Software Services Delivered via the Cloud
U.S. spending on software products and services increased from 32 percent of total
corporate IT investment in 1990 to almost 60 percent in 2011.
Industry revenues from
software publishing in the United States are estimated to grow at an average annual rate
of 4.3 percent to $189.5 billion during 2008–13, yielding a profit margin of nearly
One source anticipates that global spending on enterprise software,
subset of software publishing, will accelerate in 2013–14.
The United States is both the largest market for and the largest producer of software. The
U.S. software market accounts for 53 percent of the G8 countries’ market and 38 percent
of the global market.
Roughly 75 percent of the world’s largest software companies
were founded in the United States, and 18 of the top 25 software companies—in terms of
research and development investment—have U.S.-based headquarters. In 2012, the U.S.
software publishing industry employed 305,762 people.
Cloud Computing for Software Services
Software-as-a-service (SaaS) is changing the way companies deploy computer software.
Until recently, software was installed via a physical medium, such as a CD or DVD, and
run locally on PCs hard drive. With broadband Internet, software delivery is increasingly
moving from a physical delivery model to a model where remote service applications are
delivered on demand via the Internet. SaaS is greatly expanding software, computing, and
storage capabilities that were previously limited by hardware size, particularly those of
mobile devices. Smartphone and tablet users, for example, can access cloud-based
applications and store data on servers at a remote location rather than on the device.
Box 2.3 provides an overview of the deployment of SaaS in the economy. Leading SaaS
providers include long-standing software development firms such as Oracle and SAP, as
well as firms that have entered the industry more recently.
Sources estimate that adoption of SaaS will increase rapidly in the next 3–5 years. One
report indicated that global purchases of Internet-delivered software and services rose
17.9 percent in 2011 to $14.4 billion in 2012, and were projected to remain strong
through 2015, reaching an estimated $22.1 billion by that time.
forecast that SaaS delivery will significantly outpace traditional software product
delivery, growing nearly five times as fast as the entire software market during 2012–16.
SaaS is forecast to comprise 25 percent of all new business software purchases by
McKinsey, Competing in a Digital World, February 2013.
In addition, research from IBISWorld sees steady growth in software publishing and forecasts
industry global revenue to increase to $206.5 billion in 2018. IBISWorld, Software Publishing in the U.S.,
Industry Report 51121, March 2013, 4, 9.
Software used in organizations, such as business and government, as opposed to that used by
Gartner, Gartner Says Worldwide IT Spending Forecast, January 2013.
DataMonitor, Software in the U.S., November 2011, 7.
U.S. Department of Labor, Bureau of Labor Statistics, “Quarterly Census of Employment and
Wages,” September 2012.
Other leading SaaS providers include Abiquo, Accelops, Akamai, AppDynamics, Apprendra,
MeghaWare, Cloud9Analytics, CloudSwitch, CloudTran, Cumulux, Eloqua, FinancialForce, Intact, Marketo,
Netsuite, OracleonDemand, Pardot, Salesforce.com, and SAP Business ByDesign. Compiled by USITC.
Infoworld, “Gartner: SaaS Market to Grow 17.9% to $14.5B,” March 27, 2012.
IDC, Worldwide SaaS and Cloud Software, August, 2012.
BOX 2.3 Software services delivered remotely
Rapid growth in SaaS is being fueled by numerous factors, including:
globalization (e.g., supply chains and commerce);
technological progress (e.g., faster broadband, improved security technologies, data centers that have
and storage); and
deregulation (e.g., expanding the availability of radio spectrum for commercial use).
Whether mass-marketed or customized, software developed and delivered over the Internet plays a vital role in many
industries in the United States and globally. According to one industry observer, companies that switch to SaaS from
physical software are able to reduce infrastructure costs, perform better, and achieve higher productivity.
source reports that more than 50 percent of U.S. companies currently use SaaS in one form or another, while only
15 percent were using it in 2006.
Security and integration concerns made large companies initially reluctant to use SaaS; smaller companies were the
primary users at first. However, as the technology has developed and has proven to be increasingly reliable, large
and traditional industries, even historically risk-averse ones such as healthcare and finance, are employing SaaS.
Uses of Internet technologies, including cloud services, in the financial and healthcare services sectors are discussed
in more detail in chapter 3.
Software implementations of computers that execute programs like physical machines.
Cutter Consortium, Business Technology Trend and Impacts Advisory Service Executive Update, 2012, 7.
Gartner, Hype Cycle for Cloud Computing 2012, August 2012, 8.
SaaS technology is being adopted at different rates across markets and regions. North
America is the largest SaaS market (more than $9.1 billion), followed by Europe
($3.2 billion), Asia-Pacific ($934.1 million), and Japan ($495.2 million). The greatest
increase in SaaS spending is in the emerging regions of Asia-Pacific (led by Indonesia
and India), China, and Latin America (led by Argentina, Mexico, and Brazil), reflecting,
among other factors, the growing numbers of mobile device users in those countries.
Emerging markets’ combined share of global SaaS spending is expected to nearly double
by 2016; at that point, SaaS is expected to account for almost 30 percent of the growth of
net new spending on public IT cloud services in these markets.
Governments find SaaS technology attractive and are using it to serve the public more
quickly, more cost-effectively, and more transparently. Examples of SaaS deployment
include the development of e-government services such as online tax filing; renewal of
drivers’ licenses; and the provision of public health and safety information.
computing is a major feature of the U.S. government’s initiative to modernize federal IT
operations and reduce costs by replacing expensive and often redundant agency data
centers and server farms with Internet-enabled systems. The initiative includes the
website Info.Apps.Gov, an online catalog where federal IT managers and chief
information officers can browse applications and purchase cloud-based IT services
developed by companies like Amazon and Salesforce.com for productivity, collaboration,
Gartner, SaaS Market to Grow 17.9% , March 2012.
PC Advisor, IDC: Public IT Cloud Services Spending, September 11, 2012.
See USA.gov, http://www.usa.gov/Citizen/Services.shtml.
CNET, White House Unveils Cloud Computing Initiative, September 15, 2009.
The trend towards increased adoption of SaaS is driving investments in mobile devices
and software apps because apps are stored in the cloud and are delivered via wireless
Internet. Mobile devices are, in turn, opening new platforms for software companies. One
source estimates that 81 billion mobile apps will be downloaded in 2013—double the
number in 2012—while another source forecasts app revenue to grow more than
50 percent per year through 2016.
Data Services Delivered via the Cloud
This section describes developments in data processing and data storage, and how IaaS is
increasingly being used to outsource these functions. SMEs are a key market for cloud-
based data services. Cloud services allow SMEs to benefit from using the latest IT
hardware without having to deploy physical infrastructure, like servers and data storage
systems, or having to add IT specialists on their payroll.
Cloud services are paid for as
needed, which may better suit small firms with limited cash on hand to invest in the up-
front costs of setting up their own IT infrastructure. Moreover, cloud services are easily
scalable, meaning that small businesses may be able to quickly ramp up (or ramp down)
their deployment of IT hardware and software using cloud services instead of procuring
and managing physical assets themselves.
Cloud computing technologies are making data centers more flexible, more powerful, and
much more efficient. The modern data center began in the 1990s, with banks of servers
on company premises, and was followed by off-site colocation facilities
companies could house their servers in a variety of spaces, such as private suites or
“racks.” Today, purpose-built sites typically provide a combination of colocation,
and cloud services.
Cisco Systems estimates that nearly two-thirds
(64 percent) of all data center traffic will be processed in cloud facilities by 2016, rather
than in traditional, on-premise data centers. As shown in figure 2.3, data traffic handled
by data centers is expected to more than double between 2011 and 2014, with that growth
expected to continue through 2016.
The vast amounts of data being generated by Internet-connected devices, along with the
growth in data processing services available as a result of cloud computing, are key
factors encouraging many industries to study these data using a variety of analytic tools.
Often referred to as Big Data analytics (or data analytics), this emerging field of data
analysis is increasingly used by companies, utilities, financial institutions, and other
economic actors to interpret very large datasets generated through the use of Internet
Gartner, Market Trends: Mobile App Stores, Worldwide, 2012; Juniper, Mobile Apps Briefing 2012–
2016, July 2012.
Lynn, “20 Top Cloud Services for Small Businesses,” December 11, 2012.
Cisco, “Cloud: Making SMEs Nimble,” n.d. (accessed June 2, 2013); McKinsey & Company,
Winning in the SMB Cloud, July 2011.
A colocation facility rents space for servers and other computing hardware to businesses.
Managed hosting is an IT provisioning model in which a service provider leases dedicated servers
and associated hardware to a single client. The equipment is at the hosting provider’s facility and managed
there by the service provider.
ZDNet, The 21st Century Data Center, April 2, 2013.
Cisco, Cisco Global Cloud Index. Forecast and Methodology, 2011–2016, 2012.
technologies. Applications of data analytics, as discussed further in box 2.4, include
analysis of patterns in social media interactions, retail sales transactions over point-of-
sale terminals, energy usage communicated over smart electricity meters, and geographic
locations of customers carrying smartphones.
In response to the growing demand for increased data storage capacity, companies such
as Amazon, Apple, Dropbox, Evernote, Google, Microsoft, and others are providing
businesses and consumers with cloud-based data storage services.
briefly described in box 2.5, enable customers to move files once kept on different
storage devices, such as hard disks/drives, to the cloud or pool them on the cloud for use
as if the individual files were a single entity. Customers can deploy converged private
cloud infrastructures at lower cost and then run physical or virtual workloads. Using
cloud-based business apps, companies can keep their data safe and accessible from
Forbes, “Amazon and Google at War over Cloud Storage Prices,” December 5, 2012.
Traditional data center
Cloud data center
FIGURE 2.3 Data traffic: Traditional vs. cloud data center workload distribution, 2011–16 forecast
Source:Cisco Global Cloud Index, 2012.
Total installed workloads in millions
Documents you may be interested
Documents you may be interested