Cloud Service Market (IaaS/PaaS) in Japan: Key Research Findings 2024

Cloud Service Market Valued at 1,940,000 Million Yen in 2023, 120.5% of the Previous Year

Yano Research Institute (the President, Takashi Mizukoshi) has conducted a survey on the cloud service market (IaaS/PaaS) in Japan, and found out the current status, trends of cloud vendors, penetration status of new services, and future perspectives.

Transition and Forecast of Cloud Services (IaaS/PaaS) Market Size
Transition and Forecast of Cloud Services (IaaS/PaaS) Market Size

Market Overview

The market size of cloud services (IaaS/PaaS) in 2023 was estimated at 1.94 trillion yen, 120.5% of the preceding year (based on the sales at businesses). Although system migrations still occupied the majority of the businesses, i.e., customers switched to a newer hardware infrastructure or a different software platform but did not change business processes, expansion of the range of target business processes from information systems to mission-critical systems underpinned the market growth. In addition, generally speaking, digital transformation (DX) has not lost popularity. As the level of expectation for DX increases (as companies start to see DX as a means to gain competitive advantage as opposed to seeing it as a means only to streamline operation) the growth of the cloud service market was accelerated.

Furthermore, generative AI garnered attention in 2023, driving companies to reconsider the use of AI once again. Handiness of generative AI has driven many companies to look for its effective use in business applications. Meanwhile, to meet the needs of such user companies, IT vendors like cloud vendors are accumulating know-how through the use of generative AI software themselves. Although the level of impact is not so much so far, it can be said that the trend of generative AI is the growth factor of the market.

It should also be noted that the rise of managed cloud services also gave a tailwind to the cloud service market. As managed cloud services increased recognition, they enhanced service menus, generating the environment where it makes it easier for customer companies to use cloud services.

Noteworthy Topics

Generative AI Providing New Business Opportunities

ChatGPT launched in November 2022 brought a new experience that makes users feel as if they are having actual conversation with an AI. Its intuitive and easy-to-use nature rose people’s interest for generative AI rapidly and propelled development of business applications.

Generative AI technology uses a machine learning model called foundation model, which is trained on a vast quantity of unlabeled data. Major cloud vendors provide platforms for the development of a foundation model and/or applications using various foundation models, while incorporating conversational AI chatbot or other types of AI assistance to their cloud service to support their users.

At present, user companies place importance on the use of interactive AI within the framework of a secure environment. They basically limit the use of generative AI for internal use only, such as for organizing ideas through dialogue with generative AI and creating minutes or summary of meetings. The companies are referring to various case studies, seemingly waiting to see if they can find a relevant way to use generative AI externally. Under the circumstances, we believe the development of guidelines that are underway in various industries and ministries are necessary to encourage user companies to utilize AI proactively.

Future Outlook

The cloud services (IaaS/PaaS) market is expected to grow steadily. One of the reasons behind this is the demand for system renewals, which are said to be built on past technologies and mechanisms that are not compatible with latest technologies. As warned by the Ministry of Economy, Trade and Industry as "2025 cliff*" in its "DX Report” in 2018, a risk of legacy systems inducing delays in digital transformation and economic losses is looming. In this regard, it is assumed that the number of companies considering renewal of their legacy systems will increase further.

User companies continue to show interest in digital transformation and Data Driven Management (a decision-making process that relies on data and analysis to make informed decisions instead of solely on gut feeling or experience; DDM). As their goal of digital transformation has deepened from just improving operational efficiency to gaining competitive advantage, companies are starting to see the needs to promote DX and DDM coherently to achieve maximum result. Considering these situations, cloud providers are required to address customers by providing proposals for system renewals that align with their DX and DDM needs.

* Reference: “DX Report – Overcoming the IT System “2025 Cliff ″ and Full-scale Development of DX”, The Ministry of Economy, Trade and Industry (September 2018)

Research Outline

1.Research Period: November 2023 to March 2024
2.Research Object: Domestic vendors related to cloud services (providers of public cloud and its peripheral services), domestic private companies, etc.
3.Research Methogology: Face-to-face interviews by our expert researchers (including online interviews), survey via telephone and email, mailed and online corporate questionnaire

What is the Cloud Service (IaaS/PaaS)?

IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) in this research refers to the cloud computing environment managed on public cloud (by cloud providers) that offer virtualization, automation, and other technologies via internet.
Size of the cloud service market is calculated based on the sales at cloud providers. However, SaaS (Software as a Service) is not included in the market size.

<Products and Services in the Market>

IaaS, PaaS

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