The cloud is killing traditional hardware and software

New numbers show the cloud reducing IT costs, with traditional software and hardware vendors paying the price

According to a report by Baird Equity Research Technology, "Cloud services will drive a shrinking IT spending pie. As companies increasingly replace server and networking infrastructure with cloud services, we see a meaningful direct impact on existing hardware and software vendors." That is, traditional enterprise tech vendors will earn less as IT migrates more and more to the cloud.

The reality is we're becoming more reliant on cloud-based resources and less dependent on traditional IT hardware and software assets. Although the impact is slight today, I suspect -- and the Baird report confirms -- that, by 2016, the traditional technology providers will be hurting.

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Says Baird: "We estimate that for every dollar spent on [Amazon Web Services], there is at least $3 to $4 not spent on traditional IT, and this ratio will likely expand further. In other words, AWS reaching $10 billion in revenues by 2016 translates into at least $30 to $40 billion lost from the traditional IT market."

Although the numbers include hardware, the brunt of the impact is on enterprise software sales. Tech vendors' hardware revenues will actually go up a bit, because many enterprises are building private clouds. Also, larger cloud providers are always adding hardware. However, IT will ultimately be able to do more with less.

What will be interesting is how the technology industry adjusts to these changes and especially how traditional hardware and software providers will prepare themselves for the change. Already, IBM, Hewlett-Packard, Microsoft, Oracle, and others are moving their technology offerings into the cloud, and they will continue to do so.

But will these traditional providers hold enough of the cloud market by the time the shift accelerates to remain leaders? If Baird's estimates hold true, for every dollar they make selling public cloud services, they will lose $3 to $4 in traditional hardware and software. In other words, they will be cannibalizing their market, which may redefine what they do and how strongly they can lead. I'm not sure they have much choice.

This article, "The cloud is killing traditional 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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