Projecting the global value of cloud: $3 trillion is up for grabs for companies that go beyond adoption

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Large enterprises are getting serious about adopting cloud. They aspire to have roughly 60 percent of their environment in the cloud by 2025.

Given the scale of this aspiration, business and technology executives are asking themselves:

  • How big is the value at stake in my industry?
  • How quickly will value be captured, and who will capture it?
  • What can I do to make sure my company captures more than its fair share of the value?

To help address these questions, we have assessed more than 700 digital use cases to determine the potential value at stake, developed six scenarios for how cloud value could evolve between now and 2030, and profiled more than 50 cloud programs at major companies to identify markers of success and progress.

This article highlights some of our early findings (we plan to release a detailed report describing our research in the second quarter of 2023).

1. Companies that maximize cloud value approach it across three dimensions: rejuvenate, innovate, and pioneer

To quantify the total potential value that companies could generate by adopting cloud, we conducted detailed analyses based on three reports from the McKinsey Global Institute (MGI); McKinsey D2020 benchmarking for IT spending structure based on more than 1,000 IT diagnostics worldwide; and independent third-party surveys of more than 1,000 organizations that have adopted cloud to pursue potential gains in operational efficiency. In applying the MGI research, we assessed more than 700 use cases across 20 subindustries. We also utilized IHS Markit industry growth rates to establish baselines for 2030 financial performance of the Forbes Global 2000 without cloud-based EBITDA lifts.

For the first dimension, rejuvenate, we calculated the potential value from IT cost efficiencies across application development, IT maintenance, and infrastructure spending, drawing on double-blind surveys of more than 1,000 cloud-adopting companies conducted by Omnicom Group, an independent third-party market research firm. The cost baseline was assessed by drawing on McKinsey’s proprietary D2020 knowledge base, which encompasses holistic IT performance diagnostics conducted at more than 1,000 clients spanning more than 20 industries and all geographies, and IHS Markit and Oxford Economics market projections.

For the second dimension, innovate, we assessed revenue uplift (the margin impact of revenue increases) and cost savings from business operations. We quantified the potential value of more than 700 use cases involving advanced analytics, IoT, and automation. Here, we categorized use cases as “not requiring” or “accelerated/unlocked” based on the utility of public cloud in that case. We then attributed an associated share of value from public cloud to the use case, and the output was a detailed estimate of value by dimension, benefit driver, and industry.

The third dimension, pioneer, involves exploring business models by experimenting with new and emerging technologies, such as blockchain, quantum computing, augmented and virtual reality, and 3-D printing. Given the nascent stage of these technologies, it is far too early to quantify their potential impact over the next decade with any reasonable precision. We anticipate being able to calculate the impact of this dimension within the next two to three years as case evidence matures.

Cloud value can be captured across three dimensions

2. Cloud adoption could generate $3 trillion in EBITDA value by 2030

In 2021, we analyzed the value at stake from cloud adoption for US Fortune 500 companies and found that it could generate about $1 trillion in value by 2030.1Cloud’s trillion-dollar prize is up for grabs,” McKinsey Quarterly, February 26, 2021.  Applying the same value drivers and assumptions to Forbes Global 2000 companies, we now estimate there is $3 trillion of EBITDA value up for grabs by 2030.

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The value across the 700 use cases we’ve analyzed breaks down into the following areas:

Rejuvenate includes value from IT savings, operational cost savings, and digital risk reduction. The total value at stake is $873 billion in EBITDA, with IT cost optimization improvements accounting for $155 billion, digitization of core operations for $311 billion, and improved business resilience and risk reduction for $407 billion.

Innovate includes value that is largely revenue related, with use cases such as advanced analytics, IoT, and automation driving growth, optimizing business operations, and improving time to market. The total value at stake is $2.3 trillion in EBITDA, with $612 billion coming from innovation-driven growth and $1.7 trillion from accelerated product development and hyperscalability.

Pioneer covers the range of emerging technologies, including the creation of new, cloud-based business models and integration with cutting-edge technologies such as 5G, blockchain, and quantum computing. These technologies are still relatively new, so their impact cannot be accurately quantified.

By 2030, value drivers could enable cloud to deliver more than $3 trillion in EBITDA value across the Forbes Global 2000.

3. Cloud remains one of the largest value enablers in enterprise technology, but its impact varies

We’ve broken down cloud’s impact into four distinct groups. Although the percent of EBITDA lift varies greatly, cloud represents an important and attractive opportunity for almost all sectors.

In quadrant 1, industries have relatively low margins historically but could gain a lot of value (in terms of absolute EBITDA lift) from public-cloud adoption. Healthcare systems and services (5 percent absolute EBITDA lift) will witness EBITDA increases due to business-enablement use cases, such as cloud-supported medical testing and AI/ML-enabled diagnoses, further compounded by current low adoption levels.

Quadrant 2 industries can expect significant absolute EBITDA gains on already high margins. For pharmaceuticals and medical products (9 percent absolute EBITDA lift), the biggest value drivers are the acceleration of product development and hyperscalability of computing power, both part of the innovate value segment. As shown during the pandemic, reduced time to market and rapid prototyping are critical factors in the race to test and patent new medicines. Conversely, in banking (5 percent absolute EBITDA lift), the biggest portion of the cloud value potential comes from improvements in IT resiliency, part of the rejuvenate value segment. Additionally, in both pharmaceuticals and banking, current public-cloud adoption is relatively low, leaving room for even greater cloud impact.

In quadrant 3, although industries with traditionally lower margins will see less significant absolute EBITDA gains from cloud, the gains will be substantial in run-rate EBITDA percentage terms. For example, retail (4 percent absolute EBITDA lift) already exhibits broad public-cloud adoption for back-office functions and omnichannel customer support but will need to tap into the pioneer use cases (for example, a cloud-native blockchain solution to store supply chain transactions) to drive incremental value and business differentiation.

Lastly, while quadrant 4 industries enjoy high margins, their market dynamics might make it harder to extract value from cloud. The electric power and natural gas industry (3 percent absolute EBITDA lift) is highly regulated, with well-defined geographic areas and limits on consumer pricing making it more challenging to rapidly extract cloud value.

Cloud's impact on enterprise EBITDA varies by sector, based on the dynamics of industry competition.

4. Asia has the largest potential for EBITDA lift

Asia has the highest cloud value potential—about $1.3 trillion by 2030. While Asian companies lag their North American counterparts in their current levels of cloud adoption, they make up the highest regional revenue share (38 percent) of the Forbes Global 2000 companies we analyzed. In addition, Asia has a huge presence in the oil and gas and banking industries, both of which exhibit potential for large EBITDA gains due to cloud. As cloud service providers (CSPs) expand their footprint in Asia, these large companies will be able to achieve outsized value by embracing the cloud.

Institutions in the Americas have about $1.1 trillion in available cloud value. They make up 36 percent of revenue of the Forbes Global 2000. Given that three of the major CSPs started in North America, it is not surprising that companies in the Americas lead the rest of the world in cloud adoption. North America’s top industry in terms of potential value from the cloud is retail, which will capture nearly $162 billion in EBITDA gains due to cloud by 2030, which is more than triple the value potential for retail in the European Union and Asia. By 2030, industries in the Americas may progress past the early stages of their cloud journeys to capture incremental value through more advanced use cases.

Europe and Africa have enormous potential in cloud as well, valued at $797 billion. They account for a relatively lower revenue share of the Forbes Global 2000 (25 percent), but their cloud value potential is buoyed by a favorable industry mix. Many of the region’s top companies are in sectors where cloud impact is high, such as automotive and assembly ($99 billion in EBITDA lift) and pharmaceuticals ($134 billion in EBITDA lift), but current cloud-adoption rates are lower, leaving them more room for cloud growth than their American counterparts. Data sovereignty laws and regulatory pressures (such as GDPR) may inhibit the migration and use of data that often drives significant cloud adoption, but there is significant incremental value to be captured for those who can navigate these forces.

Asia has the highest cloud value potential, followed by the Americas.

5. Six broad cloud-adoption and cloud-value scenarios shed light on how sectors could evolve on their cloud journeys

There is massive uncertainty about how enterprises will make use of cloud platforms. How quickly will companies scale the use of cloud platforms to run major business processes? To what extent will companies be able to use cloud platforms for business differentiation and to increase economic returns—or will they compete much of the value away, as investment banks did when they adopted electronic trading in the 1980s and 1990s?

Shell Oil developed scenario analysis in the 1970s to understand how technological and geopolitical shifts should affect its decisions in making energy investments.2 Since then, scenario analysis has become a common tool for thinking about how to make investments when facing uncertainty.

Based on discussions with dozens of cloud and industry experts, we developed six scenarios based on two uncertainties: pace of adoption and the ability of enterprises to generate differentiated economic returns based on their adoption of cloud platforms.

Cloud by McKinsey

Cloud by McKinsey Insights

The x-axis, as shown in the exhibit, tracks the average level of cloud adoption within an industry segment based on the percentage of workloads migrated to the cloud, including software as a service (SaaS) workloads but not private-cloud workloads. The y-axis tracks incremental economic value. By using the level of profit captured by cloud pioneers versus their industry peers, we can see how effectively certain organizations leverage cloud to differentiate themselves from their competition. Industries don’t necessarily move through each of the six scenarios in any particular order; advanced digital businesses can leapfrog from “focused value” to “pervasive differentiation” by focusing on high-value use cases.

However, the relationship between cloud adoption of workloads and incremental value is not a direct correlation, as adoption alone has proven to be insufficient in generating sustained returns from cloud. For example, in the "focused value" world, companies implement a small number of analytics or digital use cases in a cloud-native way, dramatically improving business performance by improving cross-sell or customer retention. In contrast, companies within “partial commoditization” (that is, large segments of companies using a similar set of cloud services for back-office workloads such as HR, finance, and supply chain) might “lift and shift” large numbers of applications to the cloud to reduce some technology risk, but realize only marginal economic returns.

Potentially, business and technology leaders can use these scenarios to test their investment plans: Do signs of cloud differentiation within an industry force cloud laggards to accelerate their cloud journey? Does evidence of increasing commoditization create an opportunity and an imperative to look for opportunities for differentiation?

Prevailing cloud-adoption scenarios suggest that value capture rises with a selective investment strategy.

6. A clear clustering of sectors in cloud-adoption scenarios is evident

We plotted the current state of adoption and value dispersion across 11 major industries and 20 subindustries in the United States and found that a heavy majority fall into three distinct groups.

The first sits squarely in the “stalled” scenario. These industries, such as electric power and natural gas, are not motivated to move to cloud due to a lack of available innovate value in industries where revenues are highly regulated. Additionally, some of these industries are hesitant to make critical infrastructure dependent on public cloud and prefer to rely on on-premises computing for these workloads. Despite this, one large energy company has differentiated itself, using cloud services to keep costs down and introduce innovative features to customers. In collaboration with Microsoft Azure, this company was able to create a digital platform that uses satellite data to monitor the safe emission of methane, enabling response teams with the insight needed to quickly respond to gas leaks and emissions irregularities.

Insurance and its industry segments join a broad set of industries in the “partial commoditization” scenario that have made back-office function integration with cloud their status quo. One larger insurer has set even bigger cloud goals, focusing on use cases that revolutionize its business performance. Using AWS Lambda, it has leveraged serverless computing to develop both a greenfield benefits business and an underwriting solution for brokers on cloud, with a strike rate that is double the industry average and a referral time that is one-third of the industry average, pushing the company into the “selective differentiation” scenario.

Retail is an industry where certain companies are exploring the boundaries of the “selective differentiation” grouping. While most retail companies have utilized cloud for back-office optimization and cost savings, some pioneers are beginning to leverage it in ways that enable business growth rather than simply cost control. One large retailer has used Google Cloud to transform its brick-and-mortar business and develop its e-commerce and omnichannel capabilities by launching new services, such as drive-up orders and curbside pickup.

The software sector is in the later stage of “selective differentiation,” where cloud becomes a business imperative. In this grouping, industries must build on their advantages to harness the enormous scale of their cloud capabilities, put more distance between them and their competitors, and fight the forces of commoditization that threaten to pull them down into “partial commoditization” or “pervasive commoditization.” While there are several software companies that use cloud well, one software-driven real estate business puts itself far above the competition. Utilizing the elasticity of AWS S3 storage, this enterprise is continually able to meet customer demand thanks to its cloud services’ hyperscaling capabilities, processing more than 17,000 image requests per second and more than three million per day. This provides consistently smooth site performance to end users, which is supported using AWS CloudFront.

Scenario analysis by industry shows that the majority of sectors fall into three distinct groups.

7. Companies should separate myths from reality to capture maximum value from cloud

We interviewed more than 50 CIOs, CTOs, and cloud program leaders at leading North American enterprises on their cloud programs, including success factors and challenges they faced along the way. In analyzing the results of these interviews, we found out how executives were able to bust some commonly held myths related to cloud value capture as they progressed in their adoption journey. We divided these myths and emerging realities into three distinct imperatives:

  1. Discover the full value of cloud. Cloud is a fundamentally different transformation than adoption of technologies such as LINUX or virtualization, since cloud impacts all back- and front-office business functions. Enterprises can realize value from cloud not only by reducing costs and risks but also via business enablement. Hence, while cloud indeed helps in reducing the costs of owning and running massive data centers, that should not be the primary reason for cloud adoption.
  2. Solve critical technical problems. To maximize value from cloud, it is important to solve complex technological challenges, such as building CSP-specific foundational services; identifying the best approach for application migration (lift and shift versus refactoring versus cloud-native development); creating resiliency patterns; and implementing security-as-code protocols as part of code development.
  3. Deliver organizational change. Success on cloud requires fundamental changes in the operating model to make it product oriented and agile. Investment in FinOps capabilities is important to ensure that cloud costs remain under control and can be tracked efficiently.
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