Gartner’s Cloud Computing Outlook Is Still Misleading

Lydia Leong

Gartner’s Lydia Leong decided it might be a good idea to explain on her blog, CloudPundit, why the analyst firm included advertising in their questionable $46 billion estimate of the cloud computing market. A market they see growing to $150 billion by 2013.

The explanation answered a few questions. But, still, the numbers don’t add up.

The revelation about Gartner’s estimate surfaced last week when John Treadway of CloudBzz wrote a post about a Gartner analyst who said that about half of the $46 billion comes from spending on Google AdWords. Treadway followed up yesterday after Leong responded with her justification for including advertising in the estimate. Following Treadway’s initial story, we followed up with our own post about the troubles with Gartner’s numbers.

In her CloudPundit post, Leong writes:

Obviously, one argue whether or not it’s valid to include advertising revenue, but a key point that should not be missed is that in the trend towards the consumerization of IT, it is the advertiser that often implicitly pays for the consumer’s use of an IT service, rather than the consumer himself. Advertising revenue is a significant component of the overall market, part of the “cloud” phenomenon even if you don’t necessarily think of it as “computing”.

This is hardly a justification for including advertising in the estimate. As Treadway points out, the press release for the study says nothing about the “consumerization” of IT services. Is this addressed in the report? We have no way of knowing. The report is not available unless purchased. We agree with Treadway. With such a controversial finding, Gartner should be more detailed in its explanations.

Leong goes on to day that she realizes the numbers may be confusing:

Because we offer highly granular breakouts within the forecast, those who are looking for specific details or who wish to classify the market in a particular way should be able to do so. If you want to define cloud computing as just typical notions of PaaS plus IaaS, for instance, you can probably simply take our platform, compute, and storage line-items and add them together.

Is it confusing to see the giant number with advertising included? It can be. I often start off descriptions of our forecast with, “This is a huge number, but you should note that a substantial percentage of these revenues are derived from online advertising.” and then drill down into a forecast for a particular segment or subsegment of audience interest.

Advertising Only Remotely Touches IT

Online advertising may pay for some IT services but on the whole it’s quite a stretch to include in a report that clients will depend on to make decisions about their cloud computing strategy.

Treadway writes:

However, most of Google’s, Yahoo’s and Microsoft’s ad revenue comes through either their home page search or through Adsense or other types of placement on millions of web sites – most of which provide no IT-related service. Also, auction-based pricing for advertising (e.g. AdWords) is not nearly all online advertising. Much is CPM-based and these types of ads are also used to support Web sites with IT services being supported. In fact, selling ads on a CPM basis is typically far more profitable for the service provider than AdWords. If you’ve seen the ad business lately, you’d know that it is virtually impossible for most businesses to live on ad revenues and provide a reliable and valuable service. Most cloud services will be paid for through any of a number of pricing models, but advertising won’t be a significant percentage.

It gets worse when you start to look further at what else Gartner includes in its forecast.

From CloudBzz:

By lumping advertising, e-commerce, payments and online HR services into your definition of cloud computing, Gartner dilutes the term into a state of total irrelevancy. What you really seem to mean when you say this is cloud = every internet-delivered service that remotely touches corporate IT

Let’s Make Some Soup

What Gartner does is add a level of vagueness to a concept that is already confusing for many people. Their definition is too broad, We prefer what the U.S. Government is proposing. It sets clear boundaries. Under the federal guidelines definition, Gartner would be hard pressed to calculate the size of the cloud computing market at $46 billion.

Gartner is not the only one flying loose with definitions. McKinsey & Co. used its own definitions to pretty much debunk cloud computing as a viable option for large corporations.

We see analyst firms as an important community but their credibility is shaken by using cloud computing as a springboard to craft agendas that are questionable for who they serve.

In conclusion, one more point from Treadway that sums up the concern about Gartner’s estimate:

Gartner holds itself out to be the premier IT analyst firm. Providing forecasts that can be used for practical purposes, and that enlighten instead of confuse, ought to be their standard.

Exactly.

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One Response to Gartner’s Cloud Computing Outlook Is Still Misleading

  1. Hawk
    Rob May 13, 2009 at 6:26 am #

    Transactional Content has always been the arbiter of where the analysts would focus when looking for a true metric to tell us where the Internet was going and where the money was landing. The cloud, as a metaphor, is misleading. A dozen years ago, the whole thing was up in clouds. If you’re running a newspaper, asking for a bailout, and blaming Craigslist.org, things couldn’t get any murkier. But if you’re a smart small business person, and there is a huge underbelly of them, you can live on google ads, double-opt-in email lists and well-aged newsletter sponsorships and probably stay off everyone’s radar. While many big names get swallowed up, the cloud has been a bounty for creative folks who have built a small business and don’t own a server.

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