Cloud Computing's Trillion-Dollar Potential

Cloud computing companies not only weathered the storm of the pandemic, they thrived. But even with those gains, the industry is still just scratching the surface of its potential.

A new report from McKinsey Digital, which looks at cost-optimization and business use-cases, says there is $1 trillion in run-rate EBITDA up for grabs for Fortune 500 companies in 2030. And the companies that most aggressively pursue cloud opportunities could grab the lion’s share of that value.

The sector has seen its value soar in the past eight years. Since 2013, cloud companies on the Nasdaq index have seen their value increase 261%, according to the Bessemer Venture Partners Emerging Cloud Index, a stock index designed to track the performance of emerging public companies primarily involved in providing cloud software to their customers. Those companies currently have a market capitalization of $2 trillion.

Cloud growth rates and access to capital are at all-time highs, says Bessemer, with an average growth of 80% YoY, among companies it follows. Over the past year, the top five public cloud companies — Paypal, Adobe, Salesforce, Shopify and Zoom – saw a 70% increase in their total market cap. Collectively, the five are already worth more than $1 trillion.

And the bullishness on the future financial potential of cloud computing is widespread. IDC, last fall, estimated worldwide spending on cloud services, and opportunities around those services, would top $1 trillion by 2024.

"Cloud in all its permutations – hardware/software/services/as a service as well as public/private/hybrid/multi/edge – will play ever greater, and even dominant, roles across the IT industry for the foreseeable future," said Richard L. Villars, group vice president of worldwide research at IDC. "By the end of 2021, based on lessons learned in the pandemic, most enterprises will put a mechanism in place to accelerate their shift to cloud-centric digital infrastructure and application services twice as fast as before the pandemic."

Cloud technology, for many people, brings to mind things like smartphone or PC backup tools, online services or streaming media – the most frequently touted use-cases. But it has some much more direct real-world uses – perhaps most importantly, its recent contributions to COVID-19 vaccines.

Moderna built its mRNA research platform on Amazon’s cloud service to accelerate discovery and development – and when COVID hit, this helped the company deliver its first clinical batch of a vaccine candidate within 42 days of the sequencing of the virus. Scientists were able to integrate insights for a number of experiments, which were all running in parallel, to refine and streamline the production cycle.

And the cloud is also playing a key role in the company’s research into treatments for rare diseases and cancer. The company has over one dozen drug candidates in the pipeline, with seven going through trial studies.

“For CEOs, cloud adoption is not just an engine for revenue growth and efficiency,” McKinsey notes. “Its speed, scale, innovation, and productivity benefits are essential to the pursuit of broader digital business opportunities, now and well into the future. Yet an overly narrow view of cloud-value economics and where value exists often keeps companies from achieving the desired outcomes.”

The potential financial gains in cloud technology are universal, says McKinsey, but some industries are better positioned than others. High tech, oil and gas, retail, healthcare systems and services, insurance, and banking are best positioned to generate value, with EBITDA impacts of up to $160 billion per company.

In each of those fields, the cloud can unlock value via technology use cases, ranging from inventory optimization at retailers to automated supply-and-demand forecasting for oil and gas companies to customer call optimization for banks, directing distressed customers to more experienced representatives.

Achieving those gains will take more than simply transferring an operation or two to the cloud, though. Companies will need to learn how to utilize the technology’s full value and build their milestones around a life cycle, which will accelerate product development.

“Organizations that simply ‘lift and shift’ applications to cloud with no change to architecture miss out on key benefits, such as autoscaling and automated performance management,” the McKinsey report said.

The pandemic, of course, has been a big accelerant for cloud adoption. As companies have shifted to a telecommuting norm, they’ve increasingly relied on cloud services to help them run parts of their businesses. And stepping back from that is unlikely.

“Cloud’s acceleration is permanent and COVID-19 more than doubled the rate of digital transformation across different vertical industries, impacting people’s everyday lives,” said Bessemer. “Within the next three years, we expect the cloud will become the dominant delivery model for all software, as we embody a cloud-first world.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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