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International Business Machines Corp.’s (IBM) Cloud Holds Major Potential: Now What?

Here's the strategy IBM will follow to com

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International Business Machines Corp.’s (NYSE:IBM) investor briefing last month reflected its continuing focus on being a cloud-first company. In 2016, cloud revenues grew 35% to $13.7 billion, while the annual exit run rate for cloud-as-a-service revenue increased 53% on a year-over-year basis to $8.6 billion.

International Business Machines Corp.'s (IBM) Cloud Holds Major Potential: Now What?In its latest quarterly earnings report, the tech giant reported cloud segmental revenue growth of 45% from the prior-year period. Additionally, IBM has over 50 cloud centers globally, and its Bluemix platform was one of the largest open public cloud deployments worldwide at the end of 2016.

IBM’s Watson on Cloud is also a key growth driver for the company. The company expects Watson to reach over 1 billion people by the end of 2017, and IBM estimates the market for Watson on Cloud as a decision-making support system to be worth nearly $2 trillion by 2025.

IBM Cloud Computing: Robust Growth Expectations

IBM’s growth expectations from cloud computing remain positive in the long haul. Management anticipates market opportunity in enterprise cloud to be greater than $800 billion by 2020. Moreover, the company expects more than 85% of enterprises to commit to multi-cloud architectures by 2018, which is positive for its hybrid cloud offerings.

The overall growth expectation for the public cloud computing services market is very bullish. According to Gartner, the worldwide public cloud services market was projected to grow 18% through 2016 to $246.8 billion in 2017. This figure will increase to $383.3 billion by 2020.

Infrastructure-as-a-Service (IaaS) is projected to be the highest growth service driven by improvement in platform-as-a-service (PaaS) and massive adoption of artificial intelligence (AI), analytics and the Internet of Things (IoT). IaaS is projected to grow from $25.29 billion in 2016 to $71.55 billion in 2020.

IBM Lags Behind in the Cloud

Despite impressive growth figures and bullish sentiments, IBM lags behind the likes of Amazon.con, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) in the public PaaS and IaaS cloud computing markets.

According to Synergy Research’s latest report, Amazon Web Services (AWS) maintained its dominant position in the market followed by Microsoft’s Azure, Alphabet Inc’s (NASDAQ:GOOGL) Google, and IBM at the end of fourth-quarter 2016.

The research firm noted that these three have gained market share in the last one year at the expense of smaller players, as well as strong growth from both Microsoft and Google.

However, their combined market share of 23% lags compared with Amazon’s 40%.

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