Key Trends in the Global Cloud Economy

Oe speak with Kent Bennett, Partner at Bessemer Venture Partners, about the current state and key trends in the global cloud economy. Bennett also shares the impact of market and economic conditions on the cloud market and the companies that stand out this year.

What did the cloud economy look like in 2021 compared to this year? How does this look in the first half of 2022?

The cloud economy in 2021 and 2022 painted two entirely different pictures. 2021 was one of the record highs, with total public cloud market capitalization peaking at $2.7 trillion, successful U.S. tech IPOs grossing $142.4 billion, and mergers and global technology acquisitions exceeding $1.24 trillion.

In 2022 things started to change with rising inflation, rising interest rates and geopolitical uncertainty contributing to a dramatic market correction. But amid the market chaos, the companies themselves have remained incredibly healthy.

As investors, we took a deep breath and thought, “wow, the markets have taken a nosedive, and yet the companies we work with every day are doing very well – what does it say on the cloud?”

So one of the main goals of our State of the Cloud report this year has been to reset the way we describe these companies and focus more on the fundamental metrics, including revenue, that we use to measure the healthcare, as opposed to valuations, that many of us have been distracted over the past few years as valuations soared.

What are some of the key trends shaping the global cloud economy?

The global cloud economy is constantly shifting gears. This year, we identified three key trends that reduce friction when accessing cloud services:

  1. Sensitive data in the cloud: More and more cloud early adopters are transferring sensitive data such as security logs and financial records to the cloud. This would have been almost unthinkable ten years ago.
  2. Virtual Private Clouds: Packaging SaaS products and deploying them in a customer’s virtual private cloud (VPC) has become much easier, in part due to standardization around Kubernetes as the cloud operating system. This makes it easier for SaaS companies to serve a wider range of customers who may prefer to keep certain sensitive data or applications in a VPC.
  3. Middleware building bridges: Middleware platforms make it easy to bring the power of the cloud to data, wherever it resides. Industries such as financial services have seen a wave of modern fintech infrastructure to help bridge the gap between the cloud and traditional banking systems. Similar transition systems are also emerging in other sectors like supply chains, logistics and healthcare.

Ultimately, these three trends are helping to further break down barriers to entry and increase the use cases the cloud can impact as the cloud continues to consume all enterprise computing.

We also found that cloud marketplaces are naturally emerging for SaaS buyers and sellers to transact regardless of the size of the purchase. These platforms offer value to both buyers who want to consolidate spend with their cloud providers and achieve economies of scale, and SaaS sellers who want to streamline the procurement process and access larger budgets. .

In 2021, we saw market transactions grow by around 70% to $4 billion, growing three times faster than public cloud as a whole.

What is the impact of current market and economic conditions on the space?

While current market and economic conditions create hurdles for the cloud market, they simultaneously present ripe opportunities for software as it aims to play a pivotal role in closing the global productivity gap. The valuation reset undoubtedly affected all companies in the SaaS index, but ultimately creates opportunities for the cloud to impact the macro picture.

When we look at the effects of the COVID-19 pandemic, we notice the unprecedented turnover in the US labor market and the incredible labor shortages, which are impacting the cloud industry. While the supply of labor is a factor, the supply of everything from microchips to imported goods to oil and more is also at issue.

The obvious opportunities that have arisen for the cloud to impact macro imaging span the global supply chain, creator platforms, healthcare platforms, and work automation leaders. Productivity and collaboration tools across industries aid in creation and customization to optimize product and go-to-market teams, respectively. Cloud players such as Flexport, Cargo.One and Optimal Dynamics are helping to make global trade traceable and efficient on land, air and sea.

With volatility likely to continue at least in the public markets, we expect the VC and founder community to start turning their attention to SaaS fundamentals. Software is an integral part of doing business and how people work, especially in the hybrid world we find ourselves in today. The Great Resignation is not just a phase, but a signal for what is to come. The continued evolution of the way we work and define productivity will depend on software to thrive.

Which cloud companies stand out this year? Why?

There’s no shortage of great cloud companies, but a few themes stood out for us this year, including companies that:

  • integrate a wider range of services into their products (card issuance, banking, insurance, logistics): Stripe, Melio, Lithic, Marqeta, Gusto and Check.
  • Looked at indirect monetization, which we believe will likely become table stakes for SaaS companies: Brex, Wrapbook, Mitre, Lasso, Ramp, and Gloss Genius.
  • Will help close the global productivity gap: Syndio, Guild, Notion, Demostack, Patreon, Substack, Zapier, Jasper, and Shippo.
  • Exceeded ARR $100 million: Pendo, Miro, Databricks, Intercom, Canva, UiPath, and Vtex, among others.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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