Gartner Hypes Cloud Computing With Some Sketchy Predictions

I read through the McKinsey & Co. report today on cloud computing. The one that caused a bit of a fracas a few weeks ago when they kind of rained on the parade about cloud computing. Hype is a big concern for McKinsey as they recognize how it can damage the overall market. I still think that McKinsey is a bit curmudgeonly but their views sure don’t seem so stuffy now that I have learned how Gartner is coming up with its numbers.

Gartner says the size of the 2008 cloud computing market stood at $42  $46 billion and will jump to $115  $150 billion by 2013.

How does Gartner come at these numbers? That’s the question John Treadway from Cloud Bzz asked at the Gartner Outsourcing and Vendor Management Summit in Las Vegas this week.

He learned that Gartner counts Google AdWords in its totals. Huh?

From Cloud Bzz:

I spoke with Gartner analyst Ben Pring (leading a session on Cloud), and he indicated that about half of that number is spending on Google AdWords. Say what??? That’s right, the people at Gartner consider media buying for Google AdWords a “business process” that is cloud-based. They also include ADP’s hosted payroll service and any ASP-delivered or SaaS offerings.

According to Treadway, Pring could not really justify how Google AdWords has anything to do with IT. That’s because there is no correlation at all.

As Treadway explains, the largest companies in the world buy Google keywords through agencies. They may use some online tools but for the mot part the work is outsourced.

How can Gartner expect to maintain credibility in the IT community with such predictions?

As Treadway writes:

The SaaS market he quoted at about $5b or so. If you add in all of the pure-play cloud stuff and PaaS vendors like Salesforce and Intut (QuickBase), you might be able to get to $10b. $42b is just a ridiculous number and will confuse the heck out of enterprise IT buyers.

Back to the McKinsey report…I am now not so skeptical of the consulting firm’s conclusions about how the hype can be so dangerous and the comparisons they make to the dot-com bubble.

From McKinsey:

The 2000 dot-com bubble provides an extreme example of the dangers of investing in hype…
* Huge investments were made based largely on hype
* Eventually, the inability to generate profits led to the collapse of most of the boom-time dot-coms
* From peak to trough, the NASDAQ-composite lost ~ 80% of it’s value

McKinsey caught a lot of criticism for its report. Gartner should get some criticism, too, for how it comes to its predictions for the cloud computing market.

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5 Responses to Gartner Hypes Cloud Computing With Some Sketchy Predictions

  1. Hawk
    robert May 7, 2009 at 2:36 pm #

    If you include adwords by Google, why not include all online advertising? The fast money is on the cloud as all small business will figure out soon enough that they simply cannot afford IT. Once they latch on to other services, such as The Online 401(k)™ and most other online service apps, the facts will change the way everyone looks at it. Those who think they can avoid it, will be left out in the rain.

  2. Lydia Leong May 11, 2009 at 2:26 pm #

    I’m one of the authors of Gartner’s forecast. The forecast is divided into a lot of segments (which are in turn divided into a bunch of subsegments). Advertising is only one subsegment. We’re not arbitrarily throwing huge numbers against the wall; every subsegment is its own individual forecast, all added up to get the eventual giant number. But you can get granular detail if you want it, and thus subtract out advertising if you don’t think it fits in your market definition of the cloud.

    More details on my blog.

  3. John Treadway May 11, 2009 at 7:08 pm #

    I don’t have access to the Gartner report, but have traded emails with Ms. Leong (who’s blog on cloud computing is generally quite good).

    I still don’t buy it. See more info here.

  4. Alex Williams May 11, 2009 at 9:19 pm #

    Lydia – How do you respond to John? He lays it out pretty clearly in his blog post. Are you willing to provide copies of the report so there is some better transparency? It’s still very unclear how you justify advertising offsetting IT services. Even with the little view we have, the numbers don’t compute.

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