Turkish Public Cloud Services Consolidated Market Research Summary, 2014

1. 2014
Mehmet Cetin
Huawei Technologies Co.,Ltd.
10/19/2014
Public Cloud Services in Turkey

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Executive Brief
Public cloud services have been progressing towards becoming a significant market for CSPs in near future. Though that is the current hype and trend, this paper’s goal is to provide insight and relative forecast about Turkish public cloud services market and try to answer the question, “will that be really the case?”
For 2013, the worldwide public cloud services estimated a total market size of 131 billion USD and expected to grow at a CAGR of 18 percent for next 4 years.
With 68 percent of the market revenue coming from the United States, Western Europe holds 19percent. Gartner’s forecast suggests in coming years the U.S. market share will drop to 59 percent while Western Europe revenue will rise and rest of the world will outperform both regions in terms of growth.
Public cloud services are not new to Turkish market but it is still at its early adapters’ and innovators’ phase. Current growth rates positions it between eastern and western markets; former being the fastest grower, latter suggest less growth rates though higher overall revenues across all sub segments and still far away from reaching market size compared to the U.S. market.
Current star of the segment is online advertising in terms of total revenue and is rather monopolized by a couple global players and a few regional players. Online advertisement is still a fraction of the global advertisement market however as programmatic advertising becomes more and more preferred method of enterprise advertisement purchase, the market is expected to converge towards online advertisers if not in terms of medium, as the gateway.
Lack of market data paves the way to hypes and myths as cloud services are the best next driver for additional revenue streams but which segments and which services will be the potential ones will depend on overall public cloud services strategy CSPs will pursue, and end users will adopt.
Details of the segmentation and relative definitions for each segment can be found at the end of this paper. Historically such definitions tend to change overtime as services are integrated and converged while market evolves, grows and matures.
In summary, from CSPs aspect the market size in any sub segment would have negligible revenue impact as of today; however, relative impact on core services should not be overlooked when such evaluation is made.

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Table of Contents
Executive Brief .................................................... 3
Market Outlook ..................................................... 6
Market Segmentation ................................................ 8
Cloud Business Process Services .................................. 8
Cloud Application Infrastructure Services ........................ 9
Cloud Application Services ....................................... 9
Cloud Management and Security Services .......................... 11
Cloud System Infrastructure Services ............................ 11
Cloud Advertising ............................................... 12
Supporters, Influencers, Drivers and Bumps ........................ 13
Infrastructure and Internet Access .............................. 13
Smartphone and M2M Adoption ..................................... 13
E-commerce ...................................................... 14
Government Initiatives .......................................... 15
Data Centers .................................................... 15
Regulations, Governance and Laws ................................ 15
Food for Thought .................................................. 16
References ........................................................ 17

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Market Outlook
Although there is wide demand variation between public cloud services market’s sub segments, strong growth is anticipated for all types of cloud service offerings. Globally, the cloud business process services segment (BPaaS) is the second-largest market segment after cloud advertising, comprising around 30 percent of the total market in 2013, followed by cloud application services (SaaS - software as a service) at 14.7 percent, cloud system infrastructure services (IaaS - infrastructure as a service) at 6 percent, cloud management and security services at 3 percent, and cloud application infrastructure services (PaaS - platform as a service) at one percent.
In Turkey public cloud services are the fastest growing segment in ICT sector. It is expected to continue to grow at CAGR of 22 percent for next 4 years. In 2013, local public cloud services market size has been valued at around 150 million USD and expected to reach over 400 million USD by 2018 making its market size significant.
Table 1. Public Cloud Services Growth Rates by Segment for Turkey, 2013-2018
Although there are clear rising sub segments within public cloud services, investment in any sub segment will benefit from organic growth as market further develops and use of such services become common place for all end users.
0%
10%
20%
30%
40%
50%
60%
2013
2014
2015
2016
2017
2018
Cloud Business Process Services (BPaaS)
Cloud Application Infrastructure Services (PaaS)
Cloud Application Services (SaaS)
Cloud Management and Security Services
Cloud System Infrastructure Services (IaaS)
Cloud Advertising

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Table 2. Public Public Cloud Services Growth Rates by Region 2013-2018
Turkish market is the outperformer within Middle East region and will sustain higher growth rates over west European markets.
Table 3. Public Cloud Services Growth Rates comparison 2013-2018
0%
10%
20%
30%
40%
50%
60%
2013
2014
2015
2016
2017
2018
Latin America
North America
Emerging Asia/Pacific
Greater China
Mature Asia/Pacific
Eastern Europe
Eurasia
Middle East and North Africa
Sub-Saharan Africa
Western Europe
0%
5%
10%
15%
20%
25%
30%
2013
2014
2015
2016
2017
2018
Turkey
Worldwide
Western Europe

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Market Segmentation
Cloud Business Process Services
Cloud Business Process Services (BPaaS) is the second largest sub segment globally. It is a specialized public cloud services segment. It requires vertical focus and resource investment therefore could require higher initial investment yielding longer term payback periods.
However such vertical focus requirement can also provide further alignment with mainstream business, complementing its growth and differentiation strategy.
Larger investment requirements and longer ROI period would also eliminate competition from smaller companies creating barriers to entry.
Although expected growth rate is lower compare to other segments, transactional volume wise it will be an outperformer.
The segment includes Cloud Payments, E-Commerce Enablement, Finance & Accounting, Human Resources, Industry Operations, and Supply Management.
Table 4. Public BPaaS Growth Rates by Sub Segment for Turkey, 2013-2018
0%
2%
4%
6%
8%
10%
12%
2013
2014
2015
2016
2017
2018
Cloud Payments
Customer Management
E-Commerce Enablement
Finance & Accounting
Human Resources
Industry Operations
Supply Management

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Total revenue from BPaaS is expected to grow at 6 percent. For 2013, BPaaS market size is estimated at 36 million USD making it second largest sub segment in terms of market size behind cloud advertising.
Global solution providers’ offerings have been limited due to local business regulations and customs hence the segment has less chance to be flooded by global providers’ services at its initial growth years.
Market fragmentation is also another obstacle for this sub segment. Current providers are niche in their offering and therefore limited in breadth of their reach.
Cloud Application Infrastructure Services
Cloud Application Infrastructure Services (PaaS) is expected to continue to grow average of 24 percent. It is current market size valued at 8.5 million USD.
Table 5. Public PaaS Growth Rates by Sub Segment for Turkey, 2013-2018
While BI segment is forecasted to outgrow average expected growth rate, application infrastructure and middleware services is expected to provide largest revenue opportunity as the sub segment continues to grow.
Cloud Application Services
Cloud Application Services (SaaS) segment is the most dispersed and crowded segment within public cloud services. It is already driven by global companies with few local players offering localized versions of similar services.
0%
20%
40%
60%
80%
100%
120%
2013
2014
2015
2016
2017
2018
Application Development
Application Infrastructure and Middleware
Business Intelligence Platform
Database Management Systems

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2013 market size is valued at around 22 million USD and expected to reach 80 million USD within next 5 years.
Table 6. Public SaaS Growth Rates by Segment for Turkey, 2013-2018
The segment also has the highest hype out of the bunch as it provides direct sale potential to a large customer base.
Further, available packaged soluions from vendors simplifies roll out of such services, which correlates with the hype.
0%
20%
40%
60%
80%
100%
120%
140%
160%
2013
2014
2015
2016
2017
2018
Business Intelligence Applications
Customer Relationship Management
Digital Content Creation
Enterprise Content Management
Enterprise Resource Planning
Office Suites
Other Application Software
Project and Portfolio Management
Supply Chain Management

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While office application offerings has been and will be the top performer in terms of growth, CRM offerings are expected to provide the largest revenue.
Cloud Management and Security Services
End of 2013, market size is valued around 13 million USD, it is the most specialized offering out of all segments. Public cloud management and security services requires further development of public, private cloud services and so far majority of such services have been provided in house by enterprises.
The sub segment is expected to reach market size of 42 million USD by 2018.
Table 7. Public Cloud Management and Security Services Growth Rates for Turkey, 2013-2018
Cloud System Infrastructure Services
Globally cloud computing market surged during recent economic slowdown due to the fact that over 35 percent of the IT cost can be saved with the adoption of the technology.
Data storage and processing being its main drivers in rest of the world, it is the fastest growing worldwide cloud segment even if such has not been seen within Turkish market yet. As more and more enterprises discover how to utilize and leverage data for their businesses, the growth is expected to accelerate further. Estimated 2013 local market size is around 13 million USD.
0%
10%
20%
30%
40%
50%
60%
2013
2014
2015
2016
2017
2018
IT Operations Management
Security
Storage Management

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Cloud System Infrastructure Services (IaaS) require large infrastructure investment. It is expected to grow at an average of 18 percent CAGR and reach 30 million USD by 2018.
There are already a few local start-ups that provide compute services however these companies are small and vertically focused in their positioning, therefore are not at the scale to position their services for enterprise level customers.
Table 8. Public IaaS Growth Rates by Sub Segment for Turkey, 2013-2018
Cloud Advertising
Cloud advertising is the most mature business of the overall public cloud services. With estimated global market revenue of 130 billion USD, it is almost 50 percent of the overall public cloud services as of 2013.
However, large portion of the revenue is shared by a few global companies with small local players, a new comer from Eurasia and potentially soon from Asia.
Due to its relative maturity, it has the lowest growth rate though capturing the largest portion of the overall revenue.
With 2013 – 2018 CAGR of 27 percent, it is expected to continue to be one of the best performers and it is rather the most mature segment within all public cloud services. Therefore overall money value of market falls just under rest of public cloud services combined; currently valued at 50 million USD and forecasted to reach 180 million USD by 2018.
0%
5%
10%
15%
20%
25%
30%
35%
2013
2014
2015
2016
2017
2018
Compute
Print
Storage

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Table 9. Cloud Advertising Growth Rates for Turkey, 2013-2018
Supporters, Influencers, Drivers and Bumps
Infrastructure and Internet Access
Turkey now has the 4th largest fiber cable infrastructure in the world.
Internet activity in Turkey is on par with Internet activity in other developing economies, such as those of the BRICI nations (Brazil, Russia, India, China, and Indonesia). However many challenges remain if Turkey is to bridge the divide between itself and the other OECD countries.
On the BCG e-Intensity Index, which measures the depth and reach of the Internet across 85 markets, Turkey’s scores are generally in line with those of the BRICI countries, but the country ranks lower than the OECD members in its population’s access to the Internet; online expenditure; and the engagement of individuals, businesses, and the government with the Internet.
As of 2013, Turkey has an internet penetration rate of 53 percent, which is lower compared with a lot of other countries in Europe.
Smartphone and M2M Adoption
Four in ten Turkish internet users frequently use a smart phone to access the Internet.
0%
5%
10%
15%
20%
25%
30%
35%
40%
2013
2014
2015
2016
2017
2018
Cloud Advertising
Total

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As of second quarter of 2014, mobile penetration has reached 92.3 percent and there are more than 28 million mobile internet users.
M2M adoption has been steadily rising with over 20 percent annual increase since 2012.
E-commerce
Based on the results of a survey conducted by the Turkish Statistical Institute, 24.8 percent of all internet users aged 16-74 in Turkey bought goods and services online.
In the retail sector, large companies are experiencing rapid changes as new players enter the value chain, new business models emerge, and consumer behavior adapts.
Small and medium-size enterprises (SMEs) vary significantly, by industry and size, in their levels of Internet adoption. Some, for a variety of reasons, are more reluctant to move online.
The most common online payment methods are card payments: Mastercard and Visa. But also players like PayPal, BKM Express, ipara and PaytoGo are gaining ground in Turkey. Internet card payments (for various purposes, not limited to ecommerce) rose about 30 percent to 10 billion Euros in 2012 and this number is expected to more than double within 3 years.
Turkey is among the world leaders in B2C E-Commerce growth. Sales in 2013 were around 40% higher than the previous year, with growth rates close to this number expected for the next three years. There were over 50,000 E-Commerce portals operating in Turkey in 2013.
Growing Internet and mobile penetration, developed logistics and high bank card use drive the B2C E-Commerce boom. More than 50 percent of the population in Turkey use the Internet and this online audience is one of the most engaged in Europe, with over 30 hours online per user in December 2012, behind only the UK. Turkey’s Internet users are also the youngest in Europe, with this demographic group showing increasing interest in B2C E-Commerce websites. For 2013, a quarter of all Internet users shop online, with the share having grown by several percentage points from 2012. Online shopper penetration among female Internet users is growing especially fast, though there are still more male online shoppers than female.
M-Commerce has a high growth potential in Turkey, with smart phone penetration of almost one-third on the total population in 2013 and increasing year over year. In the 18-24 year-old group, the smart phone penetration rate is over 50 percent. Around a quarter of online shoppers use mobile devices to make purchases over the Internet.

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Social commerce also has a solid ground for development in Turkey, as social networks are used by over two-thirds of Internet users. Turkey is the fourth largest country worldwide in terms of Facebook users. Twitter is very close with 10 million monthly visitors.
Private shopping is a growing trend in Turkey, with private shopping clubs Markafoni and Trendyol, ranking among the top local E-Commerce companies. Over the past three years, this sector proved to be one of the most attractive for investment, receiving millions of US dollars from local and foreign venture capitalists and E-Commerce players.
Consumer Electronics and Appliances was the largest B2C E-Commerce physical product category in Turkey in terms of sales, while apparel has the highest reach of online shoppers, especially female.
The B2C E-Commerce market share of pure Internet players in Turkey was the highest in Europe in 2012. The largest player on the Turkish B2C E-Commerce market was online mass merchant Hepsiburada with a high one-digit market share. In 2013, its sales were growing by 50 percent compared to 2012. Other players, such as store-based and online retailer of electronics Teknosa and private shopping club Markafoni also realized their sales increase significantly, while local online food delivery company Yemeksepeti expanded to the Middle East under the Foodonclick brand.
The two most visited E-Commerce websites were automobile classifieds and marketplace Sahibinden and B2C/C2C auction and marketplace Gittigidiyor (fully owned by eBay). Private shopping clubs Trendyol and Markafoni followed, with three online mass merchants Hepsiburada, Limango and Morhipo ranking behind them.
Government Initiatives
The government is investing into projects like IFC Istanbul, making Istanbul into a global financial hub.
FATIH, a 3 billion TL project, which seeks to integrate state-of- the-art computer technology into Turkey's public education system, represents opportunities for organizations in various stages.
Data Centers
The total amount of white space in the region is currently just under 1.4 million m2 with Russia accounting for by far the largest proportion of the market at 650,000 m2. The strongest growth has occurred in Turkey and Eastern Europe whilst the Middle East has witnessed a very small growth in total white space over 2012 levels.
Regulations, Governance and Laws
Turkey continues to have some gaps in its coverage of basic cyber laws.

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Turkey also has rules on Internet content regulation in place that may act as a barrier to cloud services. The enforcement of cybercrime laws remains weak, and there is some concern that the penalties imposed for Internet crimes are not an effective deterrent.
Intellectual property protection in Turkey is reasonably up to date, but enforcement is patchy.
Food for Thought
Although there may not be one killer sub segment that will be the one to invest into, whether progressing towards becoming ITaaS provider or differentiating and enriching existing value offerings, cloud services are here and it is not far fetch to assume its use will increase through time and potentially out running forecasted growth rates.
Further some of the services sub segments are rather trivial to implement and integrate, making them easier to position against existing market needs. Hence overall strategy can prioritize rolling out such services if shorter ROI timeline is the top priority.
Additionally, strategy should also take into account services that complement core business and evaluate its indirect impact on churn rates and overall service stickiness rather than stand alone performance only.
Overall whether ITaaS is the end goal or not, public cloud services can provide the differentiation with a rich set of services to end users; consumers, SMBs and enterprises.

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References
Public Cloud Services Forecast, 2013 – 2018; Gartner, 2014
Cloud Services: Global Overview, 2014 – 2020; IDC, 2014
Digital Business — Telecommunications Industry; Forrester Research, 2014
Global Cloud Services Market (Services, Type, End User and Geography) Opportunities and Forecast, 2013-2020; Allied Market Research, 2014
Turkey B2C E-Commerce Report, yStats.com, 2014
Turkey Online, How the Internet is transforming the Turkish Economy; BCG, 2013
Global Cloud Computing Scorecard; BSA, 2013
Türkiye Elektronik Haberleşme Sektörü 2014 2. Çeyrek Raporu; Bilgi Teknolojileri ve İletişim Kurumu, 2014