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Cloud software heading for end of decade dominance

IDC is forecasting significant growth in cloud software expecting it to grow at a much quicker rate than traditional on-premise alternatives

The cloud still has some way to go before it is ubiquitous but it is heading in that direction and those selling software need to be aware their traditional products are not going to be providing the growth of hosted alternatives.

A world where cloud based software is growing at three times the rate of traditional products is one that IDC believes is going to happen over the next five years.

"Cloud software will significantly outpace traditional software product delivery over the next five years, growing nearly three times faster than the software market as a whole and becoming the significant growth driver to all functional software markets," said Benjamin McGrath, senior research analyst, SaaS and Business Models at IDC.

"By 2020, about half of all new business software purchases will be of service-enabled software, and cloud software will constitute more than a quarter of all software sold," he added.

IDC's cloud numbers

The analyst house is expecting worldwide revenues from public cloud services will hot $195bn by 2020. To put that in perspective the forecast for this year is $96.5bn. The growth will come from an annual compound growth rate of 20.4% between 2015-20.

IDC breaks down cloud software into three areas - applications, system infrastructure and platform as a service. The growth over the next four years is expected to come from infrastructure and platform as a service, with SaaS lagging behind those two areas, although revenues will rise across the board.

When it comes to following the money the analyst house identified discrete manufacturing, banking and professional services as the verticals that have been spending most on public cloud services. In the future revenue will also come from media, telecoms and retail.

"Cloud computing is breaking down traditional technology barriers as line of business leaders and their IT organizations rely on cloud to flexibly deliver IT resources at the lower cost and faster speed that businesses require. Organizations across all industries are now free to adapt to market changes quicker and take more risks, as they are no longer bound by legacy IT constraints," said Eileen Smith, program director, customer insights and analysis at IDC.

Although the US will be the largest market for public cloud services, generating almost two thirds of worldwide revenues, Western Europe is expected to see significant revenue growth in the next few years up to 2020, at more than 100%.

Read more on Software-as-a-Service (SaaS) Applications