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Cloud market size numbers don't add up

Determining AWS's true value in the cloud market has been a bit of a guessing game, especially when cloud market size appears larger than it is.

Reporters and financial analysts got a charge last month when Amazon announced that it will break out the financials for Amazon Web Services (AWS) starting with Q1 of 2015. Up until now, Amazon has lumped AWS revenue in to its "Other" category -- alongside revenue from advertising services and co-branded credit cards -- making it hard to tell how large (or profitable) AWS really is. That hasn't stopped anyone from trying, with revenue current estimates ranging from $3 to $5 billion in 2014.

Everyone loves to admire fast-growing businesses and speculate on their financials. At the same time, it's important to remember, when it comes to the IT market, AWS -- and cloud market size as a whole -- looms larger than it actually is. At least that's the case for now.

I was reminded of the cloud market size discrepancy recently when looking at the storage market. Online file sync players like Box and Dropbox get a lot of attention, and the market is generously sized at about $1 billion. But that's a drop in the bucket when compared with the roughly $50 billion on-premises storage market, noted Jim Sherhart, vice president of marketing at Connected Data, which makes file sync-and-share equipment.

Further, that optimistic $1 billion market is troubled by actually turning a profit. As of the quarter ending last October, cloud storage provider Box recorded $153.8 million in revenue, but still lost $121.5 million.

"The cloud vendors want you to think that everything is going to be in the cloud, but cloud service providers -- particularly cloud storage providers -- are challenged from a business perspective," said Sherhart.

Indeed, while a lot of folks treat public cloud dominance as a foregone conclusion, the truth is that no one really knows what will happen. Public cloud could take over, but the race to the bottom could make it extremely difficult for cloud providers to compete. Or it may even force them to increase prices to hard-to-swallow levels.

There's some indication that, at least among cloud storage users, the bloom is off the rose. Current users of cloud-based online file share technology are much more likely to be interested in running their own file sharing, in their own data centers, as compared with organizations that don't currently use cloud-based file sharing, according to Enterprise Strategy Group research. Specifically, 69% of current cloud online file share users are "extremely interested" in running that technology on-premises, compared with just 11% of shops that don't already use cloud online file sharing. What do they know that everyone else doesn't?

Alex Barrett is editor in chief of Modern Infrastructure. Write to her at abarrett@techtarget.com.

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Do you see AWS expanding its share of the cloud market over the next year?
In my opinion, it really is too early to substantiate cloud market financial analysis. However, with AWS declaring it financials, more information will be available.
Jason, I agree. My larger point is not to get bowled over by the hype, and to keep things in perspective.
On one hand, you have a highly fragmented SaaS market, except for a few leaders like Salesforce, Concur, WebEx, etc. None of them have been able to do a major consolidation like we've seen with other segments of the market in the past.

On the other hand, AWS is the 900-lb gorilla in public commodity cloud, but their revenues are in the $6-8B/year range (today). This is tiny vs. all the infrastructure and software vendors that sell on-prem. But those vendors are struggling as well, especially with margins. 

So basically what we have is the end of a 20yr cycle of on-prem equipment for the LAN/WAN/Internet era and technology distribution, and the beginning of a new set of rules - which nobody is really sure what they will be. 
Cloud Storage != AWS