The Growing Market for Managed Cloud

With the cloud landscape continuing to mature, we see the cloud market bifurcating into two segments. The first segment is unmanaged infrastructure that we know today as IaaS. The other segment is cloud that includes managed services, also known as managed cloud.  As Rackspace pushes to extend its leadership position as the #1 managed cloud company, we are focused on the massive market opportunity that lies ahead with companies that will require managed cloud to be successful.

Today, 451 Research released a report detailing the findings of a recent study on the Total Addressable Market for the Managed Cloud portion of the market.  The study determines the market size for managed services revenue within the worldwide total cloud market (projected to be at $110 billion in 2018 according to 451 Research).

The report found that Managed Services at Cloud Service Providers are growing from $17B in 2014 to $43B in 2018 with a compound annual growth rate (CAGR) of 25.6 percent. Managed Services account for 29.1 percent of total cloud market revenue in 2014 and are projected to account for 36.3 percent of the total cloud market revenue in 2018. The report also found that Managed Services revenue (CAGR) is growing 60 percent faster than infrastructure-only revenue.

451 Research recognizes that the managed cloud market category is a viable, multi-billion dollar market that is growing rapidly, and the findings of the study are in line with what we’ve been seeing here at Rackspace.  The results show just how relevant managed services will be for many companies in the future.

Here’s a quick look at two key drivers of this market growth, which are highlighted in the report:

Greater acceptance of customers to move to cloud (i.e. Enterprises)

As more and more enterprise customers make the move to the cloud, they find value in partnering with a managed cloud provider like Rackspace. They want an experienced, trusted partner to manage their cloud so that they can stay fast and lean and focus their limited resources on their core business and driving innovation, rather than on cloud operations that don’t differentiate their company.  At Rackspace, we deliver with Managed Cloud and Fanatical Support™ and these customers recognize that the true value of managed cloud lies in the economies of expertise that Rackspace provides, not just in low cost infrastructure.

The deployments of more complex workloads drive the need for more managed services

As the cost of cloud infrastructure continues to fall, it encourages the development of more and more software tools and applications that run on that infrastructure.  That trend creates new business opportunities for businesses using those tools and apps — for example, in Big Data and ecommerce.  But it also creates a lot of complexity, rapid change, and risk.  We see a rising demand among businesses that need a partner like Rackspace to help them cut through all that complexity and leverage the cloud in a way that drives value back to their business.  Rackspace is known as the place for businesses to come to when they need help managing their cloud infrastructure across single-tenant and multi-tenant platforms, in our data centers or theirs.

Scott Ottaway, vice president at 451 Research and co-author of the report, has a clear picture of which company has the early lead in this space and the explosive growth potential in the years to come:

“Rackspace is the leader of the Managed Hosting Market, in which managed services are wrapped around public cloud and single-tenant infrastructures (e.g., private hosted cloud). 451 Research estimates that customer spending for Managed Hosting will exceed $55 billion annually in 2018, up from $28 billion in 2014, for a CAGR of 19 percent.  Spending on Managed Services across all cloud markets will grow at over 25 percent CAGR, while infrastructure-only spending will grow at 15 percent over the same type period.”

Ottaway adds, “The Managed Hosting market is 3X as large as the IaaS market (where infrastructure is delivered with few managed services) due to many factors such as deployment of more complex workloads, growth of hosted private clouds and broad enterprise adoption. IaaS –such as infrastructure-only products from Amazon Web Services, Google Cloud Platform and Microsoft Azure – is only a $7 billion market in 2014 growing to $17 billion by 2018.”

To be clear, this report not only validates the tremendous growth and market opportunity for the managed cloud segment, it also recognizes Rackspace as the clear leader in the space.  While the terminology around managed cloud differs slightly across analyst firms– the 451 Group refers to this segment as Managed Hosting, while Gartner calls it Cloud-Enabled Managed Hosting – there’s one thing on which I think we all agree.  When it comes to delivering a breadth of expertise and support on top of cloud infrastructure, nobody does it better than Rackspace.

John Engates joined Rackspace in August 2000, just a year after the company was founded, as Vice President of Operations, managing the datacenter operations and customer-service teams. Two years later, when Rackspace decided to add new services for larger enterprise customers, John created and helped develop the Intensive Hosting business unit. John played an active role in the evolution and evangelism of Rackspace’s cloud-computing strategy and cloud products. John met frequently with customers to hear about their needs and concerns, and to discuss Rackspace’s vision for the future of cloud computing. John's final positions was as the company’s Chief Evangelist. John is also an internationally recognized cloud computing expert and a sought-after speaker at technology conferences, including CA World, the Goldman Sachs Techtonics Conference and Cloud Expo. He speaks on the future of cloud computing, enterprise cloud adoption, data center efficiency, green data center best practices, and more. Prior to joining Rackspace, John was a founder and General Manager at Internet Direct, one of the original Internet service providers in Texas. John is a graduate of the University of Texas at San Antonio and holds a B.B.A. in Accounting.

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