Why This Is the Most Important New Technology in Decades

These rows of servers are set up to minimize the energy required to keep the data center running.
Martin Schoeller For TIME These rows of servers are set up to minimize the energy required to keep the data center running.

Long talked about, finally a big deal

The cloud, we keep hearing, is coming. But if you’re in the enterprise tech market, you might be forgiven for wondering when this mythical cloud is finally going to materialize.

The answer seems to be: right now. 2015 is, by all appearances, the year that the enterprise cloud is turning into a huge market. It’s not just that more and more parsimonious corporate IT managers are finally devoting more of their budgets to the cloud-computing model, it’s rather that the companies that have long postured themselves as players in the enterprise cloud market can finally lay claim to real revenue.

The cloud market has long been more than a little problematic for companies large and small. After Salesforce.com went public in 2004, most found the idea intriguing, but risky: business software that was shrinkwrapped to be installed–and maintained, and upgraded–another company’s systems. Only seamlessly, simply and, most of all, cheaply handled on the cloud.

For years, a lot of companies tentatively tried out the cloud offerings of salesforce and, later, Microsoft, Workday, IBM and others. But the real shift came after Amazon began offering Web Services to startups, giving them a reliable, highly cost-effective access to a public datacenter that individual companies had trouble matching, no matter how big those individual companies were.

Beyond Amazon’s customers, most larger companies have long held serious reservations about the cloud: Why host precious data on a company that shares its servers with so many other companies? How can these cloud companies take security seriously? And how does the legacy software installed years ago at great cost interact with these new cloud models?

A few things have happened to change that thinking. The so-called consumer cloud market was one. What is the consumer cloud market? It’s anything you used to keep on your hard drive that now you draw from a far-flung server: Life memories you uploaded onto YouTube, Spotify subscriptions you listen to instead of those dusty CDs on your shelves, Instagram memories you post instead of those unseen slideshow carousels.

Companies came to see that tens of millions of consumers weren’t wrong. They saw that the lower costs that come when a reliable utility can offer economies of scale. But they also saw that not having to build and host a platform for their code speeded time to market for their software. Cloud companies began to offer “hybrid” models allowing clients to put sensitive data on their own in-house clouds and the rest on public clouds. Most of all – and most counterintuitively – they saw that the cloud just might be safer than their own servers from hackers.

Sony, Target, Home Depot – the biggest victims of corporate hacking that have made headlines over the past year involved companies that thought they could do it themselves, not those that offered to handle data from others. As Microsoft alum and Andreeson Horowitz partner said, “If you use cloud services rather than local storage for documents, not only do you gain many features, but you gain a level of security you otherwise lack.”

Companies that have were tentative about cloud computing are now ready to commit a bit more. That may not sound like much, but it’s translating into huge waves in the cloud market. How huge? More than three quarters of the workflows handled by corporate computers will be processed by cloud data centers by 2018, a survey by Cisco showed.

And according to Forrester, enterprise software will spend $87 billion on software as a service this year – or 15% of the total spending – and rise to $106 billion next year. A recent report from Goldman Sachs estimated that other cloud models like infrastructure as a service and platforms as a service will go from 5% of corporate IT spending last year to 11% in 2018.

To make sense of these various data points, it’s helpful to remember there isn’t one mega-cloud. When companies talk about the enterprise cloud, it usually talking about a number of possible things: It could be the infrastructure of servers and storage needed to run a data center, such as Amazon Web Services. This market is called infrastructure as a service, or IaaS.

The cloud could mean the platform of the middleware program that allows others to plug in their own code, like Microsoft’s Azure, known as platform as a service, or PaaS. It could be a software program running remotely in a data center that users tap into on-demand, like Google Apps. This is the lion’s share of the cloud market, called software as a service, or Saas. (A great explainer of the cloud market is in this wonderful analogy to pizza).

Also, a company can build a private cloud on its own premises, or ask another company to build and host their private cloud, where they can use a public cloud like AWS that share resources with others. All of these models are embraced by the enterprise cloud. What they all have in common is that they are increasingly sought after by more more companies this year.

Nothing brings this point home more than the last round of tech earnings. Amazon’s IaaS business has grown but reportedly at a loss. Instead, Amazon said the $5 billion business had a 17% operating profit margin. Microsoft saw its stock surge after it said its commercial cloud business had doubled over last year and would reach $20 billion in three years. IBM also bucked the tech-earnings slump by arguing it can transition to a cloud-based business. Reports that salesforce.com is being courted by bigger software companies only underscores the desire for companies to move into the cloud model.

So forget the talk that the cloud is coming. For companies and consumers alike, it’s here. Be careful that there’s still a lot of confusion over what the cloud means. Increasingly, though, it’s becoming a more clearly defined business, and the companies that are taking advantage of that are starting to be noticed by investors.

Tap to read full story

Your browser is out of date. Please update your browser at http://update.microsoft.com