OpenStack continues to grow since the project’s establishment more than five years ago. The open source platform, intended to build and operate private and public cloud environments, has gained a great deal of interest from hardware and software vendors, service providers, enterprises and the investment community. While the open source cloud project is not without its shortcomings, it has become a top priority and credible cloud option for many IT professionals and suppliers, based on our research. What was initially an $850m market in 2014 will be nearly three times that by 2017, according to our estimates.
OpenStack business models are developing
Although we do consider some vendors with integrated hardware, systems and software offerings based on OpenStack, our market-sizing estimate does not include hardware-centric revenue, nor does it include revenue from indirect third-party vendors, such as those in storage or SDN. OpenStack markets are growing significantly around the globe, with vendors and activity in other geographies (particularly APAC) that are now included in our current market-sizing estimates and will be further refined in the future.
Service providers
Service providers – companies that host private and public cloud platforms based fully or in part on the OpenStack architecture and its APIs – comprise the majority of OpenStack revenue. For this group, we expect $1.3bn in 2016, and $1.8bn in 2017. Public cloud revenue comprises 63% of the overall service-provider revenue, but the private cloud is growing at a faster CAGR. We expect higher growth from private-cloud customers, which tend to be larger companies and larger accounts; whereas public-cloud customers are usually driven by volume at a lower price point.
OpenStack-based service providers will outgrow the overall IaaS service-provider market CAGR through 2019 – 37% versus 24%. The top five vendors in terms of revenue (Rackspace, OVH, IBM, HP, KIO Networks) currently represent 92% of the overall service-provider revenue, with Rackspace leading the pack by a wide margin. By 2019, this group is expected to represent 88% of the service-provider market, as the overall market grows and the long tail of smaller players and new entrants gain traction. Notably, HP recently exited the public-cloud market, a move that does not impact our overall outlook.
Products, distributions and management services
The OpenStack product, distribution and management services model includes distribution, IT services and training services. Overall revenue is expected to be $398m in 2016, with $571m projected by 2017. This is the fastest-growing segment. Distribution revenue includes the cost of any licensing and the associated support costs. Usually, an OpenStack distro is ‘free,’ and the customer only pays for support. Vendors with a distribution offering coupled with managed services are included in this segment.
IT services includes helping with initial consulting, configuration and installation of an OpenStack-based private cloud or public cloud, as well as any ongoing management of the environment. This is separate from the support given to a distribution user. Training represents the payments received from students attending a formal OpenStack-related training class and certification exam fees. The implied value of free classes/training provided to clients is not included.
We continue to see enterprise and service-provider demand, given the complexity of OpenStack deployment and general lack of experience and expertise with it. In part, the enterprises previously engaged with DIY OpenStack POCs are increasingly turning to distribution providers for support services, indemnity and SLAs as additional workloads migrate to OpenStack environments.
Training is a strategic growth area for many companies because it not only brings overall interest to OpenStack, but also creates brand recognition and vendor allegiance from the developers attending. Mirantis claims to be training thousands every quarter, and it doubled training revenue year-over-year. Red Hat claims growth in training; it also offers an OpenStack certification program. Its certified systems-administrator designation requires successful completion of a hands-on practical exam that tests the ability to install, configure and manage OpenStack.
Rackspace and Intel recently formed a partnership to seed OpenStack development and allow enterprises to send developers to Rackspace’s headquarters for training. We project OpenStack training revenue to grow at a 68% CAGR through 2019. Of note, the OpenStack Foundation formalized an OpenStack certification curriculum that will standardize the training requirements needed for OpenStack engineers going forward.
Cloud management
Cloud management represents OpenStack with other clouds, whereby vendors support OpenStack alongside other options, primarily AWS, and it includes Dell Cloud Manager, Nimbula (Oracle), RightScale, Scalr, StackStorm, Talligent and VMware. Coming in at $73m in aggregate by our 2017 estimates, this group represents the smallest piece of the overall pie. However, as enterprises embrace hybrid clouds and leverage the best execution venue for specific use cases, these vendors will likely be well positioned to help enterprises and SMBs make those decisions.
The pressure on enterprise organizations to more quickly iterate and deploy software and services is forcing a dramatic change in approach, in both process and technology – which opens the door for OpenStack. Organizations seeking continuous integration and continuous deployment processes (widely known as devops) view OpenStack as a strong candidate and ecosystem to support it.
Market evolution
Given the relative immaturity of the OpenStack technology and ecosystem, as well as the limited disclosed use cases and vendor reports of revenue from the project, our market sizing of OpenStack represents an ongoing study. As a result, we may break out different subsectors in future analysis, and plan to continue our assessment of the OpenStack market size. For example, turnkey hardware/software solutions that were custom-built for OpenStack, as well as software products that focus on one specific project, are evolving. As such, these business models may warrant more detailed revenue analysis as growth continues.
