IDC Forecasts Worldwide Spending on Hosted Private Cloud Services to Surpass $24 Billion in 2016

According to a new forecast from International Data Corporation (IDC), worldwide spending on hosted private cloud (HPC) services – an operational model for deploying computing infrastructure services of many types via a cloud model – will be more than $24 billion in 2016.

HPC spending will experience a compound annual growth rate of more than 50% over the 2012-2016 forecast period as companies and IT providers look to cloud in its various forms as a means to transform and make more efficient and scalable the "how" of what they provide to their customers. Along the way, Hosted Private Cloud services will become the backbone of a new set of infrastructure services, transforming existing provider models for IT outsourcing, hosting infrastructure services, and other key IT industries.

At the highest level, there are two types of deployment models for cloud services: public and private. Public cloud services are designed for a market and are open to a largely unrestricted universe of potential users who share the services. Private cloud services are designed for a single enterprise and have user-defined and controlled restrictions on access and level of resource dedication.

Hosted private cloud is a composite view of two private cloud services deployment models, both of which offer customers and providers very different choices about resource dedication, tenancy cost, user access/control of the computing asset, and real and perceived security structures in place. The two HPC deployment models are:

Dedicated Private Cloud: This model offers dedicated 1:1 physical compute and storage resources focused on the needs of one enterprise or extended enterprise. This model offers the greatest customer control over their contracted resource. Examples of dedicated private cloud service offerings include Amazon EC2 Dedicated Instances, IBM SmartCloud Enterprise, Savvis Symphony Dedicated, and Rackspace Cloud: Private Edition.

Virtual Private Cloud: This model is an adjunct of public cloud services with shared virtualized resources and a range of customer control and security options distinct from most public cloud services. Examples of virtual private cloud service offerings include Amazon Virtual Private Cloud (VPC), IBM SmartCloud Enterprise Plus, Savvis Symphony VPDC/Open, and Rackspace RackConnect.

"IDC anticipates that virtual private cloud will be the predominant operational model for companies wanting to take advantage of the speed and lower capital costs associated with cloud computing while cloud service providers will welcome the move away from the expense of dedicated 1:1 physical systems for delivering their business process and datacenter outsourcing and other services," said Robert Mahowald, Research Vice President, SaaS and Cloud Services.

Virtual private cloud is expected to make steady gains in part because of its similarity to public cloud, particularly public Infrastructure as a Service (IaaS), which many IT buyers are already using as a cost-saving alternative to replacing aging infrastructure. As more companies evaluate their Platform as a Service (PaaS) and Software as a Service (SaaS) options, the need to centralize the management of all cloud-sourced capabilities will become apparent.

Meanwhile, the majority of dedicated private cloud buyers will be those companies with existing IS outsourcing or hosted infrastructure services contracts. Potential buyers of dedicated private cloud services will place a premium on off-loading the asset management burden and on operational reliability, over and above other cloud features such as scalability, granular billing, and customer self-service.

When dedicated private cloud grows, the winners are likely to be large incumbent packaged software providers and equipment providers, global systems integrators, professional services firms, and telecommunications service providers. These providers are working mightily to build single-vendor stacks, providing all the underlying components from bare metal to "trusted partner applications." But if virtual private cloud becomes the dominant provider-based model, as IDC expects, it will be more like a public cloud model with mostly standardized, virtually dedicated assets, which means a vastly different set of vendors will benefit.

"Not even the largest technology incumbents can sustain IT market leadership without achieving leadership in cloud services. Quite simply, vendor failure in cloud services will mean stagnation," added Mahowald. "Vendors need to be doing everything they can – today – to develop a full range of competitive cloud offerings and operating models optimized around those offerings."