Originally published in Arab News.

If digital transformation is the sports car speeding us into the future, then the cloud is the engine providing the power – so how can Saudi Arabia ensure its engine is strong?

The global cloud industry is expected to grow from around $500 billion in 2022 to $1.7 trillion by 2030, according to Gartner. The growth trajectory is similar in Saudi, with its cloud market likely to rise from around $1.1 billion in 2022 to $3.3 billion by 2030, according to Statista.

What is behind the growth? Drivers include digital transformations across industries, increased use of 5G, more complex security requirements, and a surge in internet penetration, to name just a few.

Exponential growth in the use of generative artificial intelligence (AI) will also increase the cloud’s load. ChatGPT has more than 1 billion visits a month already, while Google’s Bard continues to roll out to new countries and in new languages, building its user base. In fact, it has just launched in Arabic. And remember, from a computing perspective, this activity is all in the cloud.

Zooming in on Saudi Arabia, its technology-intensive giga-projects and megaprojects will fuel the demand as these highly connected smart cities can only be realized with strength in the cloud.

While the opportunities for growth in the cloud industry in the Kingdom are abundant, it is essential to note that it is starting from a lower baseline than leading markets. Oliver Wyman’s analysis shows that the public cloud market currently contributes to around 0.1%of Saudi’s gross domestic product (GDP).

In contrast, the metric is closer to 0.4% across the leading cloud economies we used as benchmarks. This means spending on the cloud will need to quadruple in the Kingdom for there to be the same level of investment as in markets that are cloud leaders.

Is that investment worth it? Yes.

A robust cloud industry will offer direct and indirect contributions to GDP and jobs in the Kingdom. There are the core services, of course, but then there are also elements such as installed capacity, data centers, and fiber that will be bolstered by cloud investment.

So further localization of the cloud industry in the Kingdom will help the economy and overall connectivity, but what would the cloud delivery value chain entail? Which area should it focus on first?

You cannot talk about the digital economy without acronyms – and there are three key terms that cover the entire gamut of the cloud value chain. Infrastructure as a service, which includes storage, network security, virtual machines, and so on. Platform as a service, which comprises back-end platforms that developers can build upon. And finally, but importantly, there is software as a service (SaaS).

SaaS is any software that resides in the cloud. It is the part of the cloud industry that most people interact with, making up the most significant slice of the market globally. SaaS products are often accessed via a subscription model and include delivery apps, streaming services, etcetera.

SaaS presents considerable potential today for Saudi Arabia in terms of localization because it generally needs to be very tailored to customer needs, and this need for customization offers an opportunity in the market.

Meanwhile, on the supply side, the SaaS market is more fragmented and less dominated by the global hyperscalers that comprise the bulk of the IaaS and PaaS cloud markets.

Hyperscalers are huge global cloud service providers that can provide solutions at an enterprise scale, the bulk of which are based in the US. They control approximately 90% of the infrastructure as a service (IaaS) and platform as a service (PaaS) markets globally and 50% of SaaS. This means the playing field is more even when it comes to SaaS.

The immediate gains lie in SaaS, but you cannot build software without a strong platform and robust infrastructure. Therefore, PaaS and IaaS also must be addressed.

Barriers to entry in Saudi Arabia include the high price of infrastructure and the need for specialized talent. Much work is needed on this front, but every cloud has a silver lining, and a lot has been done already. Several hyperscalers have plans to enter the Saudi market, including collaborating with local partners. These companies are a must because they have scale and drive most of the growth in the industry.

The newly announced Cloud Computing Special Economic Zone is another fantastic step in the right direction. It will operate under a distinct regulatory environment and aims to contribute $1.8 billion to the country’s economy by 2030.

There is much to say about the cloud, and much work to do globally to ensure the engine powering our digital future is agile, solid and sometimes customized.

By 2030, when a local person plans to buy a subscription to the hottest new cloud software and asks generative AI for a purchase recommendation, hopefully the entire value chain of this transaction will be within the Kingdom of Saudi Arabia. Such localization of the cloud will mean faster services, additional jobs, more targeted options for consumers and a stronger GDP.

Read the original article here.