Companies’ spending on cloud computing services is growing at an even faster rate than expected, according to new analysis from Gartner Inc.

Gartner’s latest Worldwide Public Cloud Services Forecast shows that worldwide revenues are set to hit $260 billion by the end of the year, compared with $219.6 billion the year before. That represents year-on-year growth of 18.5 percent, the analyst firm said.

It added that software as a service, or applications delivered online, and infrastructure as a service, the base-level computing, storage and networking services, were the two fastest-growing segments in the cloud services market.

“Final data for 2016 shows that software as a service revenue was far greater in 2016 than expected, reaching $48.2 billion,” said Sid Nag, research director at Gartner. “SaaS is also growing faster in 2017 than previously forecast, leading to a significant uplift in the entire public cloud revenue forecast.”

Gartner said SaaS revenues will grow by 21 percent, to $58.6 billion, by the end of the year. Nag reckons that this growth is being driven by the trend among service providers to delivery nearly all application functional extensions and add-ons as a service, something he said appeals to enterprises because these products are more “purpose-built” and therefore better able to deliver business outcomes.

However, it’s the IaaS category that will see the largest overall growth. Gartner said that revenue is projected to grow by 36.6 percent this year, to $34.7 billion.

Another category seeing faster-than-anticipated growth is platform as a service, the middle layer that includes services such as application development and databases. According to Nag, companies are becoming more confident that PaaS will be the primary application development platform in future and are therefore increasing their investments in the space.

Gartner said it expects overall growth in the public cloud services market to continue until at least 2020, though things are expected to “stabilize” from 2018 onward as cloud becomes more mainstream.

“As of 2016, approximately 17 percent of the total market revenue for infrastructure, middleware, application and business process services had shifted to cloud,” said Nag. “Through 2021, this will increase to approximately 28 per cent.”

Established public cloud giants such as Amazon Web Services Inc., Microsoft Azure and Alibaba Cloud will likely be the chief beneficiaries of this continued growth, with two-thirds of spending on cloud services through 2021 going to the top 10 providers, Gartner said.

“In the IaaS segment, Amazon, Microsoft and Alibaba have already taken strong positions in the market,” said Nag. “In the SaaS and PaaS segments, we are seeing cloud’s impact driving major software vendors such as Oracle, SAP and Microsoft from on-premises, license-based software to cloud subscription models.”

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