The usage of cloud computing in Germany has tripled since 2011 (28%) and especially moreover since 2016. The increase is attributed to both private and public cloud.

In 2017 alone, more than 54% of the companies were identified using cloud computing whereas, the percentage rose to 64% in 2018. Further, two out of three companies of every size were found using cloud computing

• Definition / Scope
• Market Overview
• Top Market Opportunities
• Market Trends
• Technology Trends
• Regulatory Trends
• Other Key Market Trends
• Market Size and Forecast
• Market Outlook
• Technology Roadmap
• Distribution Chain Analysis
• Competitive Landscape
• Key Market Players
• Strategic Conclusion
• Further Reading
• Appendix

Definition / Scope

In General terms, cloud computing means storing and accessing data and programs over Internet instead of a computer’s hard drive. With an online connection, cloud computing can be done anywhere and anytime.

Some of the common types of cloud deployment are as follows:

• Private: In private cloud, a client or its vendor manages cloud infrastructure and provides technical resources to clients’ users
• Public: Public cloud provider allows general people to access and use services it offers from its own facilities, typically for a set fee.
• Hybrid: A hybrid cloud, on other hand combines both private and public features. In addition, these hybrid clouds also do well with increasing market prevalence & utilization

Another way of categorizing cloud computing is type of service provisioned. Some of the type of models/services offered by specific firms fall under following categories:

• Business-process-as-a-service (BPaaS): The model aids delivery of BPO services which are sourced from the cloud and services are automated. As a cloud service, BPaaS models are accessed through internet-based technologies and pricing for such models are based either on consumption or subscription based commercial terms.
• Platform-as-a-service (PaaS): These solutions provide virtual access to programming resources and tools which is generally controlled by the cloud vendor. The main agenda of PaaS is to aid people to develop their own web application. These application then, are hosted via vendor’s cloud infrastructure. Some of the examples are: Google’s App Engine & Red Hat’s OpenShift.
• Infrastructure-as-a-service (IaaS): These models enable users to virtually access more basic computing resources to support their operations. Some of the features of IaaS offerings include, file storage space, processing power and network related services. Some of the popular examples are: AWS Elastic Compute Cloud (EC2), VMWare’s vCloud Air and IBM’s SoftLayer.
• Software-as-a-service (SaaS): It is a model where software is distributed by a third-party where it hosts applications and makes it available to the end-clients. They generally run on a pay-as-you-go pricing model and have other benefits such as scalability and automatic updates. Some of the popular SaaS applications include, dropbox, slack, shopify, hubspot among others

Market Overview

As of 2018, the top 5 cloud computing markets in the world are US, Germany, UK, Japan and China. Germany ranks second in the world and first in the European region.

In Germany, cloud computing is being used by 10 different industries. In addition, 50% of the industries have utilized an average of 65% of cloud computing.

The top three consumers include, energy sector at 87% followed by Chemical & Pharma at 84% and IT &Telecommunication at 79% respectively. Finally, banking, insurance and commerce are the only industries with percentages of companies using cloud less than the total average.

44% of the companies across different industrial verticals use cloud computing and an additional of 24% are planning to use in near future. In addition, 78% of private cloud users and 73% of the public cloud users have rated their previous experience as positive.

The usage of cloud computing in Germany has tripled since 2011 (28%) and especially moreover since 2016. The increase is attributed to both private and public cloud.

In 2017 alone, more than 54% of the companies were identified using cloud computing whereas, the percentage rose to 64% in 2018. Further, two out of three companies of every size were found using cloud computing.

Several aspects of cloud computing such as cloud services are expected to grow to nearly $12 billion, infrastructure technology to $5 billion by the end of 2019 and cloud integration & consulting from $550 million in 2018 to $3 billion in 2019 respectively.

Top Market Opportunities

The global cloud hosting market accounts almost 10.3% of the market share of IT services market. In the globe, European market is the biggest and is continuously growing since 2016.

Within Europe, Germany & UK are fastest growing markets with AARG of 10% respectively. In addition, the German market has great potential to flourish as 26% of the companies are still not using any kind of cloud service.

Thus, it provides significant opportunity for cloud providers to tap onto under penetrated market

Market Trends

Government initiatives to promote cloud: The government in Germany is actively promoting the cloud computing scene within the country through scientific projects and business platforms, some of the notable initiatives include:

• The Federal Ministry of Economics initiated a project called ‘Trusted cloud’ which provides detailed information regarding certificates and standards that are related to cloud computing as well as an independent marketplace for trustworthy cloud services. ‘Trusted Cloud Service’ in the marketplace is a warranty from the provider that certain minimum requirements on transparency, data protection and IT-security is met.
• In 2017, The Federal Ministry of Economics again initiated another project called European Cloud Service Data Protection Certification (AUDITOR) project. The goal of the project is to design and implement EU-wide data protection certification keeping GDPR (General Data Protection Rule) as a basis.
• The government also provides funding to promote digitalization of European or German economy and these support are specially provided to the SME’s. The Foerderdatenbank provides these funding programs in collaboration with the government and SME’s can receive low-interest loans up to $5 million to invest in their digital infrastructure. The government intends to first enable a digital landscape so efforts in promoting adoption of cloud would be easier.

Copyright, Indemnification & Licensing issues: In regard with copyright issues, the cloud technology provider must confirm that it is entitled to use software in cloud for its intended purposes. The vendor must own intellectual property rights to the software.

A bigger challenge arises in connection with registered software of a third party or open source software. In Germany, traditional third-party software licensing policies generally restrict the cloud provider from making the software available as part of a service free of the typical restrictions. Thus, cloud vendors must ensure that they have secured rights from third-party licensors. 

Also as part of the law, cloud providers need guarantees against any claim that is made against them as a result of any information, data or electronic material that a customer stores in its cloud that causes it to break a third party’s IP rights or disrupts other rights be it third party’s personal rights, regulatory or criminal requirement and prohibitions.

Audit Requirements: These rights are of utmost importance to the customer and the cloud provider should be required to grant the customer wide-ranging audit rights particularly in regard to data security.

Some of the things that are required to be revealed via audit include, provider storing customer’s data in cloud locations across the globe, transferring data between various locations without previous notice to customer, using parallel storage of data for a multitude of customers on the same servers etc.

Data security and protection: As per Germany’s cloud computing law, data processing by the third party on the behalf of data controller is regulated. Some of the specifics that are required for written agreement between the data controller and the data processor include:

• Information on the correction, deletion & blocking of data
• Potential sub-processing, if applicable and allowing for respective arrangements with sub-processors
• Return of data and deletion of data at the data processors premises

In addition, data transfers via cloud outside of Germany must fulfill following criterias:

• Any data being transferred and processed must be done so only after taking consent of the individual whose data is being transferred.
• Data transfers outside EEA are forbidden if the data subject has legitimate interest in prevention of data transfer. For instance, European Commission has identified that US doesn’t offer adequate level of protection so transfer of data to US is permitted only if compliance with Safe Harbor principles are met.

Technology Trends

Some of the major technology trends that are on the rise within the cloud computing field include:

Function platform as a service (fPaaS): It is a serverless execution platform especially for catered for event triggered functions such as microservices.

These platforms in turn, are able to run code without provisioning or managing any underlying system or application infrastructure and automatically scale to support increasing or decreasing loads. The pricing allows users to pay only when the cloud is used.

Container management software: Within cloud computing, as part of the DevOps processes, cloud providers are searching for new tools that allow them to regulate and systematize deployment and configuration of servers and applications.

These tools include, first, configuration management tools such as Chef, Pupper and Ansible, second, container technologies such as Docker, and container orchestration and scheduling tools such as Kubernetes, Swarm, and Mesosphere.

Cloud Service Brokerage (CSB): It is an IT role and business model in which a company or entity adds value to private or public cloud services on behalf of one or more customers of the service.

The chief roles of the brokers include, aggregation, integration and customization. In addition, there are IT personnels’ dedicated also provide technology support to allow smooth delivery of CSB services.

These intermediary firms provide systems, technology and people to help organizations utilize cloud services effectively.

Regulatory Trends

Germany is ranked one of the 24 counties in terms of having a robust regulatory and political framework for cloud computing.

The section 2, paragraph 11 of the Act on Federal Office for Information security (BSIG) introduced first legal definition of cloud computing to German Law. This can also be regarded as first direct regulation of cloud computing

In addition to BSIG, the sector-specific regulations that restrict outsourcing of business processes to cloud include:

• Financial sector: Banking act, Payment Services Supervision act, the Securities trading Act and the Investment code)
• Insurance sector (act on supervision of Insurance undertakings)
• Telecommunications: (TKG)
• Energy sector: Energy Industry Act and
• Healthcare sector

In Germany, the law for cloud computing is quite differentiated and includes variety of other regulations to be considered.

For instance, the new EU data protection regulation introduced in 2016 covers regulation for almost all types of cloud service and can be regarded as indirect regulation governing cloud computing.

Similarly, the telecommunication Act (TKG) also partially governs the cloud computing in case of communication services such as Voice over Internet Protocol, video conferencing, instant messaging and email services.

Finally, the tax regulations related to keeping records must be considered when outsourcing accounting to cloud.

Breach of laws: The concerned authority has the right to initiate required measures if infringement of law is identified. The amount of fine ranges according to complexity of situation and individual cases.

For instance, breach of GDPR is subject to high fine i.e. $22.2 million or upto 4% of the total annual turnover of the company whichever is higher.

Similarly, breach of law governing cloud computing is also a criminal offence, for instance in case of unlawful deletion or suspicious use of data, the cloud provider could be locked up in jail.

Consumer protection: The law in Germany has multiple consumer protection regulations. For example, customers are able to extract from a distance cloud computing services within a period of 14 days.

In addition, there are set limitations for exclusion, limited liability as well as on the duration of contract and price increases. All of these are to be established based on the standards provided by the law. Regulations have also been laid out for dispute resolution of consumer matters.

Other Key Market Trends

Currently, hybrid cloud is the most preferred strategy by the enterprises which has also led private cloud adoption to fall. As of 2018, 85% of the enterprises in the market are deploying a multi-cloud strategy up from only 82% in 2017. By 2020, fewer than 5% of the enterprise workloads will be running in true on-premises private clouds.

There are new concepts evolving in the cloud technology field, which are 2-5 years away from mainstream adoption. These include, IaaS, SaaS, aPaaaS, Database Platform as a Service and Cloud/web platforms among others.

Market Size and Forecast

• As of 2018, the cloud computing market in the world is expected to be around $278.8 billion respectively. The worldwide cloud computing market is rising at CAGR of 16.9% respectively and is forecasted to reach $383.4 billion by 2020.
• As of 2018, the cloud computing market in Germany is expected to be around $18.8 billion respectively. The German cloud computing market is rising at CAGR of 19.8% until 2020.
• The category markets of cloud computing are as follows:
• As of 2018, the IaaS accounted 57% of the total market size i.e. value of $10.7 billion.
• Followed by SaaS that accounted 25% of the total market with a value of $4.7 billion and

Finally, PaaS at 18% with a value of $3.3 billion respectively

Market Outlook

• In Germany, the CAGR rate of its cloud computing market is expected to be around 32% until 2023. The rate also places German market among the global leaders in cloud computing technology industry.
• The IaaS computing models is growing around 40% in revenue every year and is projected to grow more than 25% per year by the end of 2019.
• By the end of 2019, revenues from IaaS and PaaS will only be 13% less than the revenues of all servers present in the market. In addition, by 2020, the revenues of IaaS and PaaS is forecasted to exceed $55 million and likely to surpass the revenue for servers.
• Similarly, by 2021, more than 50% of the total IT services will be spending about $200 billion in digital related services, which is likely to drive the use of cloud computing even more.
• The next-generation of cloud computing players are likely to focus on abstracting virtual infrastructure and operational processes that go along with managing the infrastructure.
• By 2020, more computing power is likely to be sold and deployed by IaaS and PaaS providers than by enterprise data centers.

Technology Roadmap

Some of the future technology developments being made under the scope of cloud computing include:

Machine Learning (ML): It is the most significant innovation set to lead technology breakthrough and drive transformation. The technology will help developers focus on creating new application without relying on complex concepts such as neural networking.

Serverless Architectures: In future, the architectures will be serverless i.e. a cloud platform will automatically determine how much infrastructure is required and provision it without human intervention to support the applications.

NoOps: These will become mainstream in the cloud technology market. At present companies require operation but in future, focus is likely to shift towards operating the applications and ensuring that the cloud platform is meeting its SLA (cloud-service level agreement).

This new model allows developers to focus on client requirements whereas the cloud provider handles infrastructure and scalability.

Absolute Infrastructure:  It is an architectural pattern in which the structure and application infrastructure, once substantiated doesn’t require to be updated over and again. Such infrastructure encompasses the entire application stack, in-versioned template in cloud IaaS or PaaS.

Distribution Chain Analysis

In Germany, companies across several industrial verticals are running 41% of their workloads in public cloud and around 38% in private cloud.

Also, enterprises run 75% of workloads in cloud with more private cloud (43%) vs. public cloud (32%) respectively. On the other hand SME’s run 83% of workloads in cloud with more public cloud 950%) vs. private cloud (33%).

On the other hand, overall strategy of the companies depicts that, more than 85% have multi-cloud strategy, 9% have private cloud strategy &5% have public cloud strategy respectively.

Competitive Landscape

Within the German cloud computing landscape, all kinds of cloud models are used. IaaS is highly popular in private sector. Similarly, PaaS, and SaaS solutions are also increasing profoundly.

In addition, German companies are leveraging PaaS and SaaS across Business Processes. For example, one significant trend is the outsourcing of ERP systems or enterprise resource planning to the cloud. The public clouds are also gaining traction but most of the services are based on private cloud.

Within the public sector, the cloud use is still at an infant stage but government is intensively planning on implementing cloud solutions across the administrative departments.

For the same, the federal government is planning on development of self-operated private cloud models. For instance, one lighthouse project called ‘Federal cloud’ is operated by Federal IT Centre and is being provided as IaaS and can be used by any Federal authority.

Predominantly, all the major international cloud providers have successfully established their position in the German market. These include, Amazon, Microsoft, IBM, and Google whose solutions are highly floated in the market.

Other emerging international players include, Alibaba, Rackspace or Salesforce. Finally, active local players include SAP which is escalating its presence within German and international cloud markets via its ‘SAP Cloud Platform’ or PaaS product.

Besides SAP, there are only few local full-fledged cloud providers competing with the international brands. Most of the local companies belong to MSME category that specialize in particular type of cloud product, certain industry or use cases.

Key Market Players

The top 5 biggest players in the German cloud computing market that only dominate 55% of the total market include:

• Amazon
• Microsoft
• IBM
• Google
• Salesforce

Strategic Conclusion

Innovation across the sector is increasing continually and the next generation of cloud computing will be focused on virtual infrastructure. At present, in Germany is still at an infant stage in the cloud computing technology market.

Multiple providers in the market are making an effort to identify their potential target market and while doing so, businesses are moving to niche segments. 

Within, the German market, the hybrid cloud strategy is expected to strengthen the significance of technology and increase penetration of cloud in the market.

Further Reading

• https://www.lexology.com/library/detail.aspx?g=8b63d55a-de0f-4184-9e66-feb487b3c75d
• https://www.reedsmith.com/-/media/files/perspectives/2010/08/cloud-computing–a-german-perspective/files/cloud-computing–a-german-perspective/fileattachment/cloud-computing–germany-chapter-only–081210.pdf
• http://www.clairfield.com/wp-content/uploads/2017/06/DE-German-Cloud-and-Hosting-Sector-Trends-1HY-2017.pdf
• https://www.consultix.net/GetFile.ashx?id=8

Appendix

• BPO- Business Process Outsourcing
• BPaaS- Business Process as a Service
• IaaS- Infrastructure as a Service
• PaaS- Platform as a Service
• SaaS- Software as a Service
• CSB-Cloud Service Brokerage
• GDPR-General Data Protection rule
• fPaaS- function Platform as a service
• XaaS- Anything as a Service
• ERP- Eneterprise Resource Planning
• SLA-Service Level Agreement
• EEA- European Economic Area