Yes, the cloud is replacing enterprise hardware and software

A new study proves that businesses are shifting away from their data centers, to the peril of many traditional providers

The trend is clear: The more public cloud services that are sold, the more traditional enterprise hardware and software vendors shrink. I've been making this accretion prediction for years. However, until recently, it's not been readily apparent. Now it is.

Don't take my word for it. Barclays, in its global technology outlook, has reached the same conclusion: "We believe the deflationary impact from the cloud ($1 spent on cloud infrastructure actually results in several dollars coming out of other IT end-markets) should prevent IT spending from growing meaningfully in 2014 and 2015. ... We believe global IT spending will remain challenged in the lower single-digit growth range."

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Research firm 451 Group states that IaaS revenue for providers such as Amazon Web Services will jump at an annual rate of 57 percent through 2016, reaching $10.2 billion in 2016, up from $2.9 billion in 2012. This will come out of somebody's hide -- and it will be hardware and software sales.

The most interesting facet of this trend is the fact that the world of enterprise IT will change right before our very eyes in the next several years. Enterprise technology powerhouses such as IBM, Hewlett-Packard, and CA could find a massive decline in their revenues in 2014 and 2015.

Of course, these companies would argue that they're in the cloud and ready to take advantage of this emerging market. However, as I've stated here many times, they will do so at the expense of their traditional businesses. In some cases, for every $1 of cloud revenue they book, they may lose $2 in traditional hardware and software business. There is no way around that one. But I also agree they must have a cloud computing offering to slow the bleeding: $1 is better than $0.

This shift to the cloud affects more than the "big iron" providers. Those who live and die by the traditional enterprise software development and systems integration business will find their world is changing as well. As Barclays notes, "System integrators like Accenture may also struggle with the need for less on-premises integration as their customers rely more on [cloud] architectures." However, I don't think the cloud shift will pummel the traditional enterprise IT services space to the same degree as it will the "big iron" providers -- as long as the services providers can shift their skills and offerings in time.

Is this the beginning of a new world order? No. The fundamentals of architecture, design, operation, development, security, assurance, and management remain true whether we consume technology resources from the data center or from the cloud, even if sourcing and some of the mechanics change. We often go through these kinds of shifts in how we consume technology. This one is just the biggest we've seen.

This article, "Yes, the cloud is replacing enterprise hardware and software," originally appeared at Read more of David Linthicum's Cloud Computing blog and track the latest developments in cloud computing at For the latest business technology news, follow on Twitter.


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