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European Cloud Market: The Hidden Opportunity

May 25, 2018

If you read our previous article on the Global Cloud Top Trends (if not, please take a look here), we have already discussed that the cloud transformation journey is advancing at a rapid pace with the US keeping their strong lead as the biggest market globally. As noted earlier, although other countries seem to have fallen behind when compared to the US, it is not true that they are missing the digital transformation wave. Take Europe for example, where the cloud is booming with organizations shifting a larger share than ever of their IT applications to the cloud. This time, I will provide a general overview of the European market and the rise of the Cloud as the foundation for all digital transformation.

Status of Cloud in Europe

Although growth in IT spending has been quite slow in recent years, Europe is in a solid position that generally believes in the necessity of digital transformation. The development of cloud computing has become increasingly widespread in the region and its growth has far outpaced the average growth in the overall market. Due to the businesses' need of agility in developing software/application faster and access to new functionality only available on the cloud, the European adoption of cloud technology has been growing steadily. According to Forrester Research, cloud-based application will continue to increase from 15% in 2015, to 27% of the EU market in 2018.

Western Europe vs. Eastern Europe

Currently, the Western Europe cloud market is the second largest market globally with spending levels of $24.1 billion and an annual growth of 23.2% in 2017. Western Europe will maintain its second place in the coming years, with the forecast and total spending levels of $52 billion in 2020. The Eastern Europe market has slightly higher overall growth compared to worldwide trends, with 2017 spending levels of $1.15 billion with a grow at a healthy 24.6%. Eastern Europe will keep growing with 22% compound annual growth, and with the forecast and total spending levels of $1.92 billion in 2020. This data shows how the cloud market in Europe just keeps on growing with a result in declining for traditional IT services.

Cloud Computing Usage by Enterprises

As discussed in our previous article, the United Kingdom and Germany are the first and second largest spenders in Europe, with $7.9 billion and $7.4 billion respectively. If we look at the usage by enterprise in each country the story is different, with Scandinavian countries leading the race in public cloud adoption. Finland tops the league with the highest score at 57%, followed by Sweden and Denmark with more than 40% of enterprises using cloud computing. The cloud has transformed the Scandinavian market entirely and a study by Oracle states that it will double in size by 2019. Cloud maturity in Finland, Norway and Sweden has changed drastically within a two-years period (2015-2017), catalyzing cloud adoption in each country. Private, Public and Hybrid clouds are blended efficiently in several business areas, but it is the public cloud consumption which has resulted as the top model, with 51% of total cloud spending. It is no surprise that all the big public clouds providers have plans to enter the Nordic regions. Regarding how the cloud is used by enterprises, the Eurostat's report provides us with clear insights where it is mainly used for e-mail (65%) and storage purposes (62%). Cloud services in Europe are also used for a wide range of other business needs like hosting their database (44%) and office software (41%) and for accessing end-user software applications, such as financial and accounting (32%) and managing customer relationship (27%). Finally, 21% are using the cloud to harness computing power to run their own business software applications.

SaaS is the largest Cloud Segment

Following the global trends, in Europe Software as a Service (SaaS) is the largest segment, holding 67% in Western Europe and 62% in Eastern Europe of the overall cloud market share. Infrastructure as a Service (IaaS) is the second largest category counting for 21% in Western Europe and 27% in Eastern Europe, followed by Platform as a Service (PaaS) with 12% in Western Europe and 11% cloud market share in Eastern Europe. Although there is a large gap still when compared to the US cloud market, SaaS companies are maturing the European market with their usage numbers quadrupling and their aggregated market cap growing 350% since 2011. As Philippe Botteri mentions in this article, the pace of SaaS companies in Europe is remarkable with a growth from 200 companies in 2008-10 to 670 in 2014-16. SaaS is disrupting the traditional software market and not only in Europe. Also, the integration of Artificial Intelligence (AI), Machine Learning (ML) and Internet of Things (IoT) in SaaS products will increase their value and successfully service their target market better than before. The data shows that the cloud revolution will continue to accelerate in Europe and the wider adoption will have huge economic impact over the next years. Spending on traditional IT is declining and will be a minority share of the market in the following years. According to the European Commission the cloud will add €103 billion of net new GDP to Europe in 2020. With the cloud staying at the forefront of the latest technologies such as AI, ML and IoT, it will disrupt traditional IT and continue to be a crucial asset for European companies to stay competitive in the global marketplace.

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