BrazilEuropean IaaS and PaaS cloud market to double by 2028
The European cloud services market is forecasted to grow at a CAGR of 23%, reaching €110 billion by 2028. That is according to research from BDO that analyzed trends and developments in the IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) landscape.
This exceptional growth in the European cloud services market will be driven by the ongoing shift to cloud computing, which can offer companies significant economic and technical advantages. Using cloud tools gives businesses more flexibility and can save them big on infrastructure-related IT costs.
More specifically, IaaS offers businesses basic computing resources like virtual servers and storage over the internet, allowing them to run applications without owning physical hardware. PaaS offerings provide a framework for developers to build and deploy software, streamlining the process by handling underlying infrastructure and offering ready-made tools.
Strong growth
“The global cloud services market is projected to expand by almost six times in 2028 compared to 2020 because of the rapid transition of businesses from on-premises IT infrastructure to the cloud, as the latter delivers more flexibility and reliability, increased performance and efficiency, and helps lower IT costs,” explain Lars Berger and Bart Receveur, both members of BDO’s M&A team in the Netherlands.
Europe is actually the third largest cloud services market in the world, after North America and Asia. In the European market, PaaS is expected to grow at a faster pace than the IaaS segment, which sets it apart from global trends.
One of the main drivers of growth is the remarkable uptake of transformative tech like artificial intelligence, internet of things, remote and hybrid working, and virtual reality, among other things. These new innovations have led companies to seek a range of cloud infrastructure solutions.
“The PaaS segment is forecasted to increase its share from 44% in 2020 to 54% in 2028, given the growing demand from companies engaged in software development,” noted Maarten Kuil, lead-partner of the Dutch Tech M&A team.
“The primary benefit of PaaS is that it allows customers to build, test, deploy, run, update, and scale applications more quickly and cost-effectively than they could if they had to build out and manage their own on-premises platform.”
Market highly concentrated
The European cloud services market is highly concentrated, with American big tech leaders Amazon, Microsoft, and Google alone wielding 72% of the regional market. European providers have seriously struggled to compete with American companies, and local providers currently make up only 13% of the market.
“European companies have been losing their market shares despite the growth in their cloud revenues since they do not possess as many resources as the leading US-based large vendors to make significant capital investments,” said Receveur
“Therefore, European players have mostly settled into positions of serving local groups of customers that have some specific local needs, sometimes working as partners to the big US cloud providers.”
On the radar of buyers
With the market on a roll, interest from strategics and financial sponsors is set to follow suit, said BDO’s report, with a significant uptick in M&A activity expected to hit the European cloud services space. That comes on the back of an already heightened M&A market – the number of acquisitions in the landscape grew from just 21 in 2019 to reach 70 in 2023.
Consolidation is a key part of the drive, as smaller players seek to beef up their scale in order to better compete with larger, established providers.
“The European cloud services market is also characterized by the high interest from private equity firms due to recurring revenues, high margins, and significant expansion potential of companies operating in the market,” noted Berger. Private equity activity in this market mostly involves financing to cloud services companies in their portfolios. This is typically aimed at building larger groups through a buy-and-build strategy.
