Investment Analysis of the European Infrastructure as a Service (IaaS) Industry Macro-economic Conditions Impacting Exit Multiples

Transcription

1 Investment Analysis of the European Infrastructure as a Service (IaaS) Industry Macro-economic Conditions Impacting Exit Multiples MAB3-F1 March 2015

2 Contents Section Slide Number Executive Summary 3 Research Methodology, Objective, and Scope 5 Introduction 8 Investment and Investor Profile in the IaaS Industry 17 Understanding the Infrastructure Segment 24 Understanding the Data Centre Infrastructure Management Segment 30 Understanding the Content Delivery Solutions Segment 36 Understanding the Cloud Services Provider Segment 42 Conclusions 48 The Frost & Sullivan Story 51 MAB3-F1 2

3 Key Findings As more enterprises overcome security concerns, demand for cloud storage and cloud-based services will increase rapidly. The above trend combined with Mega Trends such as Smart Cities, Big Data, and the Internet of Things (IoT) serves as a strong indicator of demand for the infrastructure as a service (IaaS) industry making it a viable source for investment opportunity. Macro-economic conditions have impacted revenue of firms and also exit multiples for investors. High barriers to entry and economies of scale make it difficult for a single venture capitalist to invest in a start-up. However, venture capital (VC) activity accounts for a major portion of deal volume in which investors invest as a group or invest in allied software to aid the IaaS industry. In comparison to firms in the United States, European firms have more stable operations as indicated by a flat cash conversion cycle that occurred between 2009 and The top 3 industries leading adoption of cloud-based services are retail, energy, and manufacturing. Thus, data centres catering to these segments can be expected to perform reasonably well. MAB3-F1 4

4 Research Methodology Financial journals Annual reports Market research reports Industry Web sites Industry-related databases Thought-leader briefings CEOs/CFOs Secondary Research Primary Research General partners Limited partners Board members Research heads Strategic decision makers Financial advisors Other investors Research Methodology 1. Secondary data analysis Research process 2. Interview participants Stakeholder insights, perspectives, and strategies 3. Analyse and collate diverse perspectives Define objective and scope Assess the financial ratios Compute industry benchmarks Outcome: Key trends/events that can impact the industry in the next 48 months Research Process MAB3-F1 6

5 Research Objective and Scope Research Objective To analyse the investment climate in the European IaaS industry To identify key factors and business environments within the segments of the IaaS industry To identify key trends and challenges that can impact the performance of industry participants over the next 12 months Geographic Scope: Europe Study Period Note The IaaS industry includes multiple markets which, in turn, cater to multiple segments. The scope of the study is limited to analysing only that portion relevant to IaaS. For instance, the infrastructure segment consists of participants that cater to other industries as well. The analysis, however, will be limited to the IaaS portion of that segment alone. *All data pertaining to 2014 is from January 2014 to December MAB3-F1 7

6 IaaS Value Chain IaaS Industry: Value Chain, Global, IaaS Provider Firewall Content Delivery Network Load Balancing Other Networking Data Delivery Solutions Segment Cloud Service Provider Infrastructure Management Segment Hosting Services Virtualization Provisioning & Orchestration Co-location Services Data Recovery Billing & Metering Infrastructure Segment Data Centre Server Equipment Storage Equipment Network Equipment Power & Cooling Systems Other Allied Equipment MAB3-F1 9

7 Value Chain Definitions For the purpose of this study, the IaaS market has been classified into 4 segments namely, infrastructure, infrastructure management software, data delivery solutions, and cloud service providers. Infrastructure refers to data centres and providers of hardware and other equipment that are essential to setting up a data centre. This includes storage providers, hardware, and network equipment providers. The scope of this study focuses only on data centres. Infrastructure management software refers to providers of software solutions that are used to manage the underlying data centre and provide IaaS to customers. This includes multiple sub-segments. o Virtualization software and services sub-segment refers to firms offering solutions that help to create virtual images of multiple systems from the underlying hardware. Firms offering virtualization services typically offer a variety of additional services including, but not limited to, hosting services, data management and recovery services, along with consulting services. o Cloud platform solutions sub-segment comprises providers of software solutions that are used to manage various aspects of the cloud. This includes metering and billing software solutions, provisioning software, security solutions, and IaaS providers. Data delivery solutions refer to firms that are involved in content delivery to end users. This includes content delivery network firms as well as software that is used for such purposes. For software, the scope of this study is limited to only those software providers that are directly related to IaaS; this also includes networking software such as load balancing software that is used to manage the workloads in a network. Cloud service providers refer to firms that provide cloud-based services in the IaaS segment. This includes IaaS providers who sell compute-as-a-service and storage-as-a-service as well as firms that provide consulting services and managed services. MAB3-F1 10

8 Business Model The business model for firms in the IaaS market is a pay-as-you-use model in which the customer pays for computing as a service or storage as a service. There are multiple business models in this industry which are detailed below. Co-location services: In this business model, data centre space is leased to clients. These services can be divided into wholesale co-location and retail co-location. Wholesale co-location: In this model, data centre space is leased along with power and cooling resources. This requires long-term contracts ( to years). This also lacks the interconnection and managed services component offered with retail co-location. The typical clientele include communication service providers, carrier neutral data centre operators, and other enterprises. Customers opting for this service have power requirements of at least KW with most of the customers requiring MW of power or more. Retail co-location: This refers to leasing data centre space for cabinets, racks, and cages of various sizes. Power and cooling resources are also available. Additionally, bandwidth and interconnection services are offered along with physical security access such as biometric access. Servers are hosted by clients and are managed either by themselves or through data centre providers. The fees charged vary based on the services requested by the client. Contracts are typically signed for a period of to years. Power requirements of customers are less than KW. MAB3-F1 11