Editors' pick: Originally published Feb. 10.
Cloud services are increasingly becoming a material part of business for many tech companies, especially to those that may be struggling with revenue growth from more traditional businesses.
"Enterprises are increasingly moving application workloads to the cloud in lieu of replacing older IT systems or building new data centers," Pacific Crest Securities analysts Brent Bracelin and Alyssa Johnson wrote in a note to clients last week. Pacific Crest Securities is a division of KeyCorp. In 2015, the adoption of cloud services by large businesses "created a market tipping point in 2015. Cloud is increasingly material and matters."
As a result, investors should consider 2016 as the kick off for another major investment cycle to support further cloud adoption. Companies including Microsoft, Amazon and Alphabet, among others, noted that they are boosting resources to cloud services this year. Pacific Crest Securities analysts are projecting that capital expenditures in 2016 for cloud services by the top 20 companies offering cloud services could rise 21% year-over-year to $62.7 billion.
Cloud computing, commonly referred to as "the cloud," is the "delivery of on-demand computing resources-everything from applications to data centers-over the Internet on a pay-for-use basis," as described by IBM. There is a business-to-consumer segment, where Facebook and Google, for instance, have significant offerings, such as Google's Gmail and Google Drive and Facebook's photo storage options. And then there is the business-to-business cloud segment, which Pacific Securities estimates that revenue for the top 10 largest cloud providers there is nearing $42 billion on an annualized basis - a figure that is growing 51% year over year and 9% sequentially.
Research firm IDC forecasted that global spending by companies on public cloud services will rise 19.4% on a compound annual growth rate to $141 billion by 2019.
Software as a Service, or SaaS, is slated to remain the preferred cloud computing type, capturing more than two thirds of all public cloud spending by 2019, IDC said in January. However, IDC noted global spending by companies on Infrastructure as a Service, or IaaS, and Platform as a Service, or PaaS, will grow at a faster rate than SaaS with five-year CAGRs of 27% and 30.6%, respectively.
By 2018, most software vendors will have fully shifted to the cloud as a software or platform service. "This means that many enterprise software customers, as they reach their next major software upgrade decisions, will be offered SaaS as the preferred option. Put together, new solutions born on the cloud and traditional solutions migrating to the cloud will steadily pull more customers and their data to the cloud," said Frank Gens, IDC's chief analyst, in the January press release.
It will be large companies driving more than half of the spending on cloud services, but small and mid-size businesses will also be significant contributors to the overall spending, IDC said.
Here are the top 10 companies that are generating high revenue from cloud services in the enterprise space. Pacific Crest Securities determined annualized revenue based on fourth-quarter revenue figures and estimates for those that haven't reported results yet.