This is the first post in what will be a recurring monthly series on technology and digital transformation. It is also the introduction to a larger set of monthly columns published by G2's Market Research team.
The history of cloud computing is much longer than many realize.
Of course, the names and technical details have changed, but the roots of providing access to software over a network go back to the service bureaus of the 1960s and 1970s. In the mid-1990s that model evolved into application service providers (ASP). I worked for an ASP startup in 1999–2000 that was essentially a multi-tenant SaaS platform.
Today, we have nearly all technology available as a public service consumable across the internet. However, availability does not mean that all companies are using public cloud solutions. Most companies, even small businesses, are some blended mix of public cloud, private cloud, outsourced (business process as a service) and on-premises; this is commonly referred to as a hybrid IT environment.
Cloud adoption and digital transformation
Digital transformation—the hotly debated topic for the past decade—is related to cloud adoption. Cloud is, at the very least, an enabler for companies to incorporate digitally defined business processes across all business functions. Public cloud is not the only way to transform a business, although I personally believe the benefits often far outweigh the disadvantages. Is public cloud better than private or private hosted, or private managed cloud (I think I caught all the names used, but honestly it changes so often, I'm not sure)? Let’s hold off on that argument for another day, even though you probably guessed I have some bias for public cloud.
The reality today is that most businesses are hybrid and will stay that way for some time. A big part of transforming involves choosing (and using) one or more cloud platforms, PaaS and IaaS, from companies like AWS, Google, Salesforce, Oracle, Microsoft, and others. The PaaS gives companies the ability to enable hybrid environments while digitizing more of the business through custom cloud apps, particularly to meet unique industry vertical and business model-driven processes.
Salesforce, the longtime cloud evangelist, tipped its hat at hybrid over the past year by acquiring Mulesoft and Tableau. Some people believe this signals that Salesforce must create hybrid offerings to maintain growth; I think that misses the mark. If you think of a hybrid world, the most necessary things to keep the model working are integration across on-premises (legacy applications) and cloud solutions (Mulesoft), and the ability to find insights and opportunities across many data silos (Tableau).
Measuring digital transformation
Enough about that; it’s only an illustration of the hybrid point. The real topic for today is what is the current state of digital transformation—or at least how could we assess the progress businesses are making in transforming their operations?
I haven’t spent a lot of time in this post supporting this argument, but let’s assume for a moment that PaaS/IaaS adoption are critical for digital transformation efforts. Therefore, adoption rates could be reasonable indicators of the progress companies are making with digital transformation. I’d also posit that another indicator could be the adoption of public cloud solutions, particularly in key business systems such as ERP, accounting, CRM, marketing automation, SCM, HCM, project management, and BI analytics.
With that in mind, let’s look at some G2 data from two angles: review growth over time and deployment type (cloud, hybrid and on-premises) of replacement solutions.
Users purchased growth: all categories
From 2017 to the end of Aug. 2019, you can compare raw numbers as well as the overall trend below.
During that period of time, growth was:
It’s probably not a surprise to anyone that cloud outpaced the other two, but the growth of hybrid was about 1.6 times that of on-premises and, although smaller in absolute deployments, closer to cloud growth than many would guess.
Total category review growth
The next data point is PaaS/IaaS growth. Over the same period, the reviews for these categories grew 221%. Review growth doesn’t necessarily equal market growth, but it is a good proxy for growth, particularly in highly reviewed and fast-growing categories.
Here is the review growth for the same period for all software categories across the G2 marketplace:
And the growth percentage comparison:
Again, cloud is dramatically larger in absolute numbers, but the growth is consistent across the three deployment types. In the context of digital transformation, this may not be the most useful comparison. Aggregating all solutions across the site means including systems that can only be deployed in a single model, that are so diverse that companies may have multiple tools in mixed deployment models, and include many solutions that are not really core to operating the business.
Core business systems review growth
Focusing on core business systems categories, I believe, is a better indication of business transformation. Here’s the same review growth data for the ERP, accounting, CRM, marketing automation, SCM, HCM, project management and BI analytics categories.
Or in growth percentage:
This is a good comparison of growth overall and does seem to indicate that more businesses are moving to cloud or hybrid solutions. But the other question this brings up is related to share of the total. Are cloud or hybrid deployments eroding the on-premises deployments over time? This could indicate momentum and expansion of digital transformation. For the core categories:
The change is less dramatic than I had hoped, even though it does show both cloud and hybrid increasing in share and on-premises declining. Looking at the data from deployment type of replacement solutions shows a slightly more accelerated shift:
This shows cloud deployments eroding both other models. To me, that seems more consistent with the fact that more solutions are available cloud only, especially modern solutions, and businesses seem to prefer cloud deployment.
A few other points about this data. The deployment type is based on whether the product can be deployed in cloud only, hybrid (cloud or on-premises) and on-premises only. Because it is at the product level, this doesn’t measure whether the business is operating in cloud only, hybrid, or on-premises only. It is consistent with the concept that a large number of companies are operating in hybrid and will likely continue to do so for quite a while. However, it does seem that there is a very slow shift away from hybrid, too.
Cloud adoption insights: Where do we go from here?
What conclusions can we infer from this data?
Digital transformation is progressing but at a very slow pace.
Companies continue to operate in a hybrid IT model and will likely do so for the foreseeable future.
The number of cloud-only solutions continues to increase.
The number of on-premises deployments is decreasing.
Cloud-only solutions far outnumber the other two models and have continued to expand.
This aggregated data represents all three market size segments: small business, mid-size businesses, and enterprise (our data tends to roughly represent the segments evenly, with the small segment a few points ahead of the other two). In a future column I’ll break this out by size segment to see if there are significant differences.
Michael is an experienced technology executive with a diverse software background that includes experience as a software company executive and leading a premier marketing research team. Michael is a published author, blogger, photographer, and accomplished public speaker on emerging trends in business software, digital transformation, and customer experience strategies.