How public clouds are becoming vertical market-centric

Laurent Lachal, Senior Analyst, Ovum Software

Public cloud vendors are increasingly focusing on vertical markets, which will significantly accelerate public cloud adoption by latecomers. The “verticalization” of public clouds comes as a result of efforts throughout vertical ecosystems, from regulators to traditional IT service providers such as IBM, as well as newcomers such as AWS, Salesforce.com, and Veeva.

It will grow in parallel to public cloud providers increasingly moving from technology services to packages targeted at specific needs and audiences. For more information, see the 2014 Trends to Watch: Public Clouds report that looks at the overall public market trends as well as specific trends for infrastructure, platform, and software-as-a-service (IaaS, PaaS, SaaS) public clouds.

Vertical market regulators are catching up with public clouds

Vertical market regulators are catching up with public clouds, and will continue to do so in 2014. For example, the publication of the Health Insurance Portability and Accountability Act (HIPAA) Omnibus Final Rule in early 2013 clarified that data centers and providers offering cloud-based services are officially considered Business Associates (BAs) under HIPAA and must therefore comply with all applicable privacy and security requirements.

Similarly, in July 2013, De Nederlandsche Bank (DNB), the Dutch banking regulator, approved the use of the AWS cloud for all financial operations, such as websites, mobile applications, retail banking platforms, high-performance computing, and credit risk analysis solutions.

Vendors are increasingly vertical market-centric

Traditional IT product and service providers have been leveraging their vertical market expertise from the start, but newcomers have now begun to build up their vertical market-centric strategies. In 2013, for example, following the clarification of how HIPAA and cloud relate, both AWS and Google agreed to sign formal BA Agreements under HIPAA. Similarly, Salesforce.com, which has been certified as a BA for some time, is developing industry-specific solutions alongside its partner ecosystem.

As a result, about one-quarter of the new applications added to Salesforce.com’s AppExchange marketplace in 2013 are vertical market-specific. In September 2013, Workday confirmed one of the worst-kept secrets in the higher education industry: it is building a student information system (SIS) called Student.

Vertical market-centric startups are emerging

In parallel, vertical markets-specific startups are increasingly in the headlines. Athenahealth reached about $600 in annual revenue in 2013 while pharmaceutical and life sciences specialist Veeva Systems attracted a lot of attention when it went public. It reached an impressive $4.6bn market capitalization on nearly $170m in trailing 12-month revenues.

New vertical market-centric ecosystems are also emerging. For example, in 2013, CareCloud, an electronic medical records and practice management provider partnered with generic cloud storage provider Box as well as with US SaaS health appointment booking startup ZocDoc.

Public cloud verticalization will be slow but unstoppable

The verticalization of public clouds will be an ongoing trend until the end of the decade. Evolution will be slow as many vertical specialists struggle to move to the cloud. The public sector is a good example of this trend. It has been the target of generic public cloud providers such as AWS and Saleforce.com for a number of years. However, public sector specialists in areas such as benefits and transport management, for example, are much more cautious, all the more so because public clouds make it easier for third parties to compete with what they offer.

Nevertheless, they will have to make a move sooner rather than later because not only public sector organizations but also those in the private sector are increasingly asking for public cloud-based vertical-specific solutions. A variety of vertical market-specific Ovum reports illustrate this trend. Our Business Trends: Pharmaceutical Technology report, for example, indicates that while current levels of SaaS adoption are low in the lab informatics solutions such as laboratory information management systems (LIMSs) and electronic laboratory notebooks (ELNs), most companies are now considering SaaS delivery for these solution types.

Similarly, cloud service adoption in the capital markets has increased considerably in the last few years, as described in The Cloud in the Capital Markets: A Progress Report. Order management systems (OMS), which used to be deployed on-premise, are moving toward becoming hosted and managed services delivered by third parties. They are not yet fully cloud services, but they are on their way to becoming so.

Portfolio management systems (PMS), which have followed OMS and have in some senses leapfrogged them, are already available in full cloud mode from companies such as Alphakinetic.

Further reading

2014 Trends to Watch: From Private to Hybrid Clouds, IT022-000007 (March 2014)

2014 Trends to Watch: Public Clouds, IT022-000008 (March 2014)

2014 Trends to Watch: Cloud Computing, IT022-000006 (February 2014)

2014 Trends to Watch: Cloud Services, IT019-003310 (January 2014)

Cloud in the Capital Markets: A Progress Report, EI003-000004 (September 2013)

Business Trends: Pharmaceutical Technology, IT010-000169 (March 2013)

Methodology

  • Vendor events and analyst briefings.
  • Vendor meetings and technology assessments.
  • Interviews with end users.

Ovum Consulting

We hope that this analysis will help you make informed and imaginative business decisions. If you have further requirements, Ovum’s consulting team may be able to help you. For more information about Ovum’s consulting capabilities, please contact us directly at consulting@ovum.com.

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