Report: Cloud Services Hurdled Infrastucture In Annual Sales In 2016

(NOTE: This story was originally posted to Jan. 4.)

Cloud services generated more sales last year than cloud infrastructure, driven by spectacular growth from the lower layers of the cloud stack, according to a Synergy Research Group report released this week.

Overall revenues across the six major cloud services and infrastructure segments evaluated by Synergy hit $148 billion in the four fiscal quarters ending in September, up 25 percent from $110 billion in the same period of 2015.

Software-as-a-Service still accounted for the largest services market, delivering more than $40 billion in revenue between Q4 2015 and Q3 2016, even when excluding search, social networking, email and e-commerce offerings. But the Infrastructure-as-a-Service and Platform-as-a-Service layers expanded far faster as enterprise customers looked to differentiate their digital businesses with custom applications.

[Related: Behind The Numbers: Synergy Research Breaks Down $110B Cloud Market]

IaaS and PaaS products generated almost $30 billion in revenue, notching 53 percent annual growth, led by leaders Amazon Web Services and Microsoft Azure.

Microsoft, then Salesforce, led the enterprise SaaS market which grew by 34 percent over the previous year.

While SaaS generated some $10 billion more in total revenue over those four quarters than IaaS and PaaS, the lower layers of the cloud gained steam faster. Those sectors were more popular because they make it possible for businesses to gain competitive advantages, said Jason Noble, vice president of the digital innovation group at Neudesic, a professional services partner of several major cloud providers based in Irvine, Calif.

"That's why you see firms more interested in doing something custom that's really a differentiator," Noble told CRN. "In a digital revolution, they have to create their own platforms."

Neudesic still sees the majority of revenue from reselling IaaS as customers are "basically just moving their data center," Noble said. But the channel should be most excited by PaaS offerings, where customers are increasingly shifting spending as they look to modernize their apps.

"Everything we do now in terms of architecture is PaaS based," Noble said of Neudesic. "Very rarely are we talking about instances or VMs" when developing new software.

Hosted private clouds also grew at a brisk pace of 35 percent over the last four quarters, delivering roughly $8 billion in revenue, according to Synergy. That segment is led by IBM, followed by Rackspace.