Since the beginning of this year, ChatGPT has been on fire, igniting the entire artificial intelligence industry. The development of artificial intelligence, rather than skyscrapers, requires a wealth of data and predictability, so the cloud computing industry is also one of the major beneficiaries.

The Futu app shows that the cloud computing provider tablet index increased by 50% this year to early November, surpassing the average rise of 30% of the Nasdaq index. Among others, Amazon is up 70%, MicroSoft is up 51%, Salesforce is up 60%, Adobe is up 74%.

Since Amazon, one of the pioneers in 2006, began to step foot in the cloud computing industry, the entire cloud computing industry has experienced a long development. Today, cloud computing is being further boosted by the artificial intelligence industry, or new opportunities for development are coming. In this article, we introduce you to an analysis of the overall situation of the cloud computing industry. The analysis framework mainly includes:

1. The development profile of the cloud computing industry

2. Classification of cloud computing industry

3. Investment logic in cloud computing industry

1. The development profile of the cloud computing industry

THE WORD CLOUD COMPUTING HAS HEARD OF TEN PEOPLE WHO INVEST IN IT, BUT THERE MAY BE ONLY ONE WHO CAN CLEARLY STATE ITS SPECIFIC MEANING.

So what exactly is cloud computing? The definition is as follows:

The definition of this term is a bit much, in simple terms, that cloud servers provide a huge pool of computing resources that customers use on demand, pay by usage.

With cloud computing, end users can build their own computing resources without having to buy hardware such as servers, storage devices, but instead buy computing power directly from cloud servers, and almost as much as they need, depending on the needs of their business.

In this way, end users can save on the capital expenditure of self-determination, while avoiding the waste of resources during the off-season and the embarrassment of not being used enough during peak seasons.

As a result, the cloud computing services industry has grown a long way over the past several years, with 90% or more or less of organizations adopting cloud services, according to O-Reilley. According to Garten's data, traditional IT service demand will continue to shift towards the demand for cloud services, with the cloud services market set to surpass traditional markets and dominate global IT spending by 2025.

In terms of market space and acceleration of the industry, according to Statista Market Insights data, the market size of the global cloud computing services industry increased from $135 billion in 2016 to $481.7 billion in 2022, with a compound annual growth of about 23.5% over the period, according to the organization's forecast that the market size of the cloud computing services industry will be Reaching 10,618.5 billion in 2028, the compound growth in the coming years will be about 14.1%.

In terms of industry competition, in the second quarter of 2023, Amazon's AWS accounted for 32% of the market share, ranked number one, Microsoft's Azure market share ranked second, Google Cloud ranked third, and Google Cloud ranked third, according to data from Synergy Research group.

2. Classification of cloud computing industry

The overall market size of the cloud computing services industry is very large and can be further segmented into several segments. We need to learn more about the development and competitive landscape of the different types of segments.

The entire cloud computing industry can be divided into roughly three segments, primarily Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).

Among them, IaaS is the foundation of the entire cloud computing services industry, primarily delivered to users by cloud servers for computing, networking, storage, and other infrastructure resources. Users save capital and make them easy to use on demand by directly renting these infrastructure resources to run operating systems and publish applications.

According to Statista Market Insights, the market size of IaaS in 2022 is about $1,145 billion, an average growth of about 35.9% over the past 6 years, and the agency expects its market size to grow to $3598 billion in 2028, maintaining a growth rate of about 21.0%. Major players in this segment include Amazon, Microsoft, Alibaba, Google, etc., where Amazon has a 40% market share, ranking first, followed by Microsoft with a market share of 21.5%.

PaaS, as the name implies, is a software development and execution platform that runs on top of a cloud infrastructure. PaaS builds an application deployment foundation and integration platform by calling upon the infrastructure resources of the upstream IaaS layer, creating an application deployment foundation and integration platform to provide the downstream SaaS layer with development languages and tools to create easier operations for users and deployed software development environment.

According to Statista Market Insights data, PaaS has averaged about 35.2% over the past 6 years, with a market size of $858.9 billion in 2022, and by 2028, the organization expects its market size to grow to $2441 billion, maintaining a growth rate of about 19.0%. The major players in this segment of the industry are also dominated by giants like Amazon.

SaaS mainly delivers software applications that run on cloud infrastructure that can be used directly without installation. It is mainly used directly in the areas of customer relationship management (CRM), enterprise resource planning (ERP), e-commerce, etc. Users can use it directly with just a subscription, avoiding expensive hardware Cost, software deployment and maintenance are also simpler, and updates are relatively timely.

According to Statista Market Insights, SaaS has averaged growth of about 18.2% over the past 6 years, with a market size of approximately $286.8 billion in 2022, and its market size is expected to grow to 4579.5 billion in 2028, maintaining an increase of about 8.5%. The competitive landscape of this segment is relatively dispersed, with more well-known participants including Salesforce, Microsoft, SAP, etc.

From the segmented market segment of the cloud computing industry, we can see that SaaS is currently the largest market size, IaaS is expected to grow fastest, PaaS market size is the smallest, and the acceleration is in between.

3. Investment logic in cloud computing industry

Overall, the cloud computing services industry is a growing industry. Although the industry's growth rate has gradually slowed as the market size expands, it still maintains a relatively fast growth rate, so an idea that can remain a long-term focus from an investment perspective. In particular, the investment logic and focus of the cloud computing industry need to be viewed from its different categories.

For IaaS, it is at the heart of seeing the resource advantages of the participants. Why?

Because IaaS provides the underlying resources such as computing, storage, and more, and more, the hardware resources required upstream, so the services it provides are essentially highly homogenous, and while the technology may be different, the functionality it ultimately gives is the same.

So in the case of homogeneous competition, who has a low price, who is more likely to pull in orders. And companies with resource advantages are more able to attract customers at almost the price. The more customers, the greater the scale advantage, the lower the cost, the higher the profit margin, and the more potential to acquire customers through price reductions, thus forming a positive cycle of profitability. For example, Amazon's AWS averaged nearly nine price cuts per year between 2011 and 2020.

As a result, companies with IaaS need to focus on their resource advantages. In general, large companies with a larger impact and earlier business start-up have a greater advantage in terms of channel systems, customer accumulation, business collaboration, and more, thus capturing a larger market share. This is also an important reason why the IaaS market is dominated mainly by giants like Amazon, Microsoft, and Ali.

For PaaS companies, it is at the heart of looking at the technical strengths and ecological advantages of the participants. Because the customer facing a PaaS platform is generally an enterprise, there are differences in the software development required for different industries to run the platform, while for different sized enterprises in the same industry, their business usage needs will vary, even for the same enterprise at different times., there may also be changes.

Therefore, in the face of changing user demands, products developed by PaaS companies need to meet high complexity, high performance, and developer-friendly characteristics in order to win over the competition, which undoubtedly requires a very high level of technical capabilities of the company, and without a Kong it is impossible to drill this porcelain alive.

At the same time, in order to reduce costs, PaaS companies also need to build some standardized modules, which need to extract some common needs from a past collaborative ecosystem. Promotional sales of PaaS products are also highly dependent on past collaboration channels and collaborative trust relationships, so as with IaaS, older, technology-intensive, more ecologically well-built giants have a strong advantage in PaaS.

Since IaaS and PaaS are largely the domain of tech giants, the rest of the SaaS segment may be the battleground for most companies in the cloud computing services industry.

Then in companies of the SaaS class, the relatively competitive ones can be those that can bring sufficient customer value, as well as those that are easy to standardize.

First, an application developed by a SaaS company that can be accepted by customers must be economically beneficial for customers, whether it is to be able to increase customer efficiency and increase revenue, or to be able to increase operational efficiency for customers and reduce costs.

Relatively speaking, SaaS applications that help customers increase revenue are quantifiable, with changes in revenue before and after, and very perceptible. And apps that help customers reduce costs may not be as easy to perceive.

As a result, SaaS applications that help customers increase revenue may have higher customer value than SaaS applications that help customers reduce costs and are easier to make big. A more typical representative here is Salesforce, etc.

On top of that, SaaS software that is easy to standardize is relatively easier to do big. In general, tool-class software may often be easy to standardize, such as Adobe, etc. And project implementation-heavy software is often harder to standardize and difficult to scale quickly.

This is because easy to standardize SaaS applications, which are less expensive to implement after development, the cost of 100,000 individual users can cost less than a thousand people, so their revenue growth can significantly exceed the cost growth, and when a certain scale is reached, the profit space is compared Spectacular.

While highly customized SaaS software has relatively high project implementation costs, costs may increase at almost the same rate as revenue, and there is limited space for profit enhancement.

Finally, to summarize,

With the AI boom, the cloud computing industry is one of the main beneficiaries, which has seen impressive growth this year.

The global cloud computing services industry has grown rapidly over the past few years and is expected to reach a market size of trillions of dollars in the coming years.

The cloud computing industry is mainly segmented into IaaS, PaaS, and SaaS, with the largest SaaS market size and IaaS expected to grow the fastest.

In IaaS and PaaS, giants have a greater advantage, while SaaS is an opportunity for more companies to bring more customer value to SaaS applications and applications with a higher degree of standardization may have a competitive advantage.