cloud is not just one thing - it’s a patchwork of many segments and some are more sustainable than others.

The big names that everyone has heard of are of course Amazon Web Services, Microsoft Azure and Google Cloud Platform. These companies essentially offer a control panel that allows you to choose what you need, and in theory you can be up and running very quickly. However, you’re expected to have a degree of prior knowledge. AWS could be compared to a toolkit; the uninitiated who head out to the garage without knowing what they’re doing should expect to cut their fingers.

As a result of this we’ve seen huge growth in companies bundling this toolkit – with additional add-ons – into a customer friendly package. By using a smaller cloud services provider a user can specify exactly what is required, and the service provider can offer a degree of flexibility not provided by market leaders such as AWS or Microsoft Azure.

It’s unlikely we’ll see another AWS anytime soon, but there are opportunities in the abundance of SME companies that are offering variants of cloud computing. The growing market offers investors the opportunity to consolidate businesses, and businesses the opportunity to feed off each other. Investors who buy into a cloud computing platform can expect to add value. Cloud-services organisations can expect to grow as new customers come on board and/or existing customers start buying more cloud capability.

Companies that decide to work with cloud rather than push against it are the ones I’d want to do business with. An end user of IT services will always need someone to come and see them and explain the technology. Companies that offer a managed service on top of AWS or Microsoft Azure have an opportunity to do very well.

DRaaS (disaster recovery as a service) is an area that is predicted to grow. In the past small companies would take back ups and live in hope that the relevant data would be there if it was ever needed. Now DR is a priority early on, and cloud lets you replicate your infrastructure at every level to a secure secondary site at minimal additional cost as the DR infrastructure is simply scaled-up and paid for only when it is required.

One issue where people do still have some concerns is the security of data sharing, and the industry still has work to do to reassure people. In reality the security precautions employed by a cloud provider will be far beyond anything an organisation could deliver on their own cost effectively. For example, an e-commerce organisation may have struggled with the expense of meeting PCI compliance guidelines in the past, but cloud technology allows them to do so at a fraction of the cost.

Most SMEs can make financial savings by switching to a cloud model. The flexibility of the technology means that organisations can upscale their requirements when demand for certain features of their service is high, for example sale periods for an e-commerce retailer. Once the sale is over it is just as easy to downscale services (and costs) for business-as-usual periods. Another benefit is outsourcing – the vast expertise that cloud computing companies can bring replaces the need to have those skills in house.

In the past there was a perception that the adoption of cloud technology was something that only start-ups did. This view is not necessarily changing. Around 75% of computing infrastructure is still on premise, so there’s still a long way to go.

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