The state of the cloud in 2015: “Bullish” VC firm predicts tipping point

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Bessemer Venture Partners (BVP), a venture capital firm which has been investing in cloud computing for almost 20 years, has released a bullish prediction on cloud trends in the coming years.

Software as a service (SaaS) is approaching 30% of total application spend, compound annual growth rate hitting 17.6% between 2013 and 2018. On premise, by contrast, is at 2.8%. BVP also argues the ‘tipping point’ of cloud CRM will hit in 2016; by 2018, the VC firm expects cloud CRM to reach 62% revenue share. Salesforce is the current market leader with 16% share, compared to SAP (13%), Oracle (10%) and Microsoft (7%).

In this instance, describing companies as private and public cloud providers relates to whether they are pre- or post-IPO. For ‘public’ cloud companies, there has been a tremendous shift in market cap since 2008. Back then, Salesforce had a leading market cap of $7.4 billion, ahead of NetSuite ($2.3bn) and Concur ($1.5bn). In 2015, Salesforce still leads, but with a $50.5bn market cap, ahead of LinkedIn ($26.2bn) and Workday ($16.9bn).

The total cloud market cap at 2015 stands at approximately $180bn, while in 2008 it was nearer $25bn. By 2020, BVP expects it to pass $500bn.

For cloud companies that are pre-IPO, of the 300 ‘up and comers’ identified in the SaaS, PaaS, IaaS, developers, IT operations and security space, 28 have grown into $1bn and over businesses. Dropbox ($10bn), Stripe ($5bn) and Zenefits ($5bn) are the three biggest hitters.

The report outlines a variety of ways in which the cloud has outperformed its predicted market cap. For CEOs, BVP outlines major trends and coming disruptions; industry cloud coming of age, further commoditisation of IaaS, more merger and acquisition from legacy vendors who are “cornered animals” ahead, and the dawning of enterprise mobile. BVP predicts the coming five years will be “fatal” to many legacy vendors, who were caught in the innovator’s dilemma; now it’s too late to build and too expensive to buy.

You can find the full 47 page report here. Do you agree with the predictions and issues raised?

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