Consumers and The Cloud

TECHNOLOGY
Consumers and the Cloud

Quantifying and exploiting the consumer cloud market opportunity, 2010-2018 By Andrew Nuttney & Gary Eastwood
Andrew Nuttney
Andrew Nuttney is a freelance business analyst with two decades of experience advising corporate clients in the areas of consumer behaviors and technology adoption. His previous roles have included Technology Research Director at Datamonitor and Lead Partner at The Research & Advisory Group.
Gary Eastwood
Gary Eastwood is a freelance business analyst with over 15 years experience of covering ICT subjects. He has contributed to numerous leading IT publications and magazines, and held full-time, senior editorial positions on several. Gary has also worked with organizations, such as the UK Department of Trade & Industry, the Confederation of British Industry, Microsoft, IBM, CSC, Oracle and Intel, on a variety of technology communications projects.
Copyright 2010 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Reuters. Reuters accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon.
While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy.
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Table of Contents
Consumers and the Cloud
Executive summary
Consumer cloud market context Consumer cloud market opportunity analysis Consumer cloud competitive situation analysis Business response
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10 10 11 13
Chapter 1
Summary Introduction
Consumer cloud market context
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16 17 17 19 19 20 21 22 23 24 25 25 26 26 27 28
Who is this report for? Demystifying the cloud The symbolic language of the cloud A simpler definition of cloud computing The cloud the consumer sees Consumer cloud information flows Is the cloud a myth? Issues facing the development of the consumer cloud market Bandwidth Access devices Personal information integration Security Privacy Conclusion
Chapter 2
Summary Market overview
Consumer cloud market opportunity analysis
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30 31
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Market scope and definition Email Storage / backup VoIP Mobile applications (mApp) revenues Online social networking (excl. gaming) Online gaming Paid music content Notes on data and sources Market drivers and enablers Broadband penetration 3G Access devices Smartphones Social networking Market sizing and forecasts (2010-18) Total cloud services revenues Private cloud vs public cloud Consumer cloud market revenues Global total By region By major geographical market By market category Market category by major geographical market Conclusions
34 36 36 36 36 37 37 37 38 41 41 42 45 47 49 52 52 55 57 57 58 62 68 70 82
Chapter 3
Summary Competitive overview Introduction
Consumer cloud competitive situation analysis
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86 87 87 89 92 95 98 101 105 108 111 114 117
Competitive analysis and vendor profiles Google vendor profile Apple vendor profile Facebook vendor profile Microsoft vendor profile Salesforce.com vendor profile Nokia vendor profile Amazon Web Services (AWS) vendor profile Opera Unite vendor profile Box.net vendor profile
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Chapter 4
Summary Overview
Business response
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124 125 126 126 129 131 133 135 137 139 141
Business response analysis Traditional consumer technology OS firms Responses of established Web firms Response of telephone operators Response of media and other content providers Response of applications developers Responses of device manufacturers Conclusions Index
List of Figures
Figure 1.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 2.6: Figure 2.7: Figure 2.8: Figure 2.9: Figure 2.10: Figure 2.11: Figure 2.12: Figure 2.13: Figure 2.14: Figure 2.15: Figure 2.16: Figure 2.17: Figure 2.18: Figure 2.19: Figure 2.20: Figure 2.21: Figure 2.22: Figure 2.23: Figure 3.24: Figure 3.25: Figure 3.26: Figure 3.27: Figure 3.28: Figure 3.29: Figure 3.30: Figure 3.31: Figure 3.32: Figure 3.33: Figure 3.34: Consumer cloud information flows 22 Consumer cloud revenue categories 35 Global 3G subscribers and penetration, 2010-18 44 Access device shipments (units, m), 2010-18 46 Social network user growth by region (users m), 2009-15 51 Global total cloud services revenues ($bn), 2010-18 52 Total cloud services revenues by major geographical market ($bn), 2010-18 53 Share of total cloud services revenues by major geographical market (%), 2010-18 55 Total cloud services revenues, private vs public cloud ($bn), 2010-18 56 Global consumer cloud revenues as a percentage of all cloud services revenues ($bn), 2010-18 57 Consumer cloud services revenues by region ($bn), 2010-18 60 Share of total consumer cloud services revenues by region (%), 2010-18 61 Consumer cloud services revenues by major geographical market ($bn), 2010-18 63 Consumer cloud services market share by major geographical market (%), 2010-18 66 Consumer cloud services revenues as a percentage of total cloud services revenues, by major geographical market (%), 2010-18 67 Consumer cloud services revenues by market category ($bn), 2010-18 69 Consumer cloud mobile application revenues by major geographical market ($bn), 2010-18 71 Consumer cloud gaming revenues by major geographical market ($bn), 2010-18 73 Consumer VoIP revenues by major geographical market ($bn), 2010-18 74 Consumer paid music downloads revenues by major geographical market ($bn), 201018 76 Consumer cloud SN revenues by major geographical market ($bn), 2010-18 78 Consumer storage and backup revenues by major geographical market ($bn), 2010-18 79 Consumer cloud email revenues by major geographical market ($bn), 2010-18 81 Converging cloud business models 88 Google SWOT analysis 94 Apple SWOT analysis 97 Facebook SWOT analysis 100 Microsoft SWOT analysis 104 Salesforce.com SWOT analysis 107 Nokia SWOT analysis 110 Amazon Web Services SWOT analysis 113 Opera Unite SWOT analysis 116 Box.net SWOT analysis 119 Cloud stakeholder strategy comparisons 121
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List of Tables
Table 2.1: Table 2.2: Table 2.3: Table 2.4: Table 2.5: Table 2.6: Table 2.7: Table 2.8: Table 2.9: Table 2.10: Table 2.11: Table 2.12: Table 2.13: Table 2.14: Table 2.15: Table 2.16: Table 2.17: Table 2.18: Table 2.19: Table 2.20: Table 2.21: Table 2.22: Table 2.23: Table 3.24: Table 3.25: Table 3.26: Table 3.27: Table 3.28: Table 3.29: Table 3.30: Table 3.31: Table 3.32: Ranking of country broadband penetration and ubiquity (subscribers per 100 inhabitants), 2009 42 Global 3G subscribers and penetration, 2010-18 44 3G penetration by country, 2010 45 Access device shipments (units, m), 2010-18 47 Social network user growth by region (users m), 2009-15 51 Global total cloud services revenues ($bn), 2010-18 53 Total cloud services revenues by major geographical market ($bn), 2010-2018 54 Share of total cloud services revenues by major geographical market (%), 2010-18 55 Total cloud services revenues, private vs public cloud ($bn), 2010-18 56 Consumer cloud revenues as a percentage of all cloud services revenues globally ($bn), 2010-18 58 Consumer cloud services revenues by region ($bn), 2010-18 60 Share of total consumer cloud services revenues by region (%), 2010-18 61 Consumer cloud services revenues by major geographical market ($bn), 2010-18 63 Consumer cloud services market share by major geographical market (%), 2010-18 66 Consumer cloud services revenues as a percentage of total cloud services revenues, by major geographical market (%), 2010-18 67 Consumer cloud revenues by market category ($bn), 2010-18 69 Consumer cloud mobile application revenues by major geographical market ($bn), 2010-18 72 Consumer cloud gaming revenues by major geographical market ($bn), 2010-18 73 Consumer VoIP revenues by major geographical market ($bn), 2010-18 75 Consumer paid music downloads by major geographical market ($bn), 2010-18 76 Consumer cloud SN revenues by major geographical market ($bn), 2010-18 78 Consumer storage and backup revenues by major geographical market ($bn), 2010-18 80 Consumer cloud email revenues by major geographical market, ($bn), 2010-18 81 Google key metrics, Q1 2010 92 Apple key metrics, Q1 2010 95 Facebook key metrics, Q1 2010 98 Microsoft key metrics, Q1 2010 101 Salesforce.com key metrics, Q1 2010 105 Nokia key metrics, Q1 2010 108 Amazon Web Services key metrics, Q1 2010 111 Opera Unite key metrics, Q1 2010 114 Opera Unite key metrics, Q1 2010 117
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Executive summary
Executive summary
At its simplest, the cloud, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device. From the perspective of the consumer, therefore, the cloud has significance in three simple areas: The personal devices used by the consumer to access data, or utilize software and services such devices are increasingly cloud dependent; The capacity for remote personal information storage, backup, retrieval and software and service access (the personal cloud); The third party information the consumer wishes to retrieve and use (the vertical cloud). The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device.

One of the most important factors in the uptake and growth of consumer cloud services will be the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant.
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The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018. Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by 2018. Consumer cloud revenues are predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by the end of the forecast period. The share of consumer cloud revenues, as a percentage of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for nearly one-quarter (23.7%) of total cloud services revenues by 2018. The US and UK will be the largest major markets during the same period, growing at a CAGR of 20.1% and 25.4%, respectively, to reach $30.7bn and $14.3bn by 2018. The UK will derive 30.8% of all cloud services revenues from consumers, the largest proportion of any of the major global markets. China will be the fastest growing major geographical market for consumer cloud services revenues between 2010 and 2018, growing from $0.1bn to $5.9bn (at a CAGR of 55.5%) over the forecast period. By 2018, mobile applications will account for $32.5bn, or just under 46% of all consumer cloud services revenues (up from 31 % in 2010). Online gaming will see a CAGR of nearly 25% between 2010 and 2018, to account for $19.4bn of revenues and 27% of all consumer cloud services revenues.

There are several reasons to suggest that no single company will dominate the cloud: the sheer size of the cloud; the fuzzy definition of what constitutes a consumer cloud service; and, most importantly, demand from consumers for data
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portability across services regardless of the provider and for a broad choice of services and device accessibility in a non-proprietary environment. ISPs, mobile and fixed operators, Internet brokers and media companies have all historically operated separate business models in order to optimize their own respective value chains. The next five years will see a shakeout in the cloud, whereby the business models of these companies steadily converge, with content and data at the heart of that convergence. As the cloud evolves, the most successful companies are likely to be those that play a number of roles, or that can provide a large part of the cloud jigsaw from infrastructure to devices, and from software platform to consumer services and applications. While cloud computing as a concept, and as a working business model, is still in its infancy, Google undoubtedly has the reach, brand, infrastructure and strategy to be one of the leading players alongside Apple and, potentially, Microsoft for the foreseeable future. Social networking is likely to form the core of many successful cloud strategies. Microsoft could be the potential game-changer, with consumer-orientated cloud services that Apple lacks (currently), and an enterprise presence and footprint that Google can only dream about. The cloud is likely to create a previously unknown and new set of stakeholders, with unique business models.
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Business response
The companies likely to dominate in the cloud are those that can provide a consumer touch point at every step of the cloud experience, from device and device OS to premium content and services. Traditional technology OS players, such as Microsoft and Apple, have a significant opportunity to transfer their desktop dominance to the cloud. The consumer gateway, or portal, has little potential in the cloud value chain for generating direct revenues, but is arguably the most important in terms of cementing the consumer relationship, and the ability to create cloud brokers. Strategies to monetize the consumer relationship enabled by the gateway should focus on extending the consumer touch points throughout the cloud value chain as in the case of Google and its broad set of differentiated offerings or monetization through indirect routes, such as advertising and third-party services and applications. One of the most important strategies for mobile operators will be to offer appealing content, possibly through partnerships, and through open interfaces. The cloud also promises the potential for application developers to retain a higher percentage of revenues from application sales, as it allows them to bypass application stores. With such a bewildering array of content available within the cloud, consumers are likely to seek out more relevant and personalized content through familiar gateways and portals, in order to avoid content overload. The cloud lowers the cost of developing, with its interoperable and open nature meaning that less work is required to customize each application for different mobile platforms.
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CHAPTER 1
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Chapter 1
Summary
At its simplest, the cloud, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device. From the perspective of the consumer, therefore, the cloud has significance in three simple areas: The personal devices used by the consumer to access data, or utilize software and services such devices are increasingly cloud dependent; The capacity for remote personal information storage, backup, retrieval and software and service access (the personal cloud); The third party information the consumer wishes to retrieve and use (the vertical cloud). The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device. From the perspective of other stakeholders in the value chain, the potential promise of the Personal Cloud to consumers significantly raises end user expectations, and thus threatens established consumer communications and technology value propositions, and the competitive landscape.
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Introduction
This report seeks to scope, size and demystify the business opportunities presented by the consumer application of cloud computing technology. Specifically, the report aims to: Define what cloud computing means in the consumer space; Translate and demystify the cryptic language typically used to describe the cloud into real-world, business and marketing language; Qualify and quantify commercial opportunities in consumer cloud applications over the immediate to mid-term; Clarify the current competitive positioning in the consumer cloud value chain; Evaluate business responses to these opportunities, and outline optimal business models for the near term and beyond.
Who is this report for?

This report is intended to serve a range of executives, marketers and commercial professionals targeting consumer technology markets. The report is of principal value to executives focused on consumer markets and the servicing of, or infrastructure to support, those markets in: Telco operators, both fixed and mobile; Mobile device manufacturers; PC, notebook and netbook manufacturers; Applications developers Gaming software houses and hardware manufacturers;
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Companies in the social networking value chain; Media companies and other content owners; Developers, cloud service providers and other software and service companies; Web companies; Hardware manufacturers.
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Demystifying the cloud

The symbolic language of the cloud Over the past several years it has become commonplace to use the term Cloud as symbolic language for online hosted technology services offered on a multi-user basis.
At one level, this language has been very helpful, clarifying the core selling point of online accessed hosted services that is, that the computing power driving the delivery service need not physically exist within end user devices, but can, instead, be provided from anywhere within the internet cloud. This visual imagery has made an impact, and helped to familiarize potential enterprise users, in particular, with the idea of flexible, multi-user, externally hosted technology services.
For most observers, however, the language of the cloud is, like the symbol itself, opaque, insubstantial and intransient. Moreover, it fails to offer any clear understanding of what the cloud in fact is and / or does and whether it differs from existing online hosted services. Even less helpfully, explanations are often couched either in terms of cryptic acronyms (such as SaaS, IaaS, PaaS) or abstract notions, such as private cloud or public cloud. The language currently associated with the cloud can seem mystifying.
Furthermore, most descriptions of cloud computing and the sub-service categories such as Software as a Service (SaaS), Infrastructure as a Service (IaaS), or Platform as a Service (PaaS) that are offered by cloud service providers, are most directly relevant to enterprise or governmental users of these services. That is, those making decisions based on achieving ICT scale, flexibility and cost-effectiveness by purchasing cloud services instead of investing in proprietary data centers and information management and storage. Such language has little or no relevance to those services offered to cloud services consumers, or the users of those services.
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A simpler definition of cloud computing The central definition of cloud computing is simply the provision of hosted services accessed online (via the Internet). Thus, the cloud computing market is the market for the provision of online hosted services and the consumer cloud market is defined as the market for the provision of online-hosted services to consumers. But how does cloud computing differ from hosted services?
In practice, cloud computing differentiates itself from previous hosted solutions by virtue of three (and nearly always four) additional factors. Cloud computing is defined by: Multi tenancy with IT resources being shared between different user customers; A service, rather than product-based, value proposition customers pay for the provision of the end service, rather than for a software license, for example; On-demand usage use can be scaled up and down seamlessly and immediately; Finally, information hosted on this multi-tenant, service-based, on-demand basis is in almost all circumstances backed up and stored in the cloud, that is, at the service providers data center location.
The key elements in asserting that cloud computing is a new value proposition are the independence of the data centers performing the hosting, and thus their potential to offer interoperability; as well as the location of technological processing power and memory scalability for storage in the data center, rather than on the access device. The offered benefits of interoperability and easier user-device management are distinct from earlier hosting service offers and will have particular resonance in the consumer space supporting, as they promise to do, the personal cloud and vertical cloud, as described in the following section.
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The cloud the consumer sees Indeed, from the perspective of the consumer defined here as an individual interacting with technology outside of a working environment the cloud is a rather simpler matter, involving access to information and data through a range of access devices. At its simplest, the cloud, like on-demand computing and other ideas before it, is a means by which users can access a variety of information, content, and processing power from any device.
From the perspective of the consumer, therefore, the cloud has significance in three simple areas: The personal devices used by the consumer to access data, or utilize software and services such devices are increasingly cloud dependent; The capacity for remote personal information storage, backup, retrieval and software and service access (the personal cloud); The third party information the consumer wishes to retrieve and use (the vertical cloud).
As the vertical cloud gains scale and complexity, and as the Personal Cloud gains mainstream currency, so the potential offered by consumer cloud applications will multiply, both in scale and complexity. This will open new opportunities for Cloud brokers.
These themes are illustrated below in Figure 1.1.
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Consumer cloud information flows

Figure 1.1: Consumer cloud information flows
Source: Business Insights
Business Insights Ltd
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There are two parallel aspects to consumer cloud computing: The personal cloud: consumer personal information hosted (and probably backed up and stored) on a multi-tenant, service-based, on-demand basis; The vertical cloud: Third party applications, independent of the consumer, accessed via the Internet and hosted in the cloud on a multi-tenant, service-based, on-demand basis.
Is the cloud a myth? There is a very real concern, famously highlighted by Oracles Larry Ellison, that the cloud is a myth, at best a fad of words. Ellison is widely quoted as saying: The computer industry is the only industry thats more fashion-driven than womens fashion ... I have no idea what anyones talking about, I mean its really just gibberish ... what the hell is cloud computing? While we have defined the cloud, above, as online hosted services provided on a multitenant, service-based, on-demand basis, the only real novelty in this definition is the scale of the multi-tenant component. As stated earlier, data centers provide the potential to offer interoperability (of device, OS, application, information and content); while high bandwidth mobile and fixed line connections permit technological processing power and memory/storage scalability to be located in the data center, and thus away from the access device and the user. These twin benefits of interoperability and easier user-device management are indeed distinct from earlier hosting service offers.
From the perspective of the end consumer there is a real difference provided by the promise of device, OS, application and data interoperability the personal cloud coming to fruition.
Importantly, however, from the perspective of other stakeholders in the value chain, the potential promise of the personal cloud to consumers significantly raises end user
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expectations, and thus threatens established consumer communications and technology value propositions, and the competitive landscape. Furthermore, many of these value propositions are based around the value resident within fixed, proprietary levels of the value chain such as the desktop operating system for Microsoft, or keyboard and mouse access design for PC manufacturers. Taking power away from these devices and relocating it to a neutral infrastructure layer is both a direct threat to incumbents and a great opportunity to those who can redefine resident value these players include online services brokers, a category that in this instance encompasses players such as Google and Facebook, alongside traditional ISPs.
Issues facing the development of the consumer cloud market

This raises a number of issues, or potential barriers, which are apparent in the development of the consumer cloud: Bandwidth; Access devices; Personal data integration; Security; Privacy.
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Bandwidth Bandwidth is potentially the most important limiting factor in the development and evolution of the cloud and the consumer services it may provide. In the cloud environment, data, processing power and storage resides away from the user device, therefore accessing information and resources such as games, video content, applications, and so on inherently requires ample bandwidth, whether fixed or wireless.
While 3G offers mobile device and laptop users access to cloud services, coverage is still patchy, or non-existent in many countries around the world, particularly in rural regions. Fixed broadband penetration, meanwhile, is by no means at 100% (as outlined in Chapter 2). Wi-Fi hot spots are confined to specific urban areas, and 4G technologies such as LTE and WiMAX are still a long way from mainstream status. The evolution of the cloud is dependent on bandwidth availability.
Access devices The rapid growth in the popularity of smartphones, netbooks and tablets reflects the type of device that consumers will increasingly demand in future in order to access their personal cloud, with sufficient processing power to run the applications they require.
Therefore, cloud access devices will require an increasing range of connectivity options, from 3G to Wi-Fi, and in future, Wi-Max and 4G, as consumers will become increasingly reliant on access to the cloud and will therefore demand ubiquitous connectivity to their own personal cloud, and the information, content, applications and services residing within it. The evolution of the cloud is also likely to spawn new device formats witness the interest around the iPad. As well as connectivity options, cloud access devices will require easy-to-use interfaces (which are consistent across multiple devices), clear screens of a sufficient size, battery life (to last throughout the waking day) and open, optimized operating systems, all bundled within a lightweight
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and convenient (possibly pocket-sized) format. Indeed, device manufacturer Nokia has already witnessed this changing trend in consumer access devices, having posted its first ever quarterly loss (in the first three months of 2010), compared to the rampant sales of the iPhone.
Personal information integration Data portability will be a critical issue for the evolution of consumer cloud computing. The very nature of the cloud requires an open and interoperable platform that allows consumers to create a single identity, or personal cloud, that is consistent throughout the cloud, regardless of the service broker, access device, content, application, and so on. Consumers will demand interoperability.
This interoperability and integration of personal information is already changing business models for example, despite Apples current success, the companys iTunes/App Store is based on a proprietary model. Compare this to Googles open (source) approach. However, rumors abound that Apple is preparing to open up its business model, by creating a cloud-based iTunes service and fully embracing the open nature of the cloud.
Security Consumer cloud services collect and centrally store large amounts of personal and, potentially, sensitive data on centralized online servers with consumers readily uploading this data in blissful ignorance of the potential security threats to them. If consumers are to have a single cloud identity then it leaves them vulnerable to multiple security attacks. Furthermore, the nature of the cloud means that this information is optimized to be easily shared with others. As a result, the cloud is becoming a target for increasing numbers of cyber criminals.
So far, there are no formal or legal requirements for how information is protected or for processes such as user authentication. However, the US Federal Trade Commission (FTC) has already stated its concerns over the potential security threats posed by cloud
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computing and, in particular, the lack of consumer awareness around the risks of uploading personal data to the cloud. It can be assumed that at some point in the future, a major security event(s) will lead to the tightening of controls governing the security of personal data within the cloud.
Privacy Like security, the cloud throws up concerns surrounding the privacy of personal consumer information and data. Whose responsibility is it to protect the privacy of consumers? To most, it is the responsibility of the infrastructure and service providers, rather than the consumers themselves. Indeed, Facebook has been at the centre of numerous concerns over its privacy policy, and as a result has damaged its consumer relationships. For example, the company famously changed the privacy policy settings of all its users in late 2009, removing a privacy option from the site, without informing any users essentially, pushing users to remove privacy protection against their wishes. The change even revealed personal photos and information of its own CEO, Mark Zuckerberg. The ensuing backlash resulted in the company quietly redefining its privacy settings and policy in 2010.
Facebook was also hacked by security consultant Ron Bowes in July 2010, who used code to collect personal data from 100m user profiles on the site data that was not hidden by the users privacy settings. Bowes then listed this data on the web, where anyone could download the information. He claims he wanted to highlight the privacy concerns around Facebook, while the company itself claims the information was public anyway.
Of course, as the most popular website in the US, and with 500m registered users (as of July 2010), Facebook is a target to take aim at. However, the issue of privacy is in no way confined to Facebook, and any service broker or provider that cannot guarantee consumer data privacy will not earn the trust of the consumer, and in serious cases draw the ire of privacy organizations and governments alike. Currently, the system is heading towards an opt-in process for privacy, whereby it is the responsibility of the
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user to ensure and maintain their privacy settings. However, critics claim that many consumers presume that the service provider is responsible for maintaining users privacy.
In the face of such prevalent security and privacy concerns, companies operating in the cloud space will need to continually enhance security processes and privacy agendas. Such measures are likely to cause problems for companies such as Facebook that depend on user visibility as part of the core business model they need to reach a happy medium between satisfying the consumers privacy and security requirements and providing enough data for developers and advertisers to make use of.
Conclusion
Despite the valid assertion that cloud computing is little more than a new spin, or marketing term, for long-established (hosting) services, the cloud is real and a significant threat ( and opportunity) to incumbents in the consumer technology and communications markets: The cloud is real, in the sense that greater shares of ever increasing data production, processing, storage and sharing needs are, and will be, delivered via multi-user hosting services online Chapter 2 seeks to quantify this reality; The cloud is also real in the sense that the nature in which the market grows touches the whole range of stakeholders in the technology value chain Chapter 3 seeks to illustrate current competitive positioning; The cloud is very real, in the sense that it is already challenging established resident value and overthrowing patterns of incumbency in consumer technology markets Chapter 4 will outline and discuss appropriate business models that are likely to be required to become a new incumbent.
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CHAPTER 2
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Chapter 2
Summary
One of the most important factors in the uptake and growth of consumer cloud services will be the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant. The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018. Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by 2018. Consumer cloud revenues are predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by the end of the forecast period. The share of consumer cloud revenues, as a percentage of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for nearly one-quarter (23.7%) of total cloud services revenues by 2018. The US and UK will be the largest major markets during the same period, growing at a CAGR of 20.1% and 25.4%, respectively, to reach $30.7bn and $14.3bn by 2018. The UK will derive 30.8% of all cloud services revenues from consumers, the largest proportion of any of the major global markets. China will be the fastest growing major geographical market for consumer cloud services revenues between 2010 and 2018, growing from $0.1bn to $5.9bn (at a CAGR of 55.5%) over the forecast period. By 2018, mobile applications will account for $32.5bn, or just under 46% of all consumer cloud services revenues (up from 31 % in 2010). Online gaming will see a CAGR of nearly 25% between 2010 and 2018, to account for $19.4bn of revenues and 27% of all consumer cloud services revenues.
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Market overview
This chapter provides a detailed quantified analysis of the current and future scale and reach of the consumer cloud market. Furthermore, it provides analysis of the current and future direction, and state of maturity of the consumer cloud computing market on both a regional and major geographical market basis.
The following sections illustrate the degree to which direct consumer cloud revenues, which are already significant, will continue to grow over the period from 2010 to 2018. In parallel, cloud enabling revenues, such as device sales, technology infrastructure sales and online advertising revenues are also set to continue to drive cloud-derived revenues. These indirect revenues are significant in their own right for example, the promise of cloud technology will create direct consumer revenues of $71.4bn by 2018, however this growth will support a sum multiple times larger in indirect revenues.
Consumer cloud market growth is also significant in a wider strategic sense as the balance of power shifts away from the desktop towards mobile communications and remote locations, access devices will be used in different ways, different access devices will be adopted, and consumer expectations of the personal cloud and vertical cloud are likely to soar. In these conditions, the rise of consumer cloud applications presents a dramatic challenge to all stakeholders in todays technology value chain. The role of each stakeholder is examined below. Telco operators, both fixed and mobile. The role of the operators will be to provide the connectivity and bandwidth upon which connection to the cloud relies in the UK, for example, O2 is currently marketing itself as the operator that built the data network. In the cloud environment, where content is king there is an opportunity for data traffic revenues and for service bundling, as a counterbalance to the commoditization of bandwidth; Mobile device manufacturers. As the cloud evolves, it will be the applications, services and access to content that will define success, with access device
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capability one of the least important factors in the consumer decision. However, cloud access devices will need to provide a number of capabilities, including: screen size and resolution, battery life, a range of connectivity options, portability and an optimal user interface; PC, notebook and netbook manufacturers. The future of the cloud suggests mobility, rather than desktop. Indeed, notebooks and netbooks are one of the fastest growing hardware sectors, and there is a strong opportunity for portable but intelligent access devices that can offer a more powerful (and larger) alternative to the smartphone. Devices need to be cloud-optimized, but face portability issues compared to smartphones; Apps developers. Mobile applications and open source are the future for applications developers. However, with the vast majority of applications currently sold through large application stores, such as Apples AppStore, margins are relatively small. Large volume, low margin is the name of the game. However, the cloud does provide the option of do-it-yourself application publication if the developer can gain access to the consumer; Gaming companies. Gaming will account for a significant proportion of consumer cloud revenues over the next five to 10 years. Games will need to be optimized for use on mobile devices, and for the mobile lifestyle (quick hits), and incorporate new capabilities suited to the media, such as motion control; Companies in the social networking value chain. There is a significant opportunity for social networking (SN) companies to place themselves at the core of cloud strategies, providing a gateway and a familiar interface for consumers from which to navigate, as well as being incorporated into business collaboration tools. The challenge is to monetize this consumer relationship, which is likely to be through indirect sources such as advertising, as SN sites are able to collect large amounts of consumer data and information; Media companies and other content owners. The future of the cloud is content, however, making the consumer pay for this content will be the biggest challenge.
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Premium content is likely to be the way forward, along with content bundling. Media and content companies are likely to play a supporting role in the cloud; Cloud service and software providers. The cloud will spawn large numbers of small, specialist service and software providers, offering new applications, services, supporting software, and so on. However, the main players will see this as a small piece of the cloud jigsaw; Web companies. Companies such as Google, Yahoo! and Amazon will play a significant role in shaping the face of the cloud, acting as internet brokers between the consumer and the cloud. The winners here have a significant opportunity to act as the gatekeeper to the cloud. However, offering just a gateway will not be enough to monetize their internet presence for example, Google can provide consumers with the rest of the cloud jigsaw, from the gateway, to the access device and its OS, to applications and services, and beyond; Infrastructure companies. Central to the success of the cloud, which requires centralized processing and storing (data centers) and extensive bandwidth coverage (fixed and mobile). Indeed, during the next five years (the shakeout phase) the infrastructure companies are likely to see the most benefit (in terms of revenues) from the cloud. However, once the infrastructure is built, one of the few options left will be to become a data and content provider.
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Market scope and definition
As discussed in Chapter 1, the consumer cloud is defined as online hosted consumer services provided on a multi-tenant, service-based, on-demand basis. Consumer cloud revenues derived from these services are taken to encompass direct revenues only that is service fees, metered payments, and the direct sale of virtual goods for use with the hosted service, as in gaming or avatar applications.
Additional revenues may be traced to consumer cloud applications. These revenues are seen as incremental, and encompass advertising revenues, and revenues for third party providers of the technology infrastructure required to run a cloud hosted service.
This report considers consumer cloud revenues in terms of these direct and incremental revenues, and also divides total revenues into seven major revenue categories, as illustrated in the figure below.
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Figure 2.2: Consumer cloud revenue categories

Constituent revenues
Direct revenues
Incremental revenues
Enabling technology purchase
Period-based service fees
Metered payment
Online virtual goods
Advertising
Technology infrastructure
Email
Storage / backup
VoIP
Mobile App revenues
Online SN (excl. gaming) Online gaming Paid music content
Direct revenues are those specifically paid to or through cloud service providers for dedicated services. All these revenues are quantified and forecast in this report. Indirect revenues are a share of wider revenues related to internet technology, such as advertising, access device purchase or investment in the technology infrastructure required to support online hosting. These revenues are not specific to cloud computing, and are not detailed in this report.
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Email Consumer cloud direct email revenues relate to service fees and one-off payments made to email service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of e-mail advertising revenues, as well as a proportion of access device purchase or rental revenues, and of technology infrastructure revenues.
Storage / backup Consumer cloud direct storage and backup revenues relate to service fees and one off payments made to storage and backup service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.
VoIP Consumer cloud VoIP revenues relate to service fees and one off payments made to VoIP service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.
Mobile applications (mApp) revenues Consumer cloud direct mApp revenues relate to service fees and one off payments made to mobile app stores and other providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of mobile inApp advertising revenues, as well as a proportion of mobile device purchase or rental revenues and of technology infrastructure revenues.
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Online social networking (excl. gaming) Consumer cloud direct social networking revenues relate to service fees and one off payments made to social networking platforms, and app purchases through those platforms, where the platforms and services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.
Online gaming Consumer cloud direct online gaming and gambling revenues relate to service fees and one off payments made to gaming service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of ingame advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.
Paid music content Consumer cloud direct paid music content revenues relate to service fees and one off payments made to download digital music from stores and other service providers, whose services are hosted in the cloud. Indirect revenues associated with this category will include a proportion of in-store advertising revenues, as well as a proportion of access device purchase or rental revenues and of technology infrastructure revenues.
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Notes on data and sources

Establishing market sizes and assessing revenues with accuracy for cloud technology and services is notoriously challenging. Current top level estimates from the most heavily resourced research houses vary wildly, mainly due to definitional differences. The following list outlines predictions and forecasts from a variety of such sources: Microsofts Steven Ballmer famously justifies his companies aggressive push into the cloud by describing it as a potential $3.3 trillion market; A Q1 2010 study by analyst house IDC, sponsored by EMC, asserts that, with onethird of all digital information passing through the cloud by 2020, incremental business revenues associated with cloud computing will exceed $1tr by 2014. However, this is a rough estimate for all IT innovation expenditure, including new hardware, developer time and a range of enterprise in-house expenditure, which bears little relation to revenue generated by the provision of cloud services; IDC itself, in a September 2009 study, suggests that total cloud services revenues will be capped at just $44.3bn, by 2013. Again, however, these data relate only to direct cloud hosting service revenues, being narrowly defined around IaaS; Gartners 2010 Cloud Computing study benchmarks the global revenues from more broadly defined cloud computing services at a more robust $148.8bn by 2014, a data point that is backed by massive vendor research, and which at least tries to refine its scope to direct cloud services revenues, but does include SaaS revenues; IDCs assessment of public cloud revenues also includes SaaS revenues and forecasts these service revenues at $55.5bn by 2014 which reflects the Gartner data. IDC also predicts that cloud technology expenditure will grow from 12% to 25% of all IT expenditure between 2009 and 2014; ITCandor, meanwhile, estimates that UK expenditure on Cloud computing (vaguely defined) will reach 76bn in 2010, and 119 by 2013, both data points being more
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than 250% in excess of all other estimates and forecasts. These data take the broadest definition, and include a large share of device purchase costs, as well as broadband installation and service fees. IDC would call such revenues incremental revenues. By this expanded definition, consumer revenues would drive up to 60% of total cloud revenues.
The definition of cloud computing taken for this report of computing over the internet, with on-demand access to a shared pool of configurable resources (hardware, software and apps) rejects the very widest definitions used above, and retains a definition of cloud computing revenues as those paid directly for access to cloud-based services. This report therefore defines other revenues, such as investment in access devices, as incremental and non-core, cloud revenues.
Of the third party sources, therefore, Gartners data appears most reliable, both on grounds of definition and when triangulated versus data for component parts. These data have therefore been taken as a base from which to assess the scale of all direct cloud revenues. However, apart from the overstated ITCandor data, none of the above data sets are of much help for sizing and scoping the consumer cloud market. This report intends to fill that gap.
In assessing consumer cloud revenues, a bottom-up approach has been taken, sourced by interrogation of the major vendors and service providers within any given segment. For categories such as voice-over-IP (VoIP), online social networking or online gaming, for example, research has focused upon the degree to which major vendors are utilizing cloud resources to deliver a service, as opposed to maintaining service entirely on in-house platforms. This factor excludes most businesses in China from being counted as cloud revenue, for example.
For the purposes of this report, where well-sourced, third party data exists and has stood up to triangulation tests, it has been used as a base from which Business Insights has estimated forecast revenues, based upon vendor and other stakeholder research as
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illustrated above. The principal examples of this sourcing come from Ovum, for all consumer VoIP, from Laxard Freres on the online gaming industry, and from Juniper Research for a snapshot of total consumer mobile application revenues. In each of these cases, Business Insights has cross-checked the source data against the revenues of major vendors and other stakeholders, and has conducted research with these vendors and stakeholders to support a division of total category revenues into cloud-enabled and non-cloud-enabled revenues. In addition, this report extends forecasts to 2018 and developed regional and country segmentation. Forecasts and geographic segmentations have been supported by an analysis of key enablers, which, in this case, are: Broadband and 3G coverage expansion; Device availability; Consumer attitudes and uses of services; Competitor and stakeholder engagement for any given geography; Regulatory attitudes.
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Market drivers and enablers

Broadband penetration One of the most important factors in the uptake and growth of consumer cloud services is the penetration of broadband Internet access. Without fast, reliable Internet/cloud access to services, fixed and wireless, the cloud is essentially rendered redundant. In turn, the growing penetration of wireless broadband is driving sales of smartphones, mobile phones and other, newer access devices (such as the iPad), from which consumers can access cloud services, from music downloads to social networking. Quite simply, without broadband, there is no cloud.
The following table shows the number of broadband subscribers per 100 inhabitants within OECD [Organization for Economic Co-Operation and Development) countries. All of the largest markets for consumer cloud services, including the US, UK, Japan and Korea (as discussed later in this chapter) are seen to have high levels of broadband penetration. Interestingly, if the table was to include total numbers of broadband subscribers, then the rankings would read, from the largest: the US, Japan, Germany, France, the UK, and Korea again, the largest markets for consumer cloud services are those with strong broadband penetration levels. However, there are two exceptions: Germany and France which as will be discussed later in this chapter, lag behind in terms of consumer cloud services market revenues, for reasons unrelated to broadband penetration, but which include consumer apathy and a current lack of service provider focus on these markets.
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Table 2.1: Ranking of country broadband penetration and ubiquity (subscribers per 100 inhabitants), 2009
Fibre/ Cable 10.1 14.2 10.0 8.6 0.0 10.6 6.2 5.2 16.4 2.8 1.6 6.2 12.3 4.2 14.1 3.4 4.2 1.5 6.8 3.4 4.0 0.0 4.2 7.2 8.4 0.0 1.5 3.9 0.0 2.0 0.2 Fixed Other 0.3 0.0 0.3 0.1 0.0 0.0 1.0 0.1 0.0 0.0 0.0 0.0 0.1 0.1 0.3 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.5 0.1
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 #N/A Denmark Netherlands Switzerland Norway Iceland Korea Sweden Luxembourg Canada Germany France United Kingdom Belgium Finland United States Japan Australia New Zealand Austria Ireland Spain Italy Czech Republic Portugal Hungary Greece Slovak Republic Poland Chile Mexico Turkey
DSL 22.4 22.1 25.1 20.9 30.7 6.6 17.8 26.5 13.2 27.4 28.7 23.3 16.5 22.2 10.7 7.9 19.0 21.7 15.1 16.0 17.1 19.9 7.4 10.4 8.2 17.0 6.8 8.1 9.6 6.8 8.6
LAN 4.2 0.8 0.3 4.3 2.2 16.4 7.4 0.1 0.0 0.2 0.1 0.0 0.2 0.2 1.3 13.5 0.0 0.0 0.1 0.1 0.1 0.6 1.3 0.3 1.1 0.0 3.3 0.1 0.0 0.0 0.1
Wireless 0.5 0.0 0.0 0.7 0.7 0.0 0.0 0.0 0.9 0.1 0.0 0.0 0.2 0.6 0.5 0.0 1.0 0.9 0.4 2.4 0.1 0.1 6.5 0.2 0.0 0.0 2.7 0.0 0.0 0.0 0.0
Total 37.5 37.1 35.6 34.6 33.5 33.5 32.4 31.9 30.5 30.4 30.4 29.5 29.2 27.3 26.9 24.8 24.3 24.1 22.4 21.9 21.3 20.6 19.3 18.1 17.8 17.0 14.3 12.1 9.6 9.2 9.0
Source: OECD, December 2009
3G As previously described, 3G rollout will be essential to the growth of the consumer cloud market, providing high-speed, wireless connectivity to the cloud for multiple access devices. Currently, 3G coverage is largely confined to well-populated and, mainly, urban regions a relatively consistent observation in every region. As shown in
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Figure 2.3, the number of 3G subscribers is predicted to grow from just over 1bn in 2010 to 2.78bn by 2018 (a CAGR of just under 11%). Likewise, 3G penetration will spread from urban areas to provide more overall coverage, growing from a global penetration level of 21% now to 43% by 2018.
According to the OECD, and illustrated in Table 2.3, there is currently a wide variation in 3G coverage within regions, such as Europe, as well as between continents. Notably, all of the major geographical markets, including the US (92.3%), the UK (90%), Japan (100%) and Korea (99%) have 3G penetration levels of at least 90%. However, while 3G penetration is a prerequisite of cloud computing markets, it does not necessarily presume a consumer cloud market, as highlighted by countries with near-ubiquitous penetration (more than 98%) such as Australia, New Zealand, Portugal and Sweden but little or absent consumer cloud revenues. Of course, the success of the cloud depends on multiple factors, such as existing infrastructure, provider focus, consumer demand, and so on, which are currently far more advanced in North America, the UK, and parts of Asia.
China is expected to see very rapid growth in 3G coverage over the next 12 months, according to the Ministry of Industry and Information Technology, growing from 20m subscribers in 2010 to 150m users by 2011, accounting for 1.5% and 10.7% of the population, respectively a massive ten-fold growth in just one year. To a certain extent such figures demonstrate the lack of reliable data surrounding the Chinese market, but it does emphasize the size of the opportunity in China. 10% population coverage may appear to be a small market, but even a niche in the Chinese market is a very large opportunity in global terms.
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Figure 2.3: Global 3G subscribers and penetration, 2010-18

Global subscribers 3 2.5 Global penetration 50%
40% Penetration (%)
Subscribers (bn)
2 30% 1.5 20% 1 10%
0.5 0 2010 2012 2014 2016 2018
0%
Source: Major platforms, comScore
Table 2.2: Global 3G subscribers and penetration, 2010-18

2010 Global subscribers (bn) Global penetration (%)
Source: OECD
2012 1.50 27%
2014 1.93 33%
2016 2.35 38%
2018 2.78 43%
CAGR 10.9% 8.3%
1.06 21%
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Table 2.3: 3G penetration by country, 2010

Country Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States
Source: OECD
3G coverage (%) 99.0 84.0 89.9 78.0 89.8 97.0 80.0 72.5 80.0 88.0 56.1 63.0 89.0 92.0 100.0 99.0 90.0 90.0 97.0 90.0 25.5 98.0 81.0 83.0 100.0 91.0 0.0 90.0 92.3
Access devices
As the mobile lifestyle spreads throughout almost every global market, consumers no longer want to be tied to a desktop device in order to access information, media, applications and other services. Instead, consumers are increasingly expecting constant access to the Internet and cloud services regardless of time, location and access device. Growing broadband penetration, improved 3G coverage, a developing network of WiFi hotspots, and other enabling access technologies are driving the use of a growing range of powerful and (as processing power increasingly resides within the cloud)
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dumb access devices. Indeed, during the forecast period covered in this report, it is likely that new format devices are likely to evolve, with the iPhone and iPad currently showing the way. Touch-screen technology is likely to become ubiquitous at least until newer, more natural ways of interfacing with technology are developed, such as voice and gesture.
This trend is highlighted in Figure 2.4, which compares the predicted drop-off in sales of desktop PCs between 2010 and 2018, to the rapid and strong growth in sales of portable access devices such as notebooks, netbooks, tablets and smartphones during the same period. As shown, Tablet PCs (such as the iPad) and smartphones are predicted to enjoy strong growth from now until 2018, with CAGR rates of 26.5% and 16.0%, respectively, throughout the forecast period compared to just 0.5% for desktop PCs.
Figure 2.4: Access device shipments (units, m), 2010-18

Smartphone 1,600 1,400 1,200 Unit shipments (m) 1,000 800 600 400 200 0 2010 2012 2014 2016 2018 Notebook PC Desktop PC Netbook Tablet PC
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Table 2.4: Access device shipments (units, m), 2010-18

Shipments (m) Smartphone Notebook PC Desktop PC Netbook Tablet PC 2010 255 230 130 51 7 2012 350 260 140 66 22 2014 490 290 150 83 30 2016 650 320 150 102 39 2018 840 365 135 122 46 CAGR 16.0% 5.9% 0.5% 11.5% 26.5%
Smartphones The dramatic growth in sales of smartphones in recent years will continue to be a main driver for the growth of consumer cloud services until at least 2018. Indeed, the figures in Table 2.4 show that annual sales of smartphones are predicted to surpass the combined sales of desktop and notebook PCs as early as 2012-13.
At the same time, smartphones are expected to become increasingly sophisticated, powerful and to incorporate new and innovative access technologies. For example, according to figures from specialist electronics market intelligence provider iSuppli, the share of smartphones considered to be MIDs devices will grow from 60% today to 100% by 2012. MIDs devices are classified as having integrated connectivity for Wireless Local Area Network (WLANs), Wireless Metropolitan Area Networks (WMANs) or 3G-or-higher Worldwide Wide Area Networks (WWANs), and a maximum-sized display of 8-inches in the diagonal dimension, an instant-on function, an always-connectable capability and a full day's worth of battery life under typical usage scenarios. This highlights the increasing importance that consumers are placing on always-on connectivity, regardless of the access technology and location.
While smartphones have shown dramatic take-off levels in recent years driven by the success of popular devices such as the iPhone (and corresponding App Store), Blackberry, Nokia (the leading device manufacturer) and newer entrants such as Google it is not the hardware capabilities of smartphones that will drive growth in the
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cloud. Now, and in the future, hardware capability will become increasingly irrelevant as the cloud grows and evolves. Rather, the critical differentiating factors for smartphones will become the software and OS they run, the power of the branding and styling, and most importantly the cloud-based applications and services to which they will provide access.
The growing importance of the applications and online services offered, versus the capabilities of the device, is aptly highlighted by figures from industry market research specialist AdMob, which show that while Apple and Android only account for a 15% and 10% market share of handset sales respectively, they correspondingly account for 40% and 26% of mobile web and applications usage worldwide. (AdMob uses mobile ad requests to compile its figures, rather than device sales). Compare this to Symbian, which according to AdMob accounts for the largest share of handset sales (44%), but just 24% of mobile web and application usage market share. Services, not hardware, will increasingly become the critical differentiating factors in the cloud and arguably already are.
These shifting patterns of information consumption are also dramatically shaking up the competitive landscape in the mobile industry, with far-reaching consequences. Apples iOS currently has the largest market share of mobile operating systems, followed by Googles Android and both continue to grow. Indeed, on its launch in June 2010, Apples iPhone 4 sold 1.7m units in three days. Likewise, Googles Android operating system has overtaken Microsofts Windows Phone. Blackberry has a foothold in the enterprise / consumer market and is holding steady, however, Microsoft is struggling to keep pace for example, the company recently dropped its Kin phones after two months following a senior management shake-up.
Notably, the historical leading device manufacturer Nokia has seen its position of dominance steadily eroded by the likes of the iPhone and Android phones, as well as HTC and other device players. As a result, in the first three months of 2010, Nokia announced its first ever quarterly loss. Nokia has responded by dropping its significant and long-term investment in the Symbian mobile OS, and launching a range of new
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high-end smartphones based on a Linux-based mobile OS called MeeGo, in order to go head-to-head against Apples iOS.
As a consequence, the market for smartphones is likely to see a continually shifting dynamic in the next few years, with Apple and the iPhone grappling with the likes of Googles Android, Blackberry, Symbian and the not-to-be-written-off old foe; Microsoft. Importantly, such competitive flux is likely to encourage stakeholders to embrace openness in relation to app access. What is clear is that shifting consumption patterns are significantly changing the competitive landscape of the mobile industry, and will leave a permanent mark on the face of the mobile device industry.
Social networking
Online social networks are becoming a key tool for enabling users to access and navigate information and content within the cloud, with social networking functionality increasingly being placed at the centre of the value offerings of device manufacturers, and software and applications developers. Indeed, in mid-2010, the largest social network site of them all, Facebook, announced its 500 millionth user an indicator of the popularity and potential influence that social networking will have on the evolution of the cloud. Figure 2.5 shows the global regional growth of social networking between 2009 and 2015.
As discussed previously, success in the cloud will be measured and driven by those companies that own the consumer relationship, rather than technology sales. So those companies that act as a gateway or portal to the Internet or cloud will be in the strongest position to influence and monetize that consumer relationship. Social networking tools are also being integrated into business collaboration and productivity tools, such as Salesforces social networking tool for the enterprise, Chatter.
SN providers therefore envisage a cloud future, whereby consumers use them as their portal of choice for navigating and accessing cloud-based information, content,
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applications and services throughout the cloud for both consumers and enterprise users. At the same time, social networking provides a way to gather useful customer information and data, which can then be used for monetization purposes, such as targeted content and advertising to users as well as to their social groups and peers. Social networking thus provides a powerful tool for influencing and maintaining the consumer relationship within the cloud.
Of course, Facebook will not have it all its own way, and decelerating global growth is forcing it to look eastwards for expansion in markets such as China, South Korea, Japan and Russia the four remaining markets in which Facebook is not the dominant player. However, it is likely to be overshadowed in these markets by strong local competitors, which understand the local markets better, and adhere to stricter regulatory restrictions than those that Facebook has been used to indeed, the site is already censored in some global markets, and the Chinese government has blocked access to a number of foreign SN sites, including Facebook, Twitter, You Tube, WordPress and Picasa, in turn restricting their growth in favor of local competitors.
Currently, Facebook has about 1m users each in Russia, Japan and South Korea, lagging behind local players such as Mixi in Japan, Cyworld in South Korea and Vkontakte in Russia. In China, in particular, social networking has taken off in a big way, with 124m users by the end of 2009, according to projections in a 2009 study undertaken by the Chinese Internet Network Information Center. The study revealed that the social networking space was dominated by local brands QQ XiaoYou, RenRen, Sina Space, 51.com and KaiXin001, with 50% of all respondents having an account with QQ XiaoYou, while RenRen and Sina Space registered about 37% each.
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Figure 2.5: Social network user growth by region (users m), 2009-15
2,500 Asia Western Europe North America 2,000 Central & South America Central & Eastern Europe RoW Unique SN users (m) 1,500
1,000
500
0 End 2009 End 2011 End 2013 End 2015
Source: Major platforms, comScore, Business Insights analysis
Table 2.5: Social network user growth by region (users m), 2009-15
Unique SN users (m) Asia Western Europe North America Central & South America Central & Eastern Europe RoW Total End 2009 392.0 144.5 157.1 113.0 87.0 23.4 917.0 End 2011 660.0 188.0 197.0 158.0 124.0 31.8 1,358.8 End 2013 898.0 231.0 221.0 185.0 160.0 43.1 1,738.1 End 2015 1,059.0 240.0 230.0 200.0 195.0 47.2 1,971.2
Source: Major platforms, comScore, Business Insights analysis
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Market sizing and forecasts (2010-18)

The following section provides detailed quantitative analysis and forecasts for the global consumer cloud market from 2010 to 2018. Market figure predictions are broken down into market segment, region, and major geographical market.
Total cloud services revenues Globally, total cloud services revenues are set to grow at a CAGR of 17.9% between 2010 and 2018, exceeding $300bn by the end of the forecast period, as illustrated in Figure 2.6 below.
Figure 2.6: Global total cloud services revenues ($bn), 2010-18

350 300 250 Revenues ($bn) 200 150 100 50 0 2010 2012 2014 2016 2018
CAGR: 17.9%
Source: Analyst consensus, Business Insights analysis
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Table 2.6: Global total cloud services revenues ($bn), 2010-18

Revenues ($bn) Total cloud revenues 2008 68.3 2009 104.0 2010 148.8 2011 211.0 2012 301.0 CAGR 17.9%
These revenues will remain concentrated within a relatively small number of geographies, as illustrated in Figure 2.7. Geographic reach for cloud revenues will remain limited because of barriers in the enterprise and government markets relating to cost, privacy and security concerns, as well as bandwidth availability. However, markets such as the US and the UK have made cloud adoption a strategic choice (in the US to lower business costs, and in the UK, as a drive towards cheaper government).
Figure 2.7: Total cloud services revenues by major geographical market ($bn), 2010-18
350
US UK Japan Other Western Europe Canada China Korea RoW
300
250 Revenues ($bn)
200
150
100
50
0 2010 2014 2018
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Table 2.7: Total cloud services revenues by major geographical market ($bn), 2010-2018
Revenues ($bn) US UK Japan Western Europe Canada China Korea RoW Total 2010 39.9 11.3 7.1 5.0 1.4 1.3 2.1 0.3 68.3 2014 74.7 28.9 17.9 15.2 2.8 5.1 3.7 0.6 148.8 2018 138.3 46.3 32.6 47.7 5.2 22.3 6.7 2.0 301.0 CAGR 14.8% 17.0% 18.4% 28.5% 15.8% 37.7% 13.6% 23.8% 17.9%
As can be seen, the US is, and will continue to be, the major market for cloud services, followed by the UK and Japan. Western Europe is currently lagging behind the UK and Japan, due to consumer resistance, a focus on the major markets, and the complexity of different operators, service providers, regulatory regimes and existing infrastructure. However, by 2018, Western Europe as a combined entity is forecast to outgrow British and Japanese markets, likely as a result of the emergence of new European domestic players, taking advantage of the current apparent apathy in the region. Figure 2.8 shows the percentage market share of total cloud services revenues by geographical region in 2010, 2014 and 2018.
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Figure 2.8: Share of total cloud services revenues by major geographical market (%), 2010-18
US Canada UK Japan China Other western Europe Korea RoW
2010
2014
2018
Table 2.8: Share of total cloud services revenues by major geographical market (%), 2010-18
Revenues (% share) US UK Japan Other Western Europe Korea Canada China RoW 2010 58.4% 16.5% 10.4% 7.3% 3.1% 2.0% 1.8% 0.4% 2014 50.2% 19.4% 12.0% 10.2% 2.5% 1.9% 3.4% 0.4% 2018 45.9% 15.4% 10.8% 15.9% 2.2% 1.7% 7.4% 0.7%
Private cloud vs public cloud There is a real question as to whether private cloud networks are cloud networks at all. The principal point is that shared infrastructure can be privately owned or publicly owned, but still offers the benefits of being shared. However, despite doubt over the
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validity of private cloud networks, within the definition outlined in this report, Figure 2.9 breaks out the figures for private vs public cloud networks revenues. While private cloud networks are expected to generate the majority of revenue over the coming years, by 2016 the public cloud will start to narrow the gap.
Figure 2.9: Total cloud services revenues, private vs public cloud ($bn), 201018
Public cloud 180 160 140
Private cloud
Difference $14.2bn
$27.0bn Revenues ($bn) 120 100 80 60 40 20 0 2010 2012 2014 2016 2018 $29.5bn $34.0bn $37.8bn
Table 2.9: Total cloud services revenues, private vs public cloud ($bn), 201018
Revenues ($bn) Public cloud Private cloud Total 2008 19.4 48.9 68.3 2009 35.0 69.0 104.0 2010 55.5 93.3 148.8 2011 92.0 119.0 211.0 2012 143.4 157.6 301.0 CAGR 24.9% 13.9% 17.9%
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Consumer cloud market revenues Global total Globally, consumer cloud services revenues are set to take an increasingly large share of total cloud services revenues. As shown in Figure 2.10, consumer cloud revenues are predicted to grow at a CAGR of 24.5% between 2010 and 2018, reaching $71.4bn by the end of the forecast period. The share of consumer cloud revenues, as a percentage of total estimated global cloud revenues, will grow from 14.5% in 2010 to account for nearly one-quarter (23.7%) of total cloud services revenues by 2018.
Figure 2.10: Global consumer cloud revenues as a percentage of all cloud services revenues ($bn), 2010-18
Consumer cloud revenues 80 % of total cloud revenues 25%
Consumer cloud revenues ($bn)
60 20%
40
15% 20
0 2010 2012 2014 2016 2018
10%
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% of total cloud revenues
Table 2.10: Consumer cloud revenues as a percentage of all cloud services revenues globally ($bn), 2010-18
Revenues ($bn) Consumer cloud revenues % of total cloud revenues
2010 9.9 14.5%
2012 16.1 15.5%
2014 28.0 18.8%
2016 47.4 22.5%
2018 71.4 23.7%
CAGR 24.5%
In terms of user numbers, accurate figures are difficult to assess. However, ABI Research estimates that 143m consumers accessed cloud services in 2009. These estimates are supported by the number of regular (at least monthly) users of social networking sites, which represents an audience very likely to have used cloud technology supported applications, if accessing SN sites in North America, Western Europe, Japan or Korea. Regular SN users from these geographies alone accounted for more than 175m likely users of consumer cloud services in 2009. These same geographies will, however, support more than 300m such users by 2015, suggesting that ABIs forecast growth to 161m users by 2013 is too conservative (for example, the data excludes China, where SN services are offered on a traditional technology platform).
By region Within the timeframe of this report (2010-18), scalable consumer cloud revenues will remain limited to just six or seven markets worldwide. This is because a sophisticated blend of requirements must be present for cloud services to be successful. As shown in the list below, markets supporting significant consumer cloud revenues need to offer a combination of most, if not all, of the following: Consumer demand for online hosted services; Access device usage;
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Adequate speeds and reach of high bandwidth mobile broadband; Access to cloud data farms and server pools; Third party (enterprise and government) interests adopting the cloud; A developing cloud brokerage layer.
Only the US, Canada, the UK, Japan and Korea truly offer this nexus today. The German market is a later developer but will become of significance in the mid-term, while China, although it remains a market in its infancy, still offers major commercial opportunities, due to the sheer numbers of the population (1.8bn) of which just a small fraction of users would equate to a significant market.
Figure 2.11 outlines the geographic market split for revenues from consumer cloud services between 2010 and 2018. Like total revenues, the US will account for the majority of consumer cloud services revenues over the forecast period, followed by Western Europe. The consumer cloud market in Western Europe, encompassing the largest national market of the UK and the lesser developed markets in Germany, France, Italy and Spain, as well as Austria, Portugal, the Benelux region and Scandinavian countries represents a relatively immature market, and one which offers significant growth opportunities. Asia will also continue to see steady growth, albeit from a smaller user base.
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Figure 2.11: Consumer cloud services revenues by region ($bn), 2010-18

80 North America Western Europe 60 Revenues ($bn) Asia RoW
40
20
0 2010 2014 2018
Table 2.11: Consumer cloud services revenues by region ($bn), 2010-18

Revenues ($bn) North America Western Europe Central & Eastern Europe Central & South America Asia-Pacific RoW Total 2010 6.08 2.50 0.01 0.01 1.28 0.04 9.9 2014 14.15 8.87 0.02 0.03 4.73 0.17 28.0 2018 31.83 22.04 0.09 0.09 16.46 0.85 71.4 CAGR 20.2% 27.4% 27.7% 26.8% 32.8% 40.2% 24.5%
Figure 2.12 shows the percentage market share of consumer cloud revenues by region. As shown, North America will remain the largest regional market for consumer cloud revenues throughout the forecast period. However, by 2018 Western Europe will have caught up significantly with North America, and will account for 30.9% of global
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consumer cloud services revenues (versus 44.6% for North America). Likewise, the strong growth in mobile devices, mobility as a lifestyle, and the opening of Chinese markets will mean that Asia will account for nearly one-quarter (23.1%) of consumer cloud revenues by 2018, up from just 12.9% in 2010. Indeed, these three markets will continue to account for the vast majority (over 98%) of consumer cloud revenues throughout the forecast period.
Figure 2.12: Share of total consumer cloud services revenues by region (%), 2010-18
North America Central & South America Western Europe Central & Eastern Europe Asia RoW
2010
2014
2018
Table 2.12: Share of total consumer cloud services revenues by region (%), 2010-18
Revenue share (%) North America Western Europe Asia Central & South America Central & Eastern Europe RoW
2010 61.30% 25.20% 12.90% 0.11% 0.10% 0.40%
2014 50.60% 31.70% 16.90% 0.09% 0.09% 0.60%
2018 44.60% 30.90% 23.10% 0.13% 0.13% 1.20%

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By major geographical market As shown in the figure and table below, the share of cloud services revenues derived from consumers (as opposed to enterprise and government ICT-based cloud services, for example) will expand steadily over the next eight years. On a global basis, revenues derived from consumer cloud services will account for just 14.5% of total cloud revenues in 2010 however, they will grow to account for 23.7% of all global cloud services revenues by 2018.
Interestingly, the UK will derive 30.8% of all cloud services revenues from consumers, the largest of any of the major global markets. China will be the fastest growing major geographical market for consumer cloud services revenues between 2010 and 2018, growing from $0.1bn to $5.9bn (at a CAGR of 55.5%) over the forecast period. The US and UK, however, remain the largest major markets during the same period, growing at a CAGR of 20.1% and 25.4%, respectively, to reach $30.7bn and $14.3bn by 2018. Japan and Western Europe will also grow at steady rates to become significant markets over the forecast period, as shown.
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Figure 2.13: Consumer cloud services revenues by major geographical market ($bn), 2010-18
80
US UK Japan Other Western Europe Korea Canada China RoW
60 Revenues ($bn)
40
20
0 2010 2014 2018
Table 2.13: Consumer cloud services revenues by major geographical market ($bn), 2010-18
Revenues ($bn) US UK Japan Other Western Europe Korea Canada China RoW Total 2010 5.91 1.86 0.85 0.64 0.31 0.17 0.11 0.07 9.92 2014 13.65 6.58 3.14 2.29 0.76 0.50 0.78 0.30 28.00 2018 30.66 14.25 8.71 7.79 1.73 1.17 5.86 1.23 71.40 CAGR 20.1% 25.4% 29.5% 32.0% 21.1% 23.9% 55.5% 36.1% 30.5%
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The US and Canada The US market is already well developed and will continue to be the worlds largest market for consumer cloud revenues to 2018, despite a steadily declining global share. The US is the center of new access device sales and an established market for the major global vendors, particularly for consumer cloud services such as VoIP, email and storage and backup (see later section on By market category), and so sets off from a position of dominance that it will retain. Likewise, the close cultural links and geographical proximity of Canada to the US will drive consumer cloud revenues. At the same time, service providers in North America market their services to both countries simultaneously.
The UK By 2018, the UK consumer cloud technology market will represent a
disproportionately large 20% of global revenues. Indeed, this share will have peaked at 23.5% in 2014. The UKs relative significance comes from a range of factors: Typically the number two market for device or service launch, after the US / Canada, therefore early adopting; Dynamic online market, with high usage of SN, gaming, music download and other services; Relatively ubiquitous broadband and 3G coverage (the population weight to major urban centers, and specifically greater London, helps this reach; Enterprise and government interest is sustaining and developing cloud revenues generally, and raising expectations and potential in the consumer market.
Japan, South Korea and Western Europe Meanwhile, Japan has witnessed very strong cloud market growth, fuelled by high levels of consumer demand for on-demand services as well as high rates of broadband and 3G access and high device penetration. The South Korean market is becoming well
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established, as like Japan it is being fuelled by high demand for on-demand services, as well as high rates of broadband and 3G access and high device penetration.
Indeed, the growth of mobility and mobile devices in these Asian countries means that revenues derived from consumer cloud services will account for around one-quarter of total cloud services revenues in each region. Conversely, consumer apathy in the rest of Western Europe and complex competitive and infrastructure issues will mean that this region will have the smallest proportion of revenues derived from consumer cloud services.
China China will be held back by security and privacy issues and the determination of most service providers such as Tencent to maintain service on proprietary servers. However, such is the scale of demand that this position will not be sustainable over the longer term. Moreover, even a small share of the Chinese market propels the Chinese consumer cloud to global significance in the mid-term. The rise to economic prominence of Chinas currently emerging Me generation, widely recognized as material, socially iconoclastic, technology savvy and massive users of online social functionality, will underpin demand for a wider range of mobile technology services, a demand that will, over the mid-term, make a shift to a cloud supported architecture inevitable.
Market share Figure 2.14 shows the market share of global consumer cloud services revenues by major market. The US, the UK, Japan, Western Europe and Korea, as highlighted in previous sections lead the way, accounting for most revenues in 2010 right through to 2018 with the exception of China, which will surpass Korea by 2014, and by 2018 will account for nearly one-tenth of all consumer cloud services revenues. It is worth noting that, while consumer cloud services in China will only be available to, and accessible by, a relatively small proportion of the population, this in itself will account for significant revenues on account of the large size of the Chinese population.
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Figure 2.14: Consumer cloud services market share by major geographical market (%), 2010-18
US Korea 2010 UK Canada Japan China 2014 Other Western Europe RoW 2018
Table 2.14: Consumer cloud services market share by major geographical market (%), 2010-18
Revenues ($bn) US UK Japan Other Western Europe China Canada Korea RoW Total 2010 59.6% 18.7% 8.6% 6.4% 1.1% 1.7% 3.1% 0.8% 100% 2014 48.8% 23.5% 11.2% 8.2% 2.8% 1.8% 2.7% 1.0% 100% 2018 43.0% 20.0% 12.2% 10.9% 8.2% 1.6% 2.4% 1.7% 100%
Figure 2.15, meanwhile, illustrates the percentage of total cloud revenues that consumer cloud services will account for in each geographical market. In the UK, consumer cloud revenues will account for over 30% of total cloud services revenues by 2018, the highest proportion of all the major markets.
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Figure 2.15: Consumer cloud services revenues as a percentage of total cloud services revenues, by major geographical market (%), 2010-18
UK US Korea Other Western Europe Canada Japan China RoW
58.6%
% of total cloud services revenue
26.3% 43.9% 26.7% 15.3%
25.0% 8.8% 12.0% 12.4% 12.8% 14.6% 14.8% 16.5%
17.6% 17.9% 15.1% 20.5%
22.6% 16.3% 25.8% 22.2%
18.3% 22.8% 30.8%
2010
2014
2018
Table 2.15: Consumer cloud services revenues as a percentage of total cloud services revenues, by major geographical market (%), 2010-18
Revenues ($bn) US UK Japan Other Western Europe Canada China Korea RoW Global average
2010 14.8% 16.5% 12.0% 12.8% 12.4% 8.8% 14.6% 25.0% 14.5%
2014 18.3% 22.8% 17.6% 15.1% 17.9% 15.3% 20.5% 43.9% 18.8%
2018 22.2% 30.8% 26.7% 16.3% 22.6% 26.3% 25.8% 58.6% 23.7%
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By market category Figure 2.16 shows the breakdown of consumer cloud services revenues by market category. As illustrated, mobile applications and services are set to drive the growth of consumer cloud services, as consumers demand always-on and ubiquitous access to data, entertainment and services. Mobile applications represent the largest and fastest growing market category, as reflected by the success of the iPhone and the access it provides to Apples AppStore, and the subsequent rush to simulate that success by device manufacturers, mobile operators and service brokers alike. By 2018, it is predicted that mobile applications will account for $32.5bn, or just under 46% of all consumer cloud services revenues (up from 31 % in 2010). Likewise, online gaming will see a CAGR of nearly 25% between 2010 and 2018, to account for $19.4bn of revenues and 27% of all consumer cloud services revenues. Unsurprisingly, the challenge of monetizing email services means that it will be the slowest-growing and smallest market category for consumer cloud services throughout the forecast period.
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Figure 2.16: Consumer cloud services revenues by market category ($bn), 2010-18
80 Mobile applications Online gaming VoIP 60 Revenues ($bn) Paid music content Online SN (excl. games) Storage / backup Email 40
20
0 2010 2012 2014 2016 2018
Table 2.16: Consumer cloud revenues by market category ($bn), 2010-18

Revenues ($bn) Mobile applications Online gaming VoIP Paid music content Online SN (excl. games) Storage / backup Email Total 2010 3.10 2.62 2.06 0.99 0.94 0.11 0.10 9.90 2012 5.20 4.24 3.26 1.70 1.38 0.18 0.12 16.10 2014 9.50 6.76 5.43 3.98 1.88 0.28 0.13 28.00 2016 19.20 12.90 6.58 5.51 2.65 0.40 0.15 47.40 2018 32.50 19.41 8.71 6.57 3.47 0.54 0.17 71.40 CAGR 29.8% 24.9% 17.4% 23.4% 15.6% 19.3% 6.1% 24.5%
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Market category by major geographical market The following section breaks down forecast revenue figures for each service category by major geographical market.
Mobile applications Mobile application ubiquity has been achieved in record time, with more than 7bn global downloads by April 2010, (source: Morgan Stanley Research). Furthermore, the phenomenal growth rate of smartphone shipments (as described in earlier sections) shows no sign of slowing on the contrary forecasts expect it to increase, as sales of access devices, 3G penetration and consumer demand continue to grow. According to a recent study from UK research house Juniper Research, a total of 2.6bn applications were downloaded to mobile phones in 2009, but that figure is expected to soar to 25bn apps by 2015. The same study predicted that direct and indirect revenues from mobile applications will grow from $10bn in 2009 to $25bn in 2015.
Of course, Apples AppStore currently dominates the market. The iPhone has stimulated more than 5bn downloads, from the more than 200,000 applications available on the Apple AppStore, and with more than 86m Apple devices in use, the average user had downloaded 47 applications as of June 2010. The launch of the iPad famously racing to 1m units sold in just 28 days can only consolidate the significance of the mobile application, as opposed to traditional browser-based, Internet access to applications. Indeed, early studies of iPad usage patterns illustrate that the device, like a desktop PC, is heavily used for web access however this access comes about through applications, rather than through browsers.
As highlighted previously in Table 2.16, total mobile applications revenues will grow from a $3.1bn market in 2010 to $32.5bn in 2018. The US will account for the largest proportion of consumer cloud revenues from mobile applications, growing at a CAGR of 32.2% between 2010 and 2018 to reach $13.3bn (see Figure below). As stated earlier in this report, these forecasts take only direct revenues into account, and not indirect revenue sources such as advertising. The UK, Japan, Western Europe, and China
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follow essentially mirroring the most popular smartphone markets, and regions with high levels of 3G penetration. Indeed, China will show the fastest growth in consumer cloud revenues from mobile applications, growing at 65% over the forecast period to reach $2.7bn as discussed in earlier sections, China is expected to see growth in 3G subscribers from 20m to 150m, in the space of just 12 months between 2010 and 2011.
Figure 2.17: Consumer cloud mobile application revenues by major geographical market ($bn), 2010-18
35 US UK 30 Other Western Europe Japan 25 Revenues ($bn) China Korea 20 Canada
15
10
0 2010 2014 2018
Source: Business Insights, Juniper Research
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Table 2.17: Consumer cloud mobile application revenues by major geographical market ($bn), 2010-18
Revenues ($bn) US UK Other Western Europe Japan China Korea Canada 2010 1.79 0.62 0.21 0.27 0.03 0.11 0.06 2014 4.40 2.28 0.78 1.23 0.27 0.26 0.17 2018 13.28 6.19 3.64 4.63 2.70 0.81 0.51 CAGR 32.2% 29.2% 37.1% 37.0% 64.9% 24.8% 26.8%
Source: Business Insights, Juniper Research
Online gaming Gaming in the cloud will be the second largest market category for consumer cloud revenues, as shown in the figure below, with the US market growing from $1.4bn in online gaming revenues in 2010 to $9bn by 2018. The UK will account for just under $4bn in revenues at the end of the forecast period (up from $0.54bn in 2010), followed by Western Europe, China and Japan.
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Figure 2.18: Consumer cloud gaming revenues by major geographical market ($bn), 2010-18
20 US UK Other Western Europe 15 Revenues ($bn) Japan China Korea Canada 10
0 2010 2014 2018
Source: Business Insights, Lazard Freres
Table 2.18: Consumer cloud gaming revenues by major geographical market ($bn), 2010-18
Revenues ($bn) US UK Other Western Europe Japan China Korea Canada
Source: Business Insights, Lazard Freres
2010 1.42 0.54 0.17 0.29 0.04 0.09 0.04
2014 3.52 1.56 0.52 0.61 0.19 0.21 0.08
2018 9.04 3.93 2.09 1.60 1.80 0.49 0.19
CAGR 23.0% 24.6% 32.2% 20.9% 52.7% 20.7% 18.9%

VoIP VoIP consumer cloud revenues will be largely concentrated in three geographical markets: the US, the UK and Japan, with Western Europe and China remaining smaller
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than $1bn markets by 2018 (as shown in Figure 2.19). In the US, the market for consumer cloud VoIP will reach just under $4bn by 2018, up from $1.4bn in 2010, followed by the UK ($1.6bn by 2018) and Japan ($1.2bn by 2018).
Again, these are the markets targeted and served by the main service providers, who have little motivation to enter unknown markets. Indeed, consumer cloud VoIP usage is likely to be driven by its mainstream adoption within enterprises and call centers, as organizations look to cut costs by embracing IP communications and integrate VoIP services into collaboration and productivity tools.
Figure 2.19: Consumer VoIP revenues by major geographical market ($bn), 2010-18
9 US 8 7 6 Revenues ($bn) 5 4 3 2 1 0 2010 2014 2018 UK Other Western Europe Japan China Korea Canada
Source: Ovum, Business Insights
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Table 2.19: Consumer VoIP revenues by major geographical market ($bn), 2010-18
Source: Ovum, Business Insights
2010 1.40 0.29 0.12 0.14 0.01 0.04 0.04
2014 2.79 1.14 0.45 0.65 0.13 0.11 0.10
2018 3.90 1.63 0.92 1.2 0.61 0.17 0.14
CAGR 12.1% 20.9% 25.4% 27.0% 57.9% 17.4% 14.9%

Paid music downloads Music downloads will account for around 10% of consumer cloud revenues throughout the forecast period, as shown in Table 2.16. The figure and table below break these figures down into major markets, with the US and the UK by far the most significant markets. The US market for paid music downloads in the cloud will grow from $0.61bn in 2010 to $2.8bn by 2018. The UK market will grow more rapidly (at a CAGR of 27.6%) but will remain smaller than the US market, reaching $1.7bn by 2018. China and Japan exhibit the fastest growth in paid music downloads from the cloud, however, from a much smaller base, with both markets significant but remaining sub-$1bn opportunities until at least 2018.
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Figure 2.20: Consumer paid music downloads revenues by major geographical market ($bn), 2010-18
7 6 5 Revenues ($bn) 4 US UK Other Western Europe Japan China Korea Canada
3 2 1 0 2010 2014 2018
Source: Business Insights, IFPI
Table 2.20: Consumer paid music downloads by major geographical market ($bn), 2010-18
Source: Business Insights, IFPI
2010 0.61 0.19 0.07 0.06 0.01 0.03 0.02
2014 1.83 1.09 0.35 0.35 0.13 0.12 0.08
2018 2.78 1.67 0.66 0.71 0.41 0.16 0.12
CAGR 18.5% 27.6% 28.3% 31.6% 51.1% 20.4% 22.0%

Online Social Networking While the popularity of social networking and its assured seat at the centre of any successful cloud companys strategy is not in doubt, the ability to monetize online SN
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is. However, the importance of SN in the cloud environment lies in the fact that it provides service brokers with that all-important consumer gateway, from which users (and their friends, peers and connections) can navigate the cloud with a single identity SN therefore holds the key to owning the consumer relationship. Furthermore, it provides a rich source of personal information and data which is freely (and often naively) provided by users that can then be monetized through indirect means such as advertising, bundled services and offers.
As shown in the figure below, consumer cloud revenues from online SN will be significant but not deal-breaking. Facebook is undoubtedly the dominant player, however its main focus, and influence, is limited to North America and Western Europe. Indeed, as already discussed, the company has been excluded from the largest potential market in China, having been banned along with other Western SN players from the Chinese market, which represents the fastest growing market for consumer cloud SN.
Indeed, direct comparisons between Western and Asian SN markets are difficult as there is already a split in terms of strategy, with Chinese SN players based almost entirely on proprietary servers, compared to the US and Europe, in which SN is almost exclusively cloud-based. Furthermore, SN sites in China are heavily censored by the government, which could limit their significance and growth.
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Figure 2.21: Consumer cloud SN revenues by major geographical market ($bn), 2010-18
3.5 US UK 3.0 Other Western Europe Japan 2.5 Revenues ($bn) China Korea 2.0 Canada
1.5
1.0
0.5
0 2010 2014 2018
Table 2.21: Consumer cloud SN revenues by major geographical market ($bn), 2010-18
2010 0.55 0.18 0.06 0.08 0.01 0.03 0.02
2014 0.90 0.43 0.15 0.25 0.06 0.05 0.03
2018 1.34 0.70 0.40 0.52 0.30 0.09 0.05
CAGR 10.0% 16.3% 23.5% 23.1% 45.9% 13.0% 10.7%

Storage and backup Figure 2.22 shows the growth in consumer cloud revenues from storage and backup as the amount of access devices and the data they hold grows, so too does the
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requirement for additional backup of important information. While smartphones and other access devices are increasingly powerful, they do not have the storage capabilities of desktop PCs, hence an increasing number of consumers will rely on the cloud for backup and storage purposes, for data such as online music libraries, videos, images and other information. However, revenues from storage and backup will not be a major source of consumer cloud revenues, with the markets limited to the US, the UK, Western Europe and Japan which likely also reflects the focus of such providers on these specific markets.
Figure 2.22: Consumer storage and backup revenues by major geographical market ($bn), 2010-18
0.6 US UK 0.5 Other Western Europe Japan Revenues ($bn) 0.4 China Korea Canada 0.3
0.2
0.1
0 2010
Source: Business Insights, ABI Research
2014
2018
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Table 2.22: Consumer storage and backup revenues by major geographical market ($bn), 2010-18
Source: Business Insights, ABI Research
2010 0.07 0.02 0.01 0.01 0.00 0.00 0.00
2014 0.15 0.06 0.02 0.03 0.00 0.01 0.00
2018 0.24 0.10 0.06 0.08 0.03 0.01 0.01
CAGR 14.7% 19.6% 22.0% 26.0% n/a n/a n/a

Email As shown in Figure 2.23, the market for email consumer cloud revenues is rather small across all major markets throughout the forecast period. Consumers have enjoyed a variety of email services gratis for a number of years, and any attempt to reverse that strategy is likely to meet with failure. However, like Googles Gmail, email should be seen as one of a number of free services that can help providers build the consumer relationship and branding. Any monetization of email services is likely to be derived from advertising revenues however, adverts within email and other services, such as free online radio, have been shown to be unpopular with consumers, and unlike with music subscription services, charging consumers a fee for advert-free services is not a viable option for email.
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Figure 2.23: Consumer cloud email revenues by major geographical market ($bn), 2010-18
0.18 0.16 0.14 Revenues ($bn) 0.12 0.1 0.08 0.06 0.04 0.02 0 2010 2014 2018 US UK Other Western Europe Japan China
Table 2.23: Consumer cloud email revenues by major geographical market, ($bn), 2010-18
2010 0.06 0.02 0.01 0.01 0.00 0.00 0.00
2014 0.07 0.03 0.01 0.01 0.00 0.00 0.00
2018 0.08 0.03 0.02 0.02 0.01 0.00 0.00
CAGR 3.3% 4.6% 8.0% 8.0% n/a n/a n/a

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Conclusions
The consumer cloud services market will grow significantly from just under $10bn in 2010 over the forecast period to reach $71.4bn by 2018 (a CAGR of 24.5%). In 2010 it will account for 14.5% of all cloud revenues (consumer and enterprise markets), but by 2018 will have become a more significant market accounting for just under one-quarter (23.7%) of all global cloud revenues. However, significant consumer cloud revenues will remain almost exclusively restricted to a handful of geographical markets; the US, the UK, other Western Europe, Japan, China, Korea and Canada.
The consumer cloud market is being enabled and driven in these regions by a number of factors, including: sales of smartphones and newer access devices (such as netbooks and tablets); connectivity technologies and infrastructure (such as broadband); growing 3G penetration; consumer demand; a strong service provider focus; and continued growth in mobile data traffic. Consumers are mainly using the cloud to access mobile applications, online gaming, music content and VoIP services, a trend that will continue throughout the forecast period however, while social networking will not drive massive revenues in the cloud, it will play a prominent role at the center of cloud companies strategies, as it provides consumers with a gateway to the cloud, access to users personal information and data, and (therefore) a critical component in building customer relationships and, ultimately, in driving indirect revenues such as advertising.
These trends are already having a significant impact on business models throughout the technology value chain, and will continue to do so throughout the forecast period as the cloud, and the value chain surrounding it, continues to evolve and grow. The success of Apples mobile application store AppStore, for example, has changed the game in both the mobile operator and device manufacturer industries for example, Nokia has dropped its investment in the Symbian mobile OS in favor of Linux-based MeeGo in order to take on Apples iOS.
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Likewise, Google and Facebook currently own the consumer cloud gateway, which has forced technology incumbents such as Microsoft to radically re-think their future focus and strategy. The following chapters examine in greater detail this current competitive dynamic and likely business response in the near-future.
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CHAPTER 3
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Chapter 3
Summary
There are several reasons to suggest that no single company will dominate the cloud: the sheer size of the cloud; the fuzzy definition of what constitutes a consumer cloud service; and, most importantly, demand from consumers for data portability across services regardless of the provider and for a broad choice of services and device accessibility in a non-proprietary environment. ISPs, mobile and fixed operators, Internet brokers and media companies have all historically operated separate business models in order to optimize their own respective value chains. The next five years will see a shakeout in the cloud, whereby the business models of these companies steadily converge, with content and data at the heart of that convergence. As the cloud evolves, the most successful companies are likely to be those that play a number of roles, or that can provide a large part of the cloud jigsaw from infrastructure to devices, and from software platform to consumer services and applications. While cloud computing as a concept, and as a working business model, is still in its infancy, Google undoubtedly has the reach, brand, infrastructure and strategy to be one of the leading players alongside Apple and, potentially, Microsoft for the foreseeable future. Social networking is likely to form the core of many successful cloud strategies. Microsoft could be the potential game-changer, with consumer-orientated cloud services that Apple lacks (currently), and an enterprise presence and footprint that Google can only dream about. The cloud is likely to create a previously unknown and new set of stakeholders, with unique business models.
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Competitive overview
Introduction During each revolution of the technology industry, whether enterprise- or consumerfocused, one dominant player has always emerged; for example, IBM ruled the mainframe, to be replaced by Microsoft on the desktop which, in turn, is being replaced by the likes of Google, Apple, and Nokia in the increasingly mobile digital world. The answer as to which company will dominate the cloud is a complex and challenging one. Indeed, will a single company be able to dominate the cloud, given its sheer size and scale, and fuzzy borders? Asking who might dominate the cloud, is rather like asking: Which company owns the Internet? The consumer cloud is a disruptive force and the competitive landscape is no doubt shifting. But it could be that the cloud represents the first technological revolution in which no single company is able to plant a dominant foundation. Instead, it is more likely that we will see a handful of main players owning separate components of the cloud such as the Internet gatekeepers, the cloud brokers and a major infrastructure player in competition (and partnership) with a large pool of innovative companies offering new services, access devices, cloud components, and so on.
There are several reasons to suggest that no single company will dominate the cloud: the sheer size of the cloud (essentially, the global Internet); the fuzzy definition of what constitutes a consumer cloud service; and, most importantly, demand from consumers for data portability across services regardless of the provider and for a broad choice of services and device accessibility in a non-proprietary environment.
At the same time, one of the defining factors in the evolution of the cloud will be a convergence of business models, as organizations chase ownership of the customer relationship that is, ownership of the most popular interfaces between consumers and the cloud. Indeed, Business Insights predicts that the shake out phase is already
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underway, with organizations of all types being forced to become content and data companies, or otherwise face being left behind (see Figure 3.24).
Figure 3.24: Converging cloud business models
As illustrated, ISPs, mobile and fixed operators, Internet brokers and media companies have all historically operated separate business models in order to optimize their own respective value chains. However, the next five years will see a shakeout, whereby the business models of these companies steadily converge, with content and data at the heart of that convergence.
In this scenario, Facebook appears to be in a pole position, although Apple, Google and Microsoft are also critical competitors. No other organizations have the kind of reach
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and scale to embrace the challenge of owning the consumer cloud. However, there is plenty of scope for new (and old) entrants, and potentially disruptive models may still appear. It is important to note that the cloud will be restricted to a handful of regions and geographical markets, including North America, the UK and a few other major markets, by virtue of the nexus of server build-out, device availability, bandwidth, regulatory restrictions and app development.
Competitive analysis and vendor profiles

In the medium-term (next five years), it is likely to be the infrastructure players that will see the most revenues from the growth of the consumer cloud, as the processing power, storage and connectivity requirements of the cloud are built out. However, by 2015, the infrastructure should be in place and success in the cloud environment will not be measured, as it has been in the past, by technology sales. Rather it will be measured by ownership of the consumer relationship, with content and services at the heart of all offerings.
As the cloud evolves, the most successful companies in the consumer cloud are likely to be those that play a number of roles, or that can provide a large part of the cloud jigsaw from infrastructure to devices, and from software platform to consumer services and applications. This is already happening, and is setting the early leaders apart from the cloud crowd.
For example, Google offers search and the Chrome browser (the gateways to the cloud), multi-device access through Android (its OS for mobile devices) and the forthcoming Chrome OS (for netbooks and tablets), it already has a solid cloud/Internet infrastructure, offers services and applications (through Google Apps), has attempted to launch a mobile device (Nexus One) to take on Apples iPhone, and recently unveiled Google TV, which it has developed in partnership with Sony and Intel and provides web search and applications on television sets. Likewise, Apple is building out its infrastructure with its new datacenter, offers a range of access devices (desktop, music
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player, phone, netbook, tablet), applications and content with high consumer demand, a multi-device operating system (iOS), and Apple TV. Both of these companies, considered to be the early leaders, can each offer almost the whole piece of the cloud jigsaw and where they cannot, it is likely that they will turn to acquisitions of smaller companies to plug any gaps in their business strategies. Indeed, Google has made around 18 smaller acquisitions in the space of a year, while Apple notably purchased music streaming specialist LaLa.com in late 2009, and then closed the service down in April 2010, fuelling rumors of an iTunes.com cloud service.
Microsoft, meanwhile, lags behind the two leaders, but does have a lot to offer if it can execute the right strategy within the right timeframe. The companys strong push to place its decision engine Bing as the face of its cloud computing strategy has strong parallels with Google, while it describes Microsoft Azure as its cloud operating system. Microsoft currently lacks the cloud processing infrastructure of Google or Amazon Web Services, but on the other hand has the resources to build that out or, indeed, to acquire.
In fact, acquisitions are likely to play a significant role in the evolving face of the cloud, particularly for those current leaders aiming to become a dominant player or cloud gatekeeper. For example, Apple acquired streaming music service LaLa.com in December 2009, fuelling the rumors around a cloud-based iTunes service. Google, meanwhile, had made 18 minor acquisitions of technology and content companies in the first seven months of 2010. Indeed, the acquisition strategy of the early leaders could define success and failure, and even alter the evolution of the cloud.
Industry watchers would not be surprised to see a major acquisition in the near- to medium-term future between some of the big guns. For example, persistent rumors suggest that the social networking site Facebook would be a significant target for a company looking to cement its role as a cloud gatekeeper. One immediate fit for such an acquisition would be Microsoft, which is playing catch-up in the consumer gateway stakes. Facebook already has a relationship with Microsoft, with Bing offered as the default search engine on the site, and the Microsoft Azure Toolkit for Facebook, and
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any deal between the two would not be a complete surprise. Meanwhile, despite its large user base Facebook announced 500m users in July 2010, which equals the combined population of the US, Japan and Germany it is difficult to see how Facebook will monetize its massive consumer presence.
But it is Google that could be considered the most reliable indicator so far of what will be required for success in the cloud in future. Its role as gatekeeper of the Internet does not directly drive revenues, rather it provides the consumer relationship that can then act as a foundation for monetization. For example, Google applications such as search and business tools are offered free of charge, however, this role as gatekeeper, particularly through search, cements the consumer relationship that can then be monetized by Google itself or by third parties, such as advertisers, and providers of content, services and applications.
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Google vendor profile
Table 3.24: Google key metrics, Q1 2010

Number of users: Google Chrome (>30m) Google Apps (15m-25m) Google browser (65% global user share) Android (est. 9% of global share, Feb 2010) 1998 Public (NASDAQ:GOOG) $23.65bn $6.5bn, no debt Americas, Western Europe, Asia India, China, Brazil, Asia-Pacific, Central & Eastern Europe, Latin America Advertising Applications
Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies)
Google is one of the leading internet technology and advertising companies in the world. The company specializes in Internet search engines and related advertising services. It maintains a large index of web sites and other online content, which are freely available through its search engine. The company generates revenue primarily by delivering relevant, online advertising.
Google is pursuing a multi-pronged strategy with the aim of redefining how consumers access online services and applications including mobile applications. Google App Engine for Business defines its enterprise cloud strategy, encompassing an infrastructure platform for business application developers and for hosting business applications. The company runs over 1m servers in datacenters around the world.
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As well as online productivity applications, such as Gmail, and social networking tools, such as Google Buzz, Googles reach encompasses the desktop (Google Chrome web browser) and the mobile world (with its fast-growing Android mobile OS). In terms of consumers, Googles future strategy is to maximize face-time with users across a range of devices via a diversified strategy, essentially to allow it to sell more advertising. For example, as the number one search engine, its consumer pull for advertisers is clear. At the same time, Googles Android OS for mobile phones and its Chrome browser (and soon-to-be Chrome OS) is another way in which the company can maximize advertising revenue by ensuring that it is constantly in front of consumers regardless of the device being used.
In recognition of the fact that mobile devices are likely to replace the desktop PC as the computing device of choice, Google unveiled its own flagship smartphone, the Nexus One, in January 2010. Manufactured by Taiwanese device maker HTC, it was designed to go head-to-head with Apples iPhone. Google discontinued shipping the device via online stores in July 2010 due to low sales, its commercial failure primarily the result of a lack of tie-in with a mobile service provider that would successfully market the product. Even though it has failed to compete with the iPhone, the Nexus One demonstrates Googles acknowledgement of the importance of the smartphone market and the numerous devices running the Android OS are a major competitor for Apple. Google is also partnering with Intel and Sony to create an Internet TV platform based on Android. Google Apps, meanwhile, provides web services for customers to automatically sync their e-mails, contacts and calendars over the Internet to their phones.
While cloud computing as a concept, and as a working business model, is still in its infancy, Google undoubtedly has the reach, brand, infrastructure and strategy to be one of the leading players alongside Apple and, potentially, Microsoft for the foreseeable future.
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Figure 3.25: Google SWOT analysis

Strengths User base; Global brand; Search expertise; Unified platform strategy; Free services. Weaknesses Reliance on advertising revenue.
Opportunities
Threats
To become the de facto search engine on all devices.
Microsoft Bing; Growth of local search providers (e.g. in China).
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Apple vendor profile
Table 3.25: Apple key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) AppStore (>5bn total downloads) iTunes (>10bn track downloads) 1976 Public (NASDAQ:AAPL) $42.9bn $5.7bn, no debt US, Europe, Asia-Pacific Asia-Pacific, Europe, Middle East, Africa, Latin America Applications Devices Digital content
Apple
designs,
develops
and
markets
personal
computers
(PCs),
servers,
communication devices, network solutions, portable digital music players, and related accessories, software and services. The company's portfolio of offerings comprises Mac computing systems, iPod and iTunes, iPhone handsets, iPad portable multimedia and computing device, and servers. The company's software applications include Mac OS, iLife, iWork and internet applications such as Safari and QuickTime, among others.
Apples well-documented success with first iTunes and the iPod, and more recently with the iPhone, iPad and corresponding App Store, stems from its relationship with the consumer, built through the installed applications and add-on services its devices offer and to a lesser degree through its iconic design and branding. There are
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currently more devices been sold globally with iOS installed than with any other access device operating system, but it is the services and content Apple provides that drives revenues, enabled by its relationship with the consumer. It is worth noting that Apples current business model is based on a proprietary consumer relationship, which to a certain extent goes against the inherently open nature of the cloud. However, Apple is currently building a massive $1bn data center in North Carolina, which many industry watchers speculate is designed to power a cloud-based version of iTunes in the near future. If that is true, then it is a powerful example of how the cloud is significantly changing business models, and will continue to do so.
For a computing platform company such as Apple, the move to cloud computing presents a particular challenge, as it is used to controlling both the software and the hardware the antithesis of cloud computing. Apple already dabbles in cloud computing with its MobileMe Service, which delivers push e-mail, contacts and calendars from the cloud to computers and handheld devices. MobileMe, iWork.com and in some ways iTunes can all be considered cloud-based services, but none of them have offered ground-breaking solutions.
While Apples cloud strategy is based mostly around the desktop, the fact that it dropped the word Computer from its name just four years ago reflects the companys acknowledgement of the growing influence of mobility and cloud-based applications and services. To that end, the iOS devices, such as iPad and iPhone, already operate as cloud-based devices to a certain extent. While Apple does not explicitly share a specific cloud strategy for the future, it is currently building a new $1bn datacenter in North Carolina, five times the size of its existing datacenter and one of the largest of its kind currently being built. It is expected that this will provide the backend for Apples moves into the cloud, with speculation that this could enable streaming of Apple content over the internet essentially, moving iTunes and iPhone applications from the desktop and into the cloud. Indeed, Apple acquired streaming music service LaLa.com in December 2009.
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In the initial stages of the evolution of cloud computing for consumers, Apple is likely to lead and shape the market, along with Microsoft and Google. While the business model of the cloud appears to fly in the face of Apples historical preference for the lock-in model, Apple is fully aware of the impact that cloud computing and connectivity will have the future landscape. The iPad, for example, represents a hybrid PC/laptop and mobile device that encompasses the requirements of a cloud computing device. Apple is set to be a dominant player in the evolution of the consumer cloud in the next few years.
Figure 3.26: Apple SWOT analysis

Strengths User base; Global brand; Deep resources; Unified strategy. Weaknesses Potential inability to evolve to an open environment.
Opportunities
Threats
To be the leading software and hardware player in the consumer cloud market.
Competitors Google, Microsoft, CE manufacturers; Reliance on closed environment.
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Facebook vendor profile
Table 3.26: Facebook key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) 400m, 195m monthly subs 2004 Privately held $150m Estimated $10m loss, debts of $3bn US, UK, Australasia, Western Europe China, South Korea, Japan, Russia, Latin America Advertising Apps revenue share
The online social networking site, Facebook, became the most popular website in the US ousting Google earlier in 2010. Facebook is the world's largest social network with nearly 500m users around the world, and its policies are having a direct influence on defining standards for privacy in the Internet age. Facebook allows users to create a profile page, create links with friends and colleagues, upload photos, communicate with friends, and so on. In May 2007, Facebook unveiled an initiative called Facebook Platform, inviting third-party software makers to create social applications for the service and to make money on advertising alongside them.
Facebooks success in acquiring users has been such that competitors and commentators alike are beginning to question whether its ubiquity is inevitable. The history of online social networks, however, suggests that the survivability of any network is difficult to gauge. With 500m registered users, Facebook is well positioned to own the consumer relationship, and its cloud vision would see consumers using the
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Facebook site as the gateway to navigating the cloud, providing a single identity and a means for consumers to share their experiences with friends and connections. This, of course, provides a powerful platform for offering third-party services, such as advertising, applications bundles, and so on, much like Google. However, Facebooks challenge is to monetize its unique position as the number one website in the US a challenge it has so far failed to conquer.
Facebook Connect is a set of APIs that enable Facebook members to log onto thirdparty websites, applications, mobile devices and gaming systems with their Facebook identity. While logged in, users can connect with friends via these mediums and post information and updates to their Facebook profile. As of May 2010, the company claims more than 550,000 active applications currently on Facebook Platform, with more than 100m Facebook users engaging with Facebook on external websites every month.
Facebook is also a rapidly growing influence in search. It claims that search events grew from 395m in January 2010 to 436m the following month, a growth of 10%. The power of success in search comes from its attraction to advertisers, which through social networking could highly target specific users through personal information, and then further users and groups on similar interests, activities, and so on. Microsofts Bing is already the default search engine on Facebook thanks to an expanded partnership between the two companies announced earlier this year.
Facebooks ultimate aim is to become the hub for its users entire online experiences. By increasing the capabilities of the on-site search, Facebook is hoping to become the portal to the internet. If Facebook can get its users to perform on-site searches, it not only keeps users on the site longer, but like Google, it can gather even more information about its users through their searches in turn, making it more attractive to advertisers.
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Facebooks continuous struggle to monetize its huge user base means that it is unlikely to be a clear leader in the race towards cloud computing. Its significant influence will certainly shape the success and direction of the three main leaders Google, Apple and Microsoft either through its own pull or through the partnerships it nurtures (and potentially through a major acquisition). It does, however, need to be wary of alienating its users by ignoring their privacy demands.
Figure 3.27: Facebook SWOT analysis

Strengths Scale of user base; Positive cash flow; Advertising relationships. Weaknesses Single pillar monetization model.
Opportunities
Threats
To become the cemented incumbent network in the West.
Competitors Google, other social networking sites Reputational risk.
A clearer sign of Facebooks possible future direction comes from its tie-in with Microsoft so far the Microsoft decision engine Bing (and associated advertising potential) is a positive step in the right direction. Indeed, it is easy to speculate about a potential closer partnership between the two companies in future and one that would no doubt benefit both parties. Indeed, Microsoft is currently playing catch up with
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Google, Apple and Facebook (in terms of its position as a cloud gatekeeper, at least), however, it is never sensible to write the software giant off, and it intends to have a major say in the evolution of the cloud.
Microsoft could be the potential game-changer, with consumer-orientated cloud services that Apple lacks (currently), and an enterprise presence and footprint that Google can only dream about. From Apples perspective, unless it can unleash itself from its self-induced iTunes on the desktop lock-in fairly rapidly, the future domination of the cloud could boil down to a Microsoft vs. Google OS showdown.
Microsoft vendor profile
Table 3.27: Microsoft key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) >10,000 Azure customers (June 2010) 1975 Public (NASDAQ:MSFT) $58.4bn $14.6bn, debts of $6bn Americas, Europe, Asia-Pacific Central & Eastern Europe, Latin America, Asia-Pacific Applications Software as a Service Software operating systems Software development tools
Microsoft is one of the best-known technology brands in the world. The company develops, manufactures, licenses and supports a wide range of software products and services for different computing devices, from desktop to mobile. Microsoft is split into
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five operating segments: Client, Server and Tools, Online Services Business, Microsoft Business Division, and Entertainment and Devices Division. Products and services include: operating systems for servers, personal computers and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; high-performance computing applications; software development tools; and video games.
Microsoft considers Cloud Computing and Software-as-Service to offer significant opportunities for driving the future growth of the company. Indeed, the companys over-arching strategy going forward is centered solely on the Internet. The companys vision is to combine the power of the desktop and server software, with the reach of the Internet, to create growth opportunities in most of its business areas. In the enterprise space, Microsoft Azure described variously as its cloud operating system, cloud environment or the Azure Service Platform is central to Microsofts ambitions.
Along with Azure, the release of the Windows 7 operating system, and middleware servers, Windows Server 2008 R2 and Exchange Server 2010, indicate how critical the cloud is as an underlying strategy for Microsoft. These releases mark only the second time for the company that a new OS release has coincided with major middleware/platform releases, allowing synchronization of delivery mechanisms and in particular, enablement of Microsoft cloud offerings. However, Microsofts main rivals currently, Google and Amazon, already have significant data center assets required for their own businesses, and the platform for offering cloud computing services to business customers.
In the consumer world, Microsoft has recently launched its search engine, or decision engine, Bing outside of the US. Like Google, Microsoft hopes that Bing will become the search/decision engine of choice for users, by providing them with results that go beyond a set of links, for example, by including local information, geo-location, advertising special offers and related information. Microsoft recently signed a deal with online social networking site Facebook to provide Bing as the default search engine for Facebooks 400m users worldwide. Likewise, the launch of Windows Azure Toolkit
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for Facebook makes it easy for marketers to get Facebook applications up and running in Windows Azure. Furthermore, Microsoft announced a partnership with search engine Yahoo! early in 2010, which is intended to cut costs and raise revenues for both companies in their shared desire to gain market share against Google. The partnership allows Bing to power Yahoo!s search results in return for a slice of advertising revenue.
At the same time, Microsoft considers mobile to be an integral part of the future of computing, with the forthcoming release of its mobile platform Windows Phone 7. In Addition, Microsoft will launch Windows Phone Live, a free website for Windows Phone 7 customers to automatically publish their photos and sync their contacts and other data. Microsoft intends the Windows Phone 7 to integrate consumer mobile experiences around shared hubs, and hopes its Windows Phone 7s over-the-air cloud strategy will compete with other mobile platforms i.e. Apple iOS and Google Android.
However, Microsoft will have to move fast to stay in the smartphone game. Its oncedominant Windows Mobile OS currently holds just 13.2% of the smartphone market and has been steadily losing market share to competitors mot notably Googles Android. However, Microsoft is offering consumer-oriented cloud services that Apple lacks, while providing enterprise features that are not built in to Android.
The company will undoubtedly be a major player in the cloud environment, and has been gearing up for this challenge for at least the past five years. Although in which market segment enterprise or consumer it will enjoy the most success remains to be seen.
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Figure 3.28: Microsoft SWOT analysis

Strengths User base; Brand; Resources; Developer community. Weaknesses Still has gaps in its cloud strategy; Mobile strategy is unclear and playing catch-up with the competition.
Opportunities
Threats
To be the leading software provider in the cloud environment; To provide a unified consumer and mobile experience on a single device.
Lack of unified strategy; Competitors Google and Apple; Unclear monetization strategy.
Of course, there are more than four vendors that will influence the cloud competitive landscape, with existing companies and new entrants having a large say. For example, enterprise CRM specialist Salesforce.com has recently enjoyed success from its Chatter service, providing applications for business users (who are inherently also consumers) that combine social networking, mobility and real-time capabilities, and features popularized by Facebook, Google and Twitter, such as profiles, status updates and realtime feeds. Chatters social collaboration technology enables enterprises to collaborate around more than just documents, with employees able to follow colleagues, business processes and application data. While Chatter is primarily aimed at improving productivity for business users, it is an indication of how the cloud might evolve, with enterprise and consumer clouds becoming linked.
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Salesforce.com vendor profile
Table 3.28: Salesforce.com key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) 72,500 1999 Public (NYSE:CRM) $1.3bn $80.7m, $476.5m debts Europe, US, North Africa, Latin America, Asia-Pacific Middle East, North Africa, Latin America, Asia-Pacific Business applications Software as a Service
Salesforce.com is an enterprise provider of Software-as-Service applications and application services, which allow organizations to share customer information on demand. The company offers customer relationship management (CRM) services to businesses and a technology platform to develop and run business applications. The company has moved steadily away from its origins as a provider of point CRM-as-aservice solutions. The offering now includes three main platforms: Sales Cloud - to support customer and partner relationship management activities; Service Cloud - to support call center and customer self-service activities; and Custom Cloud - the force.com application development and hosting platform, reportedly hosting 135,000+ applications.
Salesforce also launched a social computing collaboration platform called Chatter in February 2010, which will provide a social computing layer across the three Salesforce platforms. Using the familiarity of Facebook, Twitter and so on, Chatter is described as
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the industrys first cloud-based social enterprise platform. It allows employees and teams to collaborate, get immediate insight into their company's programs, projects, people, customers, cases, documents and business data that is pushed to them.
Chatter joins at the back of the queue of other social enterprise computing applications, such as Microsoft SharePoint, Lotus Connections, Open Text Social Media, Socialtext platform, Atlassian Confluence and many others. However, enterprises are starting to mature beyond pilots and false starts with stand alone social computing platforms. Many are now thinking more deeply about how social computing integrates with core business applications and workflow to embed collaboration into their organizations fabric.
Integration architectures may be driven as much by the power of social computing platforms to stimulate information flows as by APIs and technical integration. Salesforce is coming to be seen as a bellwether for the cloud computing revolution, with momentum considered to be building, and moving up market into the enterprise arena.
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Figure 3.29: Salesforce.com SWOT analysis

Strengths Enterprise heritage; Momentum; Social enterprise focus. Weaknesses Focus on enterprise; Latecomer to the cloud.
Opportunities
Threats
To become the social enterprise company.
Reputational risk.
The influence of the cloud is also having a major impact on access device manufacturers, and in particular mobile handset and smartphone makers, such as Nokia. As previously discussed, Nokia posted its first ever quarter loss (in the first three months of 2010), and has since announced that it would drop its long-time investment in the Symbian mobile OS a significant step that reflects Nokias panic at the collapse of traditional business models. Its replacement mobile IS, MeeGo is a Linux-based mobile OS (merged from Intels Mobilin and Nokias Maemo Linux OSs) and optimized for the open nature of the cloud, and for running applications and services on mobile handsets, smartphones, tablets, netbooks and connected TVs.
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As the cloud evolves, access device hardware will lean towards commodity, and increasingly offered free of charge, with data traffic and download revenues driving future strategies creating a significant threat to mobile device manufacturers, unless they can mimic the success of the Apple model.
Nokia vendor profile
Table 3.29: Nokia key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) 33% global market share of mobile devices 1967 Public (NYSE:NOK) 40.98bn 260m, 4.1bn debts China, India, Europe, US, Asia-Pacific Asia-Pacific, EMEA, Latin America Mobile OS Applications Devices
Nokia Corporation is a leading provider of mobile devices, telecom equipment, and mobile content services. The company's offerings include basic and high end mobile devices, telecom network equipment and related services, and software and services consumer markets. It provides network equipment and related products through a joint venture with Siemens, Nokia Siemens Networks. Its other major subsidiaries include NAVTEQ, a provider of digital map information and related location based content and services, and Symbian, the developer and licenser of Symbian open source operating system for mobile devices. The company primarily operates in Asia and Europe, but recorded its first ever drop in annual revenues in 2009.
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The move to cloud computing has left Nokia behind somewhat, although it is making strides to claw back some of that lost ground. The company was once the dominant phone maker, but has struggled in recent years. Its Symbian OS has also steadily lost ground and market share to Apples iOS and Googles Android. Early in 2010, Nokia therefore dropped its long-time investment in the Symbian operating system and instead chose to go with Linux-based mobile OS MeeGo, in order to go head-to-head with Apple and Google (and Blackberry in the enterprise world). Android and iOS have a more PC-based lineage and have translated this to the evolving smartphone market essentially mini-computers that perform numerous tasks and are optimized to access applications and services via the cloud much better than the Symbian OS. MeeGo falls into the same category as iOS and Android, so should enable Nokia to compete in a cloud environment on a more even footing with the leading players.
Access to applications and information will be central to the cloud-computing world, and to that end Nokia is positioning mobile applications at the centre of its near-future strategy, while marketing its Ovi Store heavily to developers. Nokias brand and market presence should allow it to keep some pace with the new cloud-computing leaders, however, it is not in a position to dictate the shots. It should not be forgotten that, despite recent wobbles, Nokia is still the worlds leading handset manufacturer.
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Figure 3.30: Nokia SWOT analysis

Strengths Presence; Global reach. Weaknesses Late to the game; Weak monetization strategy.
Opportunities
Threats
To become the gate-keeper mobile Internet and applications.
for
Competitors Apple, Google, other mobile phone manufacturers; Falling profits; Rising debts.
There are numerous other stakeholders vying to stake their own claim to a share of the cloud. One of the largest contenders could well be Amazon Web Services (AWS), if only for the sheer size of the cloud-enabled infrastructure that it already has. While AWS is not offering any new cloud service or threatening to dominate the cloud, the potential of its datacenter infrastructure and relationship with the consumer is not to be ignored.
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Amazon Web Services (AWS) vendor profile
Table 3.30: Amazon Web Services key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) Unknown 1994 Public (NASDAQ:AMZN) $24.5bn $902m, debts of $131m US, Europe US, Europe, Asia-Pacific Applications Service hosting Service management
Amazons primary source of revenue is the online sale of a wide range of third-party products and services to customers. Amazon also manufactures and sells the Kindle hardware and software platform for reading digital books, an attempt to gain a foothold in the mobile content market. In addition, the company provides services such as Amazon Web Services, co-branded credit cards, fulfillment, and miscellaneous marketing and promotional offers, such as online advertising.
At the heart of Amazons cloud computing strategy is Amazon Web Services (AWS), which was launched in early 2006 to provide an infrastructure web services platform in the cloud environment for companies of all sizes. AWS uses Amazon.coms global computing infrastructure as its backbone, allowing customers to purchase computing power, storage, and other services (such as messaging and payment) on demand, and to gain access to a suite of elastic IT infrastructure services on a pay-as-you-go basis. AWS consists of various web services. For example, Amazon Elastic Compute Cloud
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(EC2), which provides resizable computing capacity within the cloud. Meanwhile, Amazons Simple Storage Service (S3) provides a simple web service interface for storing and retrieving any amount of data from anywhere on the web.
In the enterprise world, AWS has ambitions to become the major cloud computing platform for businesses around the world, providing a pay-as-you-go model for computing resources and services. Its ambitions in the consumer world are less clear. Kindle represents a cautious step into an unknown market for Amazon, and while it is likely to enjoy limited success, it will not be a game-changer for Amazon.
Amazon is likely to remain top of the tree in online retail and distribution for some time to come, and it is this computing infrastructure built up over recent years that will allow it to take advantage of its early-leader status in the enterprise cloud computing stakes. However, in the consumer world, it is difficult to see how Amazon is offering anything new.
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Figure 3.31: Amazon Web Services SWOT analysis

Strengths Existing infrastructure; Global reach and brand; Utility services. Weaknesses Lack of innovation; Commoditization.
Opportunities
Threats
To become the leading provider of hosted web services.
Risks becoming a commodity provider of hosted cloud services.
The open nature of the cloud, and consumer demand for interoperability, will fuel the advent of a wide range of new and potentially disruptive companies, services and pricing structures. As discussed, one of the main battlegrounds over consumer eyeballs will be the gateway to the cloud on a range of access devices. A fast, easyto-use, intelligent interface or mobile browser such as the Opera browser will always be in demand.
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Opera Unite vendor profile
Table 3.31: Opera Unite key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) 100m (Opera browser) 1994 Public (PINK:OPESY) NOK 612.7m NOK 30.9m, no debt Western Europe, North America, Asia-Pacific Western Europe, North America, Asia-Pacific Device and desktop browsers Application platform Applications
Opera started in 1994 as a research project inside Norways largest telecom company, Telenor. Within a year, it branched out into an independent development company named Opera Software ASA. Opera Software developed the Opera Web browser, for use on a wide range of platforms, operating systems and embedded Internet products including Mac, PC and Linux computers, mobile phones and PDAs, and game consoles. The browser enables full Web browsing on mobile handsets that is, HTML browsing and access to Web-based applications.
Operas vision is to deliver the best Internet experience on any device, and its main business strategy is to provide a browser that operates across devices, platforms and operating systems, and can deliver a faster, more stable and flexible Internet experience than its competitors. The company targets mobile operators and has partnerships with Vodafone, AT&T and SK Telecoms to provide the Web browser for their mobile handsets regardless of platform.
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Opera Widgets allows operators and manufacturers to operate their own applications stores, by providing a platform for distributing web-based applications via mobile devices. Opera also has components for integrating the platform into connected TVs, and is supporting industry standards for TV. The company aims to ensure that the Opera browser is an integral part of interactive TV services on a range of devices.
Operas monetization strategy for the desktop browser revolves predominantly around search. Google is Operas global search partner and provides the vast majority of desktop monetization. This global partnership is supplemented by local search partnerships in certain markets, such as Russia, Japan, and China, where Opera works with Yandex, Yahoo! Japan and Baidu, respectively.
The mobile Internet and data communications are considered to be a vital component of operators strategies in the cloud environment. Opera Mobile is a desktop-capable browser with widgets, while Opera Mini is a pared down version for mobile handsets the company has license agreements with a range of mobile OEMs, including HP, HTC, Huawei, Motorola, Nokia, Samsung, Sharp and Sony Ericsson.
The platform-agnostic nature of Opera provides it with a significant opportunity for becoming a major mobile browser on a large range of mobile and non-mobile devices, and playing a significant role in helping mobile operators make the leap into the cloud environment. Its partnership with Google and other large, regional search engines means that it also well-placed to monetize its Opera platform. Opera Unite is definitely a company to watch in the development of the consumer cloud.
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Figure 3.32: Opera Unite SWOT analysis

Strengths Brand presence; Partnerships; Provides solution to a problem. Weaknesses Single pillar monetization model.
Opportunities
Threats
To become the de facto browser for mobile devices.
Acquisition target for Google; Tough competitive landscape.
Likewise, the ability to create, publish and share new applications and services will be the driving force behind the cloud, with a number of young companies already staking their claim.
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Box.net vendor profile
Table 3.32: Opera Unite key metrics, Q1 2010

Number of users: Established: Ownership: 2009 revenues: 2009 profitability status: Major markets: Growth markets: Monetization strategy(ies) 3.5m 2005 Private $5.2m (Estimate) N/A US US Service subscription Application hosting Software as a Service platform
Box.net provides a Cloud Content Management solution for more than 3.5m users and companies ranging from small businesses to Fortune 500 companies. Box.nets product offering was initially consumer-focused, but in August 2007 it introduced its Enterprise offering, targeting larger organizations and emphasizing collaboration tools. Box.nets software platform helps businesses securely upload files and media into the cloud and then share and work on them remotely. Users can also transfer files to clients and back up their own internal systems onto Box.net. Managers can also control and change who has access to what documents. Instead of paying for a file server, which can cost thousands of dollars, businesses pay $15 per user, per month, to share documents on Box.nets online, cloud-based service.
Although the small-business market is Box.nets main focus, the company boasts highprofile customers such as Intel and Nike. From 2006 to 2008, the startup experienced an impressive 870% growth spurt and this year expects to more than double its revenue
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over last year. In October 2009, Box.net acquired Increo Solutions, a developer of collaborative online document and media viewing tools.
For a consumer perspective, OpenBox offers an Individual service, providing premium business-related applications, and Lite, which provides mobile application access, file sharing links, and basic OpenBox applications. The original OpenBox platform for consumers included online services such as EchoSign, Autodesk, Zoho, ThinkFree, Scribd, Twitter and others. Since then, new OpenBox services have been added from Salesforce, Google Apps, FedEx, Twitter, WatchDox, MindMeister, Fuze Meeting and others. There are now more than 25 services available. Box.net also launched its OpenBox Mobile developer program in September 2009, enabling developers to make mobile content accessible to other applications and services, including iPhone applications.
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Figure 3.33: Box.net SWOT analysis

Strengths Simple monetization strategy. Weaknesses Focus on SMEs; Lack of presence; Enterprise concerns. vs. consumer branding
Opportunities
Threats
To become the cloud provider of choice for global SMEs.
Acquisition target.
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Conclusions
The next five years will see a shakeout phase, as the cloud infrastructure takes shape and the leading players battle for consumer hearts and minds. Historically different business models will converge with mobile operators, device makers, ISPs, media companies and other relevant parties to some extent providers of the content and data that will fuel the cloud.
During the shakeout phase it is the infrastructure players that are likely to derive the most revenues from the cloud however, once this is complete (with servers, bandwidth speed and coverage and smart access devices in place), those companies that have carved out their place as a major cloud broker will be in position to reap the rewards for content and data-led revenues. Indeed, success will be defined by ownership of the consumer relationship, rather than technology sales, and the applications, services and indirect revenues (such as advertising) that will drive. The battle between now and then is to become the gatekeeper to the cloud.
Those companies that can win over the consumer hearts and minds, and can then offer the entire piece of the cloud jigsaw, are likely to be those that dominate for the foreseeable future. Such companies currently include Google (which is arguably the current Internet/cloud broker) and Apple (especially if rumors over iTunes.com are on the mark), followed by Facebook and Microsoft. The former two can already provide the access device and mobile OS, some of the infrastructure requirements, content and services, and the consumer relationship, while the latter two companies are able to provide some of the major parts of that jigsaw. Whether there will be a single winner from this group of companies is debatable although all of them will play a major role in the shakeout phase of the cloud (2010-2015 as defined by Business Insights). The acquisition strategies of each will also play a defining role in their ultimate success.
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At the same time, the cloud provides a real opportunity for myriad startups and existing technology companies to stake their claim. New applications, services, pricing structures and bundles, and disruptive offerings will all play their role, with gaming, social networking, collaboration, music and Internet TV all potential battlegrounds.
Figure 3.34: Cloud stakeholder strategy comparisons

Cloud monetization Consumer reach Mobile proposition Content provision
Company
Focus Search, advertising, becoming de fact Internet gatekeeper
Google
Apple
Devices, apps, content
Facebook
Social networking, becoming de facto Internet gatekeeper
Microsoft
Software development, apps, content
Competency
Low
Medium
High
Very High
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CHAPTER 4
Business response
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Chapter 4
Summary
Business response
The companies likely to dominate in the cloud are those that can provide a consumer touch point at every step of the cloud experience, from device and device OS to premium content and services. Traditional technology OS players, such as Microsoft and Apple, have a significant opportunity to transfer their desktop dominance to the cloud. The consumer gateway, or portal, has little potential in the cloud value chain for generating direct revenues, but is arguably the most important in terms of cementing the consumer relationship, and the ability to create cloud brokers. Strategies to monetize the consumer relationship enabled by the gateway should focus on extending the consumer touch points throughout the cloud value chain as in the case of Google and its broad set of differentiated offerings or monetization through indirect routes, such as advertising and third-party services and applications. One of the most important strategies for mobile operators will be to offer appealing content, possibly through partnerships, and through open interfaces. The cloud also promises the potential for application developers to retain a higher percentage of revenues from application sales, as it allows them to bypass application stores. With such a bewildering array of content available within the cloud, consumers are likely to seek out more relevant and personalized content through familiar gateways and portals, in order to avoid content overload. The cloud lowers the cost of developing, with its interoperable and open nature meaning that less work is required to customize each application for different mobile platforms.
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Overview
The growth of the cloud driven by the connected mobile lifestyle, increasing bandwidth and powerful access devices is already disrupting existing business models throughout the technology and communications industries. This trend is likely to accelerate over the next five to 10 years, and those companies that do not adapt to the new environment are doomed to failure.
As well as converging business models, with all players being forced to act as content providers on some level, the cloud will see success determined by ownership of the consumer relationship, such as through gateways to the cloud for example, search engines, social networking sites, revenue-participation models, and so on. Those that expect to dominate in the cloud world are those that can provide a consumer touch point at every step of the cloud experience, from device and device OS to premium content and services. The following section outlines the business responses required from each set of stakeholders in order to survive, and be successful, in the cloud.
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Business response analysis

Traditional consumer technology OS firms For traditional consumer technology OS firms, notably Microsoft and Apple, the evolution of the cloud has required a complete strategic and marketing re-think to place the Internet as the core around which the business model needs to be built. In order to remain as dominant in the cloud as they have been on the desktop, technology OS and software players will need to offer products and services that cover the entire value chain (and consumer touch points) throughout the cloud from operating system to applications, on multiple devices. The missing, yet vital, link for established OS players is, historically , likely to be the cloud gateway aspect an area in which Googles search engine and Facebooks SN site currently dominate. For both these companies, this gateway provides the platform upon which they can start to monetize the face time they provide with the consumer.
Microsofts Bing decision engine has been designed to go head-to-head with Google, and is the companys gateway platform. Microsoft asserts that it will play the same role in the cloud as it does on the desktop by providing the mobile device OS, the applications, and developer tools required in a cloud-centric world. Microsofts Azure platform, for example, could be described as a beefed up version of Windows for the cloud, rather than running on servers and devices, Azure runs in massive datacenters, as well as providing an application developer toolkit open to everyone for example through its Azure Toolkit for Facebook. Windows 7, meanwhile, includes Wi-Fi syncing and a feature to track lost mobile phones, and is aimed at enterprise users of the cloud.
Microsofts partnerships with Yahoo! and Facebook are both aimed at clawing back some of the ground lost to Googles search engine that is, to secure a gateway to the cloud. At the same time, the Yahoo! deal, to place Bing as the Yahoo! default search engine, provides Microsoft with a share of advertising revenue. So far, Yahoo! has
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managed to repel repeated takeover bids from Microsoft over the last four years, however, further activity in this area should be expected.
One of Microsofts weaknesses, however, is its smartphone strategy. Its once-dominant Windows Mobile OS currently holds about 15% of the global smartphone market, having steadily lost ground to competitors, notably Googles Android. Windows Phone 7, the next version of Windows Mobile OS planned for launch in October 2010, is the companys response however, any delay could see continued momentum shifting towards Android, and Apples iOS. According to Microsoft, the Windows Phone 7 platform will combine personal and social media with Xbox Live gaming and thirdparty applications sold through its Zune application store.
Microsofts Bing decision engine is at the core of Microsofts strategy to control the consumer cloud gateway its push to place Bing as the default engine on Facebook reveals its intentions, and ambitions, to provide a Google-esque portal for consumers to access and navigate the cloud, as well as providing the potential for not only providing targeted content and services to consumers by utilizing the detailed consumer data and information gathered by the SN site, but also for generating indirect revenues such as advertising.
As has already been discussed throughout this report, Apples business model is also aimed at providing each component of the cloud value chain such as access device OS (iOS), devices themselves, content and applications, the gateway through MobileMe, and the infrastructure through its new billion-dollar North American datacenter. However, Apples current weakness in this strategy is its lack of cloud connectivity, and its apparent unwillingness to embrace the cloud for example, the iPhone still has to be synced to the desktop via a USB cable. However, its 2009 acquisition of music streaming specialist LaLa.com combined with its new datacenter could be the missing link in an Apple cloud strategy and a cloud-centric approach that has already been dubbed by industry watchers as iTunes.com.
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Traditional technology OS players that have evolved from the desktop and already embraced the mobile world have a significant opportunity to transfer that dominance to the cloud, as long as they have the ability to provide each component of the cloud value chain. Indeed, Google has adopted the same approach, albeit coming from a different starting point.
The biggest threat to such players comes from the danger of lock-out by not having a gateway or interface with the consumer. The consumer gateway, or portal, has little potential in the cloud value chain for generating direct revenues, but is arguably the most important component in terms of cementing the consumer relationship, and the ability to create cloud brokers.
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Responses of established Web firms Established web firms, such as Google and Facebook, have in a sense come from the opposite end of the spectrum as the traditional OS companies starting out with what the latter needed to add; the gateway to the internet, while themselves needing to extend their reach onto the desktop and, more importantly, multiple access devices. Indeed, the ultimate aim of web companies is the same; to provide a solution at every consumer touch point throughout the cloud.
Google performs over 1bn search requests every day, with the search engine providing the platform upon which its monetization strategy is based which is, essentially, through advertising (AdWords and AdSense). Google Buzz, the companys SN tool, fortifies that gateway. With the gateway currently assured, Google has steadily extended its reach onto the desktop, via the Google Chrome web browser, into the enterprise (via productivity tools), onto the smartphone and other access devices (Google Android, its mobile OS), and has even launched its own access device, Nexus One, the companys flagship smartphone manufactured by Taiwanese device maker HTC.
This strategy is based on maximizing consumer face time, and then monetizing that relationship at the various touch points in the cloud value chain through direct and indirect revenues. Google has the clout to follow such an ambitious target, with a market capitalization of around $150bn and net income of around $8bn for the latest available 12-month period (both as of July 2010).
Facebook, meanwhile, is a private company and so has not pursued a strategy as ambitious as Googles. However, as the most popular website in the US, and with 500m registered users worldwide, Facebook arguably has more potential as the gateway to the cloud. Its vision is to act as the portal for consumers from which they can access and navigate the cloud from their Facebook homepage and with a single profile and identity. As a social networking site, it also gathers useful personal
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information and data about its consumers, which can be used to sell third-party applications and services in a more targeted fashion, as well as advertising.
Facebooks biggest weakness along with other SN sites such as MySpace, LinkedIn, Twitter, and so on is the challenge to monetize its consumer relationships. Without the monetization capabilities or financial strength of Google, Facebook could pursue a strategy of partnerships, such as that with Microsofts Bing decision engine, in order to reach more touch points in the cloud value chain. As argued in the previous chapter, Facebook may also achieve the same results via a merger (or being acquired) as easily as through a potentially difficult-to-engineer partner strategy.
In order to gain a foothold in the cloud, web companies will need to monetize the gateway to the cloud that many already provide such as through search engines or social networking (or any other service popular with consumers). The gateway offers the opportunity to own the consumer relationship, however that alone will not be enough. For example, Twitter is a very popular gateway, but lacks any solid monetization strategy. Strategies to monetize the consumer relationship enabled by the gateway should then focus on extending the consumer touch points throughout the cloud value chain as in the case of Google and its broad set of differentiated offerings or monetization through indirect routes, such as advertising and third-party services and applications.
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Response of telephone operators It has been clear for some time that with the growth of discounted and flat-rate tariffs for voice services that the future for operators, fixed and mobile, is data services. However, few have so far embraced this potential. For example, according to market researchers Booz & Company, 77% of all European mobile operators have the infrastructure in place to offer mobile Internet services, yet less than one-third of them make use of this opportunity. At the same time, the number of consumers using their mobile handset has multiplied numerous times in recent years, and continues to grow. By definition, mobile Internet access provides access to the cloud, and those mobile operators that do not embrace the new model face the threat of being left as a bit pipe that is, only able to provide the means to deliver the cloud, while the significant data traffic revenue potential of the cloud passes them by.
While the good news is that the cloud will drive data traffic to new levels, and provide operators with the opportunity to offer content and applications (such as through application stores), the bad news is that operators face significant competition for their core business from Apples iPhone, Googles Android, Nokias Ovi multimedia portal and Microsoft, Amazon, and many other potential cloud players. At the same time, new access devices, such as connected laptops, netbooks, mobile Internet devices and even connected-TVs, will drive Internet usage in the cloud, but possibly at the expense of mobile phones. What is more, many of these devices are 4G-enabled. All of these players are looking to secure a slice of the mobile Internet cake, and mobile operators will need to decide whether to take a confrontational stance against this competition, or one of co-operation.
One of the most important strategies for operators will be to offer appealing content, possibly through partnerships, and through open interfaces. One of the problems today is that many mobile operators have created walled gardens in an attempt to restrict consumers from accessing open mobile internet access and therefore control the monetization opportunities. In order to survive in the cloud world, however, operators will need to embrace the mobile internet and provide consumers with an open gateway
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to the cloud, as consumers will demand it, or seek alternative providers that can offer open Internet access on mobile devices. The winning operators are therefore likely to be those that can provide open access to the Internet, interoperability between services and applications (and content), and unique or premium content to provide value added services to consumers. Indeed, those that go further than merely opening up the mobile internet, and instead driving consumers to it through special offers, bundles and discounts, will fare even more successfully. Freemium apps which are free to download but generate revenue through in-app premium subscription services, are also becoming popular, and provide another means of driving revenue and differentiation for operators.
For mobile operators, therefore, embracing the cloud provides a massive opportunity to boost data traffic revenues, and an additional revenue stream through the provision of appealing content and services. Those that do not face being left as the bit pipe for delivering those services, and missing the cloud opportunity entirely.
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Response of media and other content providers Arguably one of the most successful content providers in the world, given that it is not its primary function, is that of footballs English Premier League. Revenues from the careful sale of the global rights has helped the league to grow to become one of the most famous and lucrative football leagues in the world. Consumers can access the premium content and related services, such as live games, highlights, player interviews, news and views, and so on, from a number of touch points TV, radio, the Internet (mobile and desktop) while for the Premier League, revenues from licensing the rights is boosted by further indirect revenues such as merchandising, advertising and sponsorship.
In the cloud, content will be king. However like the Premier League, Walt Disney, and many other premium branded content providers differentiating through premium or unique content is likely to define success. Of course, free content such as YouTube will remain popular. However, where monetization is concerned, premium and differentiated content is the way forward for content providers. The cloud will offer such a large, bewildering choice of content that the only way to cut through the white noise is likely to be through branded content.
Media and content providers may also need to partner with operators, device makers, cloud brokers, social networking sites and other stakeholders in order to secure a more direct portal to the consumer. It may be that consumers will go to existing gateways, content aggregators or mobile operators for bundles of content, leaving the source providers without any direct route to market. Many content providers are likely to experiment with charging for content, using different pricing structures and bundles however, this could be a delicate balancing act, given that consumers have grown accustomed to receiving free content over many years.
Content providers are also beginning to realize the potential and importance of personalized content services, which rely on a view of the customer data, based on elements such as historical behavior, expressed preferences, demographic profiling or
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social data to deliver targeted content based on matched preferences to the content metadata. Online music and DVR services, such as Hulu, Spotify and others, have demonstrated that with such a bewildering array of content, consumers quickly seek out more relevant and personalized content through familiar gateways and portals, in order to filter out content overload. As a result, content providers of all kinds could potentially find themselves becoming specialist or niche providers, with only a handful gaining consumer popularity in each different genre or type of content. In this scenario, a few preferred providers of different specialist content could quickly become dominant a viral effect exacerbated by consumer recommendations, for example, through social networking sites.
The cloud may also alter the type of content that consumer want to access. Content will need to be formatted for appropriate screen sizes and relevant to the access device for example, content for mobile devices may be offered in bite-sized chunks; consumers are unlikely to want to watch a 90-minute football game on a mobile phone with patchy connection, more likely they will want to download or watch 10 minutes of highlights.
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Response of applications developers For application developers, the cloud is a real opportunity with consumers expected to consume multiple times more mobile applications over the next five years it can be presumed that the future of application development will be focused on mobile access devices. In turn, the cloud provides developers with access to a much larger market than anything that has gone before.
Historically, access to applications from the consumer perspective has been controlled by providers or aggregators such as mobile operators. However, with consumers clamoring for open systems and interoperability, and with operating systems (such as iOS and Android) optimized for running mobile applications on a range of devices, all that will be required for consumers to run mobile applications in the cloud environment is a mobile browser. Essentially, consumers will be able to bypass any restrictions that have previously been put in place for example, by the walled-garden approach of the mobile operators towards the mobile Internet and access the applications and services they want. In turn, this will create a significant market opportunity for application developers. Furthermore, the cloud lowers the cost of developing, with its interoperable and open nature meaning that less work is required to customize each application for different mobile platforms.
The cloud also promises the potential for application developers to retain a higher percentage of revenues from application sales, as it allows them to bypass application stores, such as Apples AppStore that is, as long as they have access to the consumer via some kind of gateway. Here, SN sites and consumers recommendations via friend networks could provide a potential viral route to market for applications, although this is likely to be a limited option. Even through existing application stores, developers can publish straight to market using the specific development platforms now offered by companies such as Apple, Microsoft, Google, Salesforce and many others, and so have been estimated to keep up to 70% of all app revenues (themselves largely advertising created). As a result, the Apple AppStore, for example, paid out
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more than $1bn to developers in the two years since its launch (in July 2008), from total revenues of around $1.4bn.
Conversely, with such wide availability and choice of mobile application available within the cloud, gaining any market presence or differentiation will be difficult for application developers. There are over 200,000 mobile applications on AppStore alone, so providing something that resonates with the consumer over and above other available applications will require something special. Indeed, if an application does not chime with the consumer, then it will be a failure, as there are always likely to be better alternatives available. At least, the upside is that if an application fails, the barriers to entry to creating a new app are not restrictive.
Indeed, the application stores represent a double-edged sword for application developers, in that they control access to the market for good and for bad.
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Responses of device manufacturers At some point in the next two years, sales of smartphones, netbooks and tablets combined will surpass annual sales of desktop PCs this statement will define the cloud focus of device manufacturers from now on. Mobile access devices will need to provide a range of connectivity capabilities, such as 3G, Wi-Fi and 4G, in order to provide the always-on connectivity and bandwidth required by the cloud. At the same time, they will need to provide adequate battery life (with a single charge lasting throughout the waking hours and able to provide moderately heavy usage), sufficient screen size and/or resolution, and easy to use interfaces such as touch-screen navigation and motion sensors.
While much of the processing will be performed within the cloud, access devices still require adequate power to run applications, such as social networking, games, business tools, and video. There is still room for improvement in processors for access devices (low-power consumption, low-heat generation, more performance), but at some point the effect of Moores Law may become a limiting factor.
However, perhaps the biggest unknown is the form factor that future cloud access devices might take. Nokia has already witnessed declining interest in mobile phones, with smartphones and tablets stealing consumer mindshare. The iPhone, arguably, has so far led the way in terms of defining desirable access devices of the future and while the iPad has created a large amount of interest, it is clear that it is not the perfect marriage of portability, functionality and convenience that mainstream consumers will desire; in short, it lacks the pocket-ability factor. Netbooks and tablets will no doubt corner a growing share of the future market for cloud-enabled access devices, but the ability to fit a smartphone into a pocket jeans and suits may give it the upper hand in terms of day-to-day use. Or it may be that consumers require a range of devices, each useful for specific purposes and tasks.
At the same time, devices will need an open and interoperable OS optimized for specific devices. In April 2010, Nokia unveiled the N8, a high-end smartphone running
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the Symbian 3 mobile OS, which provides a new interface encompassing touch-screen functionality, and replaces its aging Symbian S60 OS. However, Nokia has also announced that it has chosen MeeGo, a Linux-based mobile OS as its answer to Apples iOS, and the N8 represents the last of its N-series phones that will run the Symbian OS. One challenge for Nokia has been to drive down the price points of its smartphones, compared to the iPhone for example, and the company hopes that MeeGo will provide the answer.
As is the case with other stakeholders, it is likely that device manufacturers will also need to provide more than one piece of the cloud component, if they are to secure a significant slice of the cloud opportunity. Indeed, Googles Android and its first smartphone offering, Nexus One (manufactured by HTC) not to mention Apples iPhone highlights the fact that other stakeholders are keen to enter the device makers traditional territory in the race for cloud dominance. It nay be that in order to counteract this threat, device makers will need to attack the cloud in the opposite direction, and partner with, or acquire, providers of the cloud components that they currently lack for example, a major cloud gateway or broker, social networking site or premium content provider.
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Conclusions
As discussed throughout this report, there are a handful of players that look set to dominate the cloud for the foreseeable future Google, Microsoft, Apple, and Facebook with a number of stakeholders, such as mobile operators, device manufacturers and others in another layer behind them.
The cloud is set to change the business models of stakeholders throughout the value chain, offering a significant opportunity to all as well as a potential threat. From a macro perspective, there appears to be two simple choices for most, if not all, cloud stakeholders: Acquire, partner and venture with third-parties in order to gain a consumer touch point at every level of the cloud value chain and challenge for dominance; Or become the best of those third parties by providing the dominant players with one or more of those touch points in the cloud value chain.
On a micro-level, however, the cloud offers ample opportunity for myriad content providers, application developers, specialist infrastructure players, device component providers, service specialists, and many other stakeholders to lay claim to a large or small slice of the cloud market.
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Index
3G, 25, 40, 42, 43, 44, 45, 64, 70, 71, 82, 137 4G, 25, 137 Amazon, 33, 90, 102, 110, 111, 112, 131 Android, 48, 49, 89, 93, 103, 109, 127, 129, 131, 135, 138 Apple, 12, 13, 26, 32, 48, 49, 68, 70, 82, 86, 87, 88, 89, 90, 93, 95, 96, 97, 100, 101, 103, 108, 109, 120, 124, 126, 127, 131, 135, 138, 139 application store, 13, 32, 82, 124, 127, 131, 135, 136 AppStore, 32, 68, 70, 82, 135, 136 Asia, 43, 51, 59, 60, 61, 108 HTC, 48, 93, 115, 129, 138 Azure, 90, 91, 102, 103, 126 Bing, 90, 91, 99, 100, 102, 126, 127, 130 Chatter, 49, 104, 105, 106 China, 11, 30, 39, 43, 50, 54, 55, 58, 59, 62, 65, 66, 67, 70, 72, 73, 75, 76, 77, 78, 80, 81, 82, 115 collaboration, 32, 49, 74, 104, 105, 106, 117, 121 comScore, 51 content provider, 33, 125, 133, 134, 139 desktop, 13, 24, 31, 32, 45, 46, 47, 70, 79, 87, 90, 93, 96, 101, 102, 115, 124, 126, 127, 128, 129, 133, 137 device manufacturer, 17, 25, 31, 47, 48, 49, 68, 82, 107, 108, 137, 138, 139 download, 27, 37, 64, 108, 132, 134 email, 36, 64, 68, 80, 81 iOS, 48, 49, 82, 90, 95, 96, 103, 109, 127, 135, 138 iPad, 25, 41, 46, 70, 95, 96, 97, 137 iPhone, 26, 46, 47, 48, 49, 68, 70, 89, 93, 95, 96, 118, 127, 131, 137, 138 iTunes, 26, 90, 95, 96, 101, 120, 127 Japan, 41, 42, 43, 45, 50, 54, 55, 58, 59, 62, 64, 65, 66, 67, 70, 72, 73, 75, 76, 78, 79, 80, 81, 82, 91, 115 MeeGo, 49, 82, 107, 109, 138 Microsoft, ii, 12, 13, 24, 38, 48, 49, 83, 86, 87, 88, 90, 93, 97, 99, 100, 101, 102, 103, 106, 120, 124, 126, 127, 130, 131, 135, 139 mobile applications, 11, 30, 68, 70, 82, 92, 109, 135, 136 mobile internet, 115, 131, 135 mobile operators, 13, 68, 114, 115, 120, 124, 131, 132, 133, 135, 139 enterprise, 12, 19, 38, 48, 49, 50, 53, 59, 62, 82, 86, 87, 92, 101, 102, 103, 104, 105, 106, 109, 112, 126, 129 Facebook, 24, 27, 49, 50, 77, 83, 88, 90, 98, 99, 100, 102, 104, 106, 120, 126, 127, 129, 130, 139 gaming, 11, 30, 34, 37, 39, 40, 64, 68, 72, 73, 82, 99, 121, 127 gateway, 13, 32, 33, 49, 77, 82, 83, 90, 99, 113, 124, 126, 127, 128, 129, 130, 131, 135, 138 Google, 12, 13, 24, 26, 33, 47, 48, 49, 80, 83, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 97, 98, 99, 100, 101, 102, 103, 104, 105, 107, 109, 115, 118, 120, 124, 126, 127, 128, 129, 130, 131, 135, 138, 139
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music, 37, 41, 64, 75, 76, 79, 80, 82, 90, 95, 96, 121, 127, 134 netbook, 90 Nexus One, 89, 93, 129, 138 Nokia, 25, 47, 48, 82, 87, 107, 108, 109, 115, 131, 137, 138 North America, 51 premium content, 13, 124, 125, 132, 133, 138 private cloud, 56 public cloud, 56
SN, 12, 32, 50, 58, 64, 76, 77, 78, 86, 121, 125, 126, 127, 129, 130, 135 social networking, 32, 37, 39, 41, 49, 50, 58, 76, 82, 90, 93, 98, 99, 102, 104, 129, 130, 133, 134, 137, 138 storage and backup, 36, 64, 78, 79, 80 tablet, 90 the UK, ii, 31, 41, 43, 53, 54, 59, 62, 64, 65, 66, 73, 75, 79, 82, 89 the US, 26, 27, 41, 43, 53, 54, 59, 64, 72, 73, 75, 77, 79, 82, 91, 98, 99, 102, 129 VoIP, 36, 39, 40, 64, 73, 74, 75, 82
Salesforce, 49, 104, 105, 106, 118, 135 search engine, 91, 92, 93, 99, 102, 115, 125, 126, 129, 130 smartphone, 32, 70, 71, 93, 103, 107, 109, 127, 129, 137, 138 Western Europe, 51, 54, 55, 59, 60, 62, 65, 66, 67, 70, 72, 73, 75, 76, 77, 78, 79, 80, 81, 82 Wi-Fi, 25, 45, 126, 137 Wi-Max, 25
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Consumers and The Cloud

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TECHNOLOGY

Consumers and the Cloud

Consumer cloud market context

Consumer cloud market opportunity analysis

Consumer cloud competitive situation analysis

Consumer cloud market opportunity analysis

Consumer cloud competitive situation analysis

Consumer cloud market context

Consumer cloud market context

Who is this report for?

Demystifying the cloud

These themes are illustrated below in Figure 1.1.

Consumer cloud information flows

Source: Business Insights

Business Insights Ltd

Issues facing the development of the consumer cloud market

Consumer cloud market opportunity analysis

Consumer cloud market opportunity analysis

Market scope and definition

Figure 2.2: Consumer cloud revenue categories

Period-based service fees

Online virtual goods

Mobile App revenues

Online SN (excl. gaming) Online gaming Paid music content

Source: Business Insights

Business Insights Ltd

Notes on data and sources

Market drivers and enablers

Source: OECD, December 2009

Business Insights Ltd

Figure 2.3: Global 3G subscribers and penetration, 2010-18

40% Penetration (%)

2 30% 1.5 20% 1 10%

0.5 0 2010 2012 2014 2016 2018

Source: Major platforms, comScore

Business Insights Ltd

Table 2.2: Global 3G subscribers and penetration, 2010-18

2012 1.50 27%

2014 1.93 33%

2016 2.35 38%

2018 2.78 43%

CAGR 10.9% 8.3%

Business Insights Ltd

Table 2.3: 3G penetration by country, 2010

Figure 2.4: Access device shipments (units, m), 2010-18

Source: Business Insights

Business Insights Ltd

Table 2.4: Access device shipments (units, m), 2010-18

Source: Business Insights

Business Insights Ltd

0 End 2009 End 2011 End 2013 End 2015

Source: Major platforms, comScore, Business Insights analysis

Business Insights Ltd

Source: Major platforms, comScore, Business Insights analysis

Market sizing and forecasts (2010-18)

Figure 2.6: Global total cloud services revenues ($bn), 2010-18

Source: Analyst consensus, Business Insights analysis

Business Insights Ltd

Table 2.6: Global total cloud services revenues ($bn), 2010-18

Source: Analyst consensus, Business Insights analysis

Business Insights Ltd

US UK Japan Other Western Europe Canada China Korea RoW