An analysis of a sample of more than 90 publicly-traded and private companies across a dozen industries and their commitment to the cloud demonstrates the value of cloud skills
Cloud computing has enabled a new generation of startups to emerge and grow into some of the world’s most valuable companies. Without cloud computing, there likely wouldn’t be an Airbnb, an Uber, or a Pinterest. The cloud, however, is not reserved just for tech startups that started in 2007 or later.
Hundreds of companies that started with traditional, on-premise data centers are moving their operations to the cloud. And they’re able to recognize the value in many measurable (and immeasurable) ways. Those can manifest in lower operational costs, faster operating cadence, or overall fewer headaches when upgrading or procuring new software. Measuring that return on investment, however, has historically been tricky.
Well, at A Cloud Guru, we learn by doing. So we decided to give it a shot.
We graded a sample set of more than 90 public and private companies in numerous industries across 20 dimensions to determine their transition and commitment to the cloud. These measurements included requests for cloud skills in open job descriptions, cloud-specific roles, public comments and announcements, case studies, news, critical leadership experience, and some financial metrics that directionally indicate the positive effects of cloud adoption. From there, companies were placed into three “life stages” of their cloud journey:
- The Tactical stage: The company has made ad-hoc investments into cloud adoption either from an infrastructure or talent level.
- The Strategic stage: The company has made an overt, public commitment to the cloud with real ramifications (social and financial) for backtracking on its investment.
- The Transformational stage: The company’s transition or permanent usage of the cloud is substantial and well-documented, with measurable results.
To determine the real impact of cloud adoption, we looked at how much revenue companies generate per employee and how their market caps have changed over time. Before we get into that, here are a couple of key findings:
- Every company reviewed is requesting cloud-related skills. These might be implemented into a private cloud, but every company we reviewed were looking for at least 5 unique cloud skills. On top of that…
- Every company is looking for container and Kubernetes experts! Seriously. Every one we reviewed had an open rec with a request for expertise in Docker, Kubernetes, or containers.
- Not everyone is hiring for cloud-specific roles. For many larger, older companies, these cloud skill requests are folded into part of a larger team. This doesn’t necessarily mean they aren’t focusing on the cloud—just that the company is organized in such a way that it’s an integrated operation.
- More than half of all companies are looking for NoSQL experience in job descriptions. NoSQL databases like DynamoDB and CosmosDB help you rapidly scale applications—which clearly is something legacy companies are looking to do.
- Not everyone is multi-cloud (…yet). More than half of all companies had open job reqs requesting experience for one cloud platform only. (Usually AWS)
- The majority of cloud companies employ cloud-certified professionals. Nearly every company included in this analysis had at least two dozen cloud-certified team members. These certifications include Azure, Google Cloud, and AWS—but there’s a sea of experts in various other certified areas.
- Most companies are on the way there. All but 2 companies (we’re not judging) have publicly announced a partnership with a cloud provider or have discussed their hybrid cloud strategy publicly.
We looked at two key metrics: the change in average revenue per employee based on its annual performance from 2015 to 2019, and the shift in market cap from Jan 1, 2016 to Jan 1, 2020. We did not include 2020 in our analysis due to the extraordinary circumstances that have generally suppressed growth across the board in both revenue and market cap for many industries.
We included a dozen obviously-transitioned companies to help calibrate our scoring brackets as a “control” group. Our overall dimensions included:
- Employees and jobs: How many employees are certified, the number of cloud-specific skills they are searching for in job descriptions, and the level of cloud expertise in the VP or above executive level.
- Public documentation: How public the companies have been about their cloud transition, including number of cloud-exclusive products launched, strategic investments, case studies, acquisitions, and partnerships with cloud providers (including IBM, AWS, GCP, Alibaba Cloud, and Microsoft Azure).
- Level of cloud adoption: Whether the companies have, at minimum, a hybrid cloud operation and have established teams and roles dedicated to cloud tools and business operations (such as a Cloud Center of Excellence or hiring a Chief Cloud Officer).
- Financial performance: Where applicable, if there is a marked and documented improvement in costs, operating margins, and if a cloud investment is frequently brought up as a core strategy in earnings calls and statements.
Each dimension contributed to an overall score for the company’s cloud adoption stage, with financially measurable results (such as operating margin improvement) weighted more strongly than soft measurements (such as sponsorships and skills requests).
With all that out of the way, let’s get to the results!
Dollars in, dollars out
Net net, we found that the overall average revenue per employee of these companies improved the further along in their cloud journey they were.
This trend generally follows when looking at specific sectors, though there can be differences. However, there are some industries in our analysis that exhibit considerable variation in their change in average revenue per employee, such as in consumer packaged goods and manufacturing.
This may suggest that some companies experience the benefits of cloud migration in a more immediate way than others. Retail companies (and ecommerce, as an extension) may find efficiencies by shifting most of their operations to the cloud. Makers of physical goods, however, may see a quick return on early investments and take longer to see the substantial ROI other industries do.
We found no companies that fell under the Transformational tier in our analysis of transportation and life sciences/biochemical companies—likely due to the nature of how highly regulated they are and inertia as a result. For life sciences companies, this likely shows up as a heavy cost of implementation for cloud technology (which may include implementing complex machine learning models).
Still, these selected industries (we provide a total breakdown of our industry selection at the bottom) are just one part of the bigger picture—and as a whole across we found a general increase in performance.
The stock market is, well, not all that rational. It’s kind of like fantasy football meets the economy, but with a much more significant impact on our collective sanity than Saquon Barkley being out for the season. That being said, it’s still a measure—often one of the most-watched ones—of the health of the economy and of a given company’s health.
For our analysis, we looked at the change in market cap for companies in each life stage from January 4, 2016, to January 7, 2020. This period accounted for extraordinary growth in the market and a time of general transition into cloud maturity. We benchmarked this against the median increase in company stock prices from January 4, 2016, to January 7, 2020, to account for the extreme top-heavy nature of the S&P 500 (of which 5 companies now make up 18% of the index).
We found the overall increase in market cap between the transformation and strategic stages was actually not too far apart, while transformational-stage companies were more than 15 percentage points ahead of tactical-stage companies.
To unpack that, we’ll have to get into a little bit of market crystal ball logic: your market cap is generally some magic number multiplied by your next year’s revenue, plus some variation depending on how generally great things are (and/or how bad they are). Said magic number varies from industry to industry.
As we kind of alluded to earlier, the market doesn’t necessarily behave rationally. But one thing the market does love is growth–and future potential.
A company’s stock price and market cap are usually reflective of its future earnings potential. As companies adopt cloud technology, they find increased opportunities for efficiency and growth—and a lot of companies are starting that transition period today.
To better articulate this, we’ll take a look at one of the best examples in our analysis: Splunk. Here are some key signals that demonstrate how Splunk has reached a Transformational stage (and it’s a laundry list, at that):
- Splunk, founded in 2003, started as an on-premise solution for searching through company data. It had desktop applications for Windows and other platforms–and was even working with OEMs at the time! As a point of reference (with its literal cancel software sign as a mascot) started in 1999, kicking off the cloud revolution.
- Splunk launched the Splunk Cloud in 2012, starting its move into the cloud. Splunk had already begun working with Amazon Web Services, announcing its first public partnership in 2016. Splunk announced a partnership with Google Cloud earlier this year, and also works on the Azure marketplace. (Check off public partnerships and a cloud-specific product launch.)
- Multiple members of Splunk’s c-suite have lots of experience with cloud products. In addition, hundreds of Splunk engineers are cloud-certified (in AWS, Azure, or Google Cloud), and Splunk has a large number of open recommendations for cloud-specific roles with asks for more than a dozen cloud-specific skills. (Check off the talent section)
- It pulled out its checkbook for a $1.1 billion acquisition in 2019, buying SignalFX—a cloud monitoring platform for infrastructure, microservices, and applications. It has also made investments into cloud-focused startups, including Insight Engines and Aclima. (Check off the investments).
- Splunk has also been quite public about its transition. In addition to publishing thought leadership on its own, Splunk has given multiple media interviews about its cloud transition (not including content about its earnings reports).
- There’s a real return on investment. You can see this showing up in improving operating margins, revenue per employee, and of course a more than 200% gain in its market cap.
While Splunk is well into its Transformational stage, its cloud transition was so blatantly successful that it well outstripped the typical growth in market cap. It’s a good example in that it is a clearly transitioned company, and also the further you invest in the cloud the more you’re going to see a return on your investment (in this case shareholder value).
Party in the clouds
So, as we can see, you put money into the cloud, you generally get money out of it. The return is going to be different for every company and every team. Your revenue per employee probably won’t jump by precisely 25% over four years. And again, this is a sample set of companies and does not encompass the entire universe of companies across many different industries.
We can also see that companies probably recognize the gains from transitioning operations onto the public cloud (or even a hybrid cloud) on different timelines. For example, an ecommerce company lifting and shifting its app onto IaaS may see instant returns as pages stop crashing, losing customers as a result. Meanwhile, manufacturing companies (especially older companies) may find they have to invest early—or they simply start to actualize value from moving their operations at a much earlier stage.
While there is some variation among industries, we end up seeing a net “ladder” effect when it comes to investments in cloud operations. The signals may vary from company to company (and, to be clear, they very much did)—but as a whole, when you’ve shown an obvious commitment, you see a very real return.
A Cloud Guru reviewed more than 90 publicly-traded S&P 500 companies to assess the state of cloud maturity across a diverse set of industries. These industries included consumer packaged goods, financial services, manufacturing, IT, retail, transportation, media, as well as others. In this analysis, we excluded many of the top companies in the S&P 500, including Facebook, Microsoft, Apple, Google, and Amazon.
Specifically, we looked at a total of 20 dimensions across 7 categories that we feel define commitment and investment in the cloud. Each dimension was assigned a maximum score, with the stage of the company corresponding to a specific score bracket. Brackets were selected via a mixture of establishing a baseline control group (one that has obviously invested and deployed cloud technology), review of public data, and other factors.
These are the dimensions, in increasing order of importance (and thus stronger signals and higher scores):
Cloud presence within open or legacy job descriptions: We reviewed open and legacy closed job recs for specific cloud skills, titles that indicate cloud-exclusive roles, and platform experience requests. We also reviewed whether these jobs, or existing job descriptions or employee job descriptions indicated work on a cloud-exclusive product team.
A cloud-exclusive product launch: We reviewed recent product launches to see whether the company launched a new product exclusively on cloud technology, rather than simply migrating their stack onto a cloud platform.
Investments: We reviewed all documented investments and acquisitions by companies to determine whether they have invested in companies that are cloud-focused. Specifically, we looked for at least two cloud-focused company investments, and up to 3 cloud-focused company acquisitions (or up to $250 million purchase price).
State of cloud transition: Finally, we looked at whether the company had committed to public partnerships with up to three of the major public cloud providers to establish, at minimum, a hybrid cloud. These providers included Alibaba, Amazon Web Services, Microsoft Azure, Google Cloud Platform, IBM Cloud, or Oracle Public Cloud.
Public speaking and thought leadership: We reviewed publicly-available material for commentary on the company’s cloud transition. Specifically, we looked whether they had participated in conferences, given keynote presentations, or gave public media interviews about their cloud strategy.
Deploying a Cloud Center of Excellence (CCoE): we reviewed job descriptions, role descriptions, and other publicly-available data for mentions of a cloud-related Center of Excellence, such as a CCoE, Data center of excellence, and others.
Financial presence: We reviewed earnings transcripts, SEC filings, and others to see whether the executive team indicated they were focused on cloud technology. We also reviewed any cloud expenses, where available, and whether operating margins were improving as a result of cloud implementation.
Our overall industry breakdown in our analysis is as follows (with some companies accounting for multiple industries):
“Other” categories include F&B, media, hospitality, logistics, agriculture, and others, as well as our control group.