Top Trends in the Global Cloud Economy

We speak with Kent Bennett, Partner at Bessemer Venture Partners, about the current state and top trends of the global cloud economy. Bennett also shares how market and economic conditions are impacting the cloud market, and which companies are standing out this year.  

What was the cloud economy like in 2021 compared to this year? How is it looking in the first half of 2022?

The cloud economy in 2021 and 2022 painted two entirely different pictures. 2021 was one for the record books, with the total public cloud market capitalization reaching a peak at $2.7 trillion, blockbuster tech IPOs in the U.S. yielding $142.4 billion in proceeds and global tech M&A exceeding $1.24 trillion.  

In 2022, things began to shift with rising inflation, climbing interest rates and geopolitical uncertainty contributing to a dramatic market correction. But amid the market chaos, the actual businesses themselves have stayed shockingly healthy.

As investors, we took a deep breath and said, “wow, the markets have taken a total nosedive, and yet the businesses we work with every day are doing really well – what does this say about the cloud?”

So, a big focus of our State of the Cloud report this year has been to reset the way we describe these businesses and focus more on the fundamental metrics, most notably revenue, that we use to measure health, as opposed to valuations, which many of us got distracted by in the past several years as valuations flew high.

What are some of the top trends shaping the global cloud economy? 

The global cloud economy is constantly shifting gears. This year, we found three key trends that are reducing the friction in accessing cloud services: 

1. Sensitive data on the cloud: There’s an increase in cloud early adopters moving sensitive data like security logs and financial records to the cloud. This would have been nearly unthinkable a decade ago.
2.  Virtual private clouds: Packaging SaaS products and deploying them inside a customer’s virtual private cloud (VPC) has become much easier, due in part to the standardization around Kubernetes as the operating system of the cloud. This makes it easier for SaaS companies to serve a wider range of customers that may prefer to keep certain sensitive data or applications in a VPC.
3. Middleware building bridges: Middleware platforms are making it easier to bring the power of the cloud to data, wherever it may be. Industries such as financial services have experienced a wave of modern fintech infrastructure to help build bridges between the cloud and legacy banking systems. Similar bridging systems are also emerging in other industries like supply chains, logistics, and healthcare.

Ultimately, these three trends help to further break down barriers to entry and increases the use cases that the cloud can impact, as the cloud continues to consume all of enterprise IT. 

We’ve also found that cloud marketplaces are emerging naturally for SaaS buyers and sellers to transact, regardless of the purchase size. These platforms provide value to both buyers who want to consolidate spend with their cloud providers and gain economies of scale, and SaaS sellers who want to streamline the procurement process and access larger budgets. 

In 2021, we saw marketplace transactions grow an estimated 70% to $4 billion, which is three times faster growth than the public cloud at large.  

How are the current market and economic conditions impacting the space?

While the current market and economic conditions create hurdles for the cloud market, they simultaneously present ripe opportunities for software as it aims to play a pivotal role in closing the gap of global productivity. The valuation reset has undoubtedly affected every company in the SaaS Index, but ultimately creates opportunities for the cloud to have an impact on the macro picture.  

When we look at the effects of the COVID-19 pandemic, we notice the unprecedented turnover in the U.S. labor market and incredible labor shortages, which carry over to the cloud industry. While the supply of labor is one factor, the supply of everything from microchips to imported goods, oil, and more is also in question. 

Obvious opportunities that arose for the cloud to have an impact on the macro picture span the global supply chain, creator platforms, healthcare platforms and work automation leaders. Productivity and collaboration tools across all industries assist in creation and personalization to optimize product and go-to-market teams, respectively. Cloud players such as Flexport, Cargo.One and Optimal Dynamics play a role in making global trade and commerce trackable and efficient across land, air and sea.

With volatility likely to continue in at least the public markets, we expect the VC and founder community will begin to turn their attention back to SaaS fundamentals. Software is an integral part of business and the way people operate, especially in the hybrid world we’re in now. The Great Resignation isn’t just a phase, but a signal for what’s to come. The continued evolution of how we work and define productivity will depend on software to thrive. 

What are some cloud companies that stand out this year? Why? 

There’s no shortage of excellent cloud companies, but a few themes stood out to us clearly this year, including companies that:

• Are embedding a broader suite of services into their products (card issuing, banking, insurance, logistics): Stripe, Melio, Lithic, Marqeta, Gusto and Check.
• Have leaned into indirect monetization, which we predict will have a high chance of becoming table stakes for SaaS businesses: Brex, Wrapbook, Miter, Lasso, Ramp and Gloss Genius.
• Will help close the gap in global productivity: Syndio, Guild, Notion, Demostack, Patreon, Substack, Zapier, Jasper and Shippo.
• Have surpassed $100 million ARR: Pendo, Miro, Databricks, Intercom, Canva, UiPath and Vtex, among others.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week. 

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

Other Topics

Companies Economy Markets