Cloud spending rises in spite of enterprise concerns

Cloud computing will continue to flourish in the enterprise, unless security and reliability concerns become a reality -- or worse, a nightmare.

Cloud spending over the next decade is expected to continue its explosive growth, but analysts say lingering concerns about the technology remain a barrier to wider adoption.

More enterprises migrate to cloud-based services because of the convenience, cost savings, flexibility and easier management, according to Christian Perry, content manager at Technology Business Research (TBR), a Hampton, N.H.-based IT analysis firm.

"As is everybody else, we're seeing the rise of public cloud resources being purchased by traditional data center customers, and we expect that trend to continue," Perry said.

The reality is cloud spending is up. However, it's still a small fraction of what traditional shops are spending.

David Linthicum,
SVP, Cloud Technology Partners

Year-to-year expansion in overall public cloud services grew 25.6% to $15.1 billion in the fourth quarter of 2013, according to a recent TBR report.

Forrester Research projects even greater growth in the decade ahead. The Cambridge, Mass-based firm has forecasted global growth in public cloud spending to rise from $72 billion in 2014 to $191 billion by 2020 -- a 20% increase from its projections just three years ago.

Cloud concerns remain

And while the cloud industry's growth has been striking so far, analysts say there is still a ways to go.

"The reality is cloud spending is up," said David Linthicum, senior vice president with Cloud Technology Partners, a Boston-based consulting firm. "However, it's still a small fraction of what traditional shops are spending."

There are still concerns over security and reliability. In addition, the cost of doing business in the cloud -- and the promise of big savings -- remains murky for newer customers and depends largely on how businesses use these services.

Cloud computing will make up between 1% and 2% of the enterprise IT market by the end of the year and grow to 3% or 4% in 2015, Linthicum said.

"It's not shifting as fast as everyone thought it would shift, but it's certainly growing by leaps and bounds," Linthicum said.

He expects the growth of the cloud market share to continue to rise until it gets closer to 50%.

Some IT managers remain wary of ceding too much control, particularly those who work at larger companies that employ sizable IT teams. But, there are far more psychological barriers to adoption than technological ones at this point, said James Staten, an analyst at Forrester.

Cloud pricing wars

All these increases in market share come as the major cloud providers continue to slash their prices. Amazon, Google and Microsoft all recently cut prices. CenturyLink disclosed its own pricing changes just last week.

"The competition is ridiculous," Perry said. "Once [cloud providers] get customers on board with these services, it tends to be relatively sticky, so customers will stay with a public cloud service provider over time just as we see with traditional infrastructure."

This scenario is a "quasi-lock-in" that becomes costly and risky to detach from, Linthicum said. Once enough enterprises become reliant on cloud, he sees a reversal in the cost trend; there's a potential for price increases that mirror how legacy vendors have operated with traditional IT infrastructure.

"When these guys get immensely huge, which they will be, that's when the price will start to go up," Linthicum said.

Providers recognize there is better profitability in the higher services, and it's the volume of what they can provide that translates to profits, Staten said.

And while no one predicts traditional, in-house infrastructure will disappear, the impact on that side of the market is already apparent.

IT spending has not kept pace with overall tech spending since 2011, according to Forrester, which projects overall tech spending to increase by 5.8% in 2014 and 6.7% in 2015, but infrastructure spending to increase by only 2.9% and 4%, respectively.

Legacies shift

Legacy companies are fully aware of the industry shift, and it is a reason why companies such as IBM have moved away from traditional servers and into the cloud, said Robert Mahowald, an IDC analyst based in Framingham, Mass.

"Big providers realize there's a lot to lose if they fail," Mahowald said. "They are going to follow suit and they are going to keep infrastructure costs low for customers. The thinking is, if you move some infrastructure capabilities to the cloud, there's a certain amount of gravity there and it sucks in other employee services."

The benefit these companies have is their existing relationships with customers and their ability to transition applications to cloud services when these applications need to be upgraded. Some larger companies, such as Oracle and HP, need more of a cloud presence or risk falling behind, he said.

"There is a two-year window of opportunity -- and it's always shifting -- for some of these big vendors to diversify and offer a full portfolio and say, 'We can do all this stuff, and come to the cloud and we can do it for you,'" Mahowald said. "Low-cost infrastructure is kind of the gateway drug to that."

The role of IT professionals must evolve in the future, too.

"The implications are significant, but they're not necessarily disruptive to staffing -- that we've seen so far," Mahowald said. "Jobs aren't going to be going away, but we're seeing to some degree a shift in what the jobs are."

Storage maintenance and management will still be a key part of the IT professional's job, but these employees need to expand their skill set to adapt to new technologies.

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at tjones@techtarget.com.

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