Cloud is now one-quarter of IT spending—and rising fast

IT spending survey shows increased use of IaaS, PaaS, and SaaS is impacting on-prem investments, vendors, and cost management practices

Cloud is now one-quarter of IT spending—and rising fast
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A recent IT spending survey of over 300 enterprise IT executives identified some significant implications of the ongoing shift toward cloud. Respondents to the Flexera 2020 State of Tech Spend Survey, representing companies with more than 2,000 employees, indicated that their use of cloud is growing rapidly.

However, organizations are still struggling to manage their cloud costs as well as their overall IT spending. Enterprises also predict that these shifts will shake up their use of technology vendors. Bottom line: Organizations have work to do in order to optimize spending on their growing—and increasingly cloud-focused—IT portfolios.

Cloud is a significant and growing portion of IT spending

Respondents to the IT spending survey indicated that a quarter of their IT investments now go to cloud solutions, including public cloud (IaaS/PaaS) and SaaS solutions. This is now larger than the amount spent on traditional on-premises software. Almost a quarter of their software spend is now SaaS, while the remaining three quarters is on-premises software.

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This shift in spend will continue in 2020. More than 80 percent of respondents expect to increase their IaaS/PaaS spend and their SaaS spend, with more than 40 percent expecting significant increases in IaaS/PaaS.

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This increased use of cloud will be funded through reduced investments in on-premises software and data centers. More than half of respondents plan to slightly or significantly reduce traditional software investments while 65 percent plan to reduce the number of data centers in 2020.

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This increased investment in cloud will be driven by more workloads migrating to cloud. IT executives indicated that 32 percent of workloads are currently running in cloud (SaaS, IaaS, and PaaS) and that will increase to 43 percent in the next year.

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Cloud shift exacerbates IT spend optimization challenges

Organizations already struggle with visibility and control over their IT spending. The top challenge with IT spend visibility is reporting on spend by delivered IT business services. This becomes especially critical as companies seek to assess the cost implications of migrating IT delivered services to the cloud and to measure the ROI of their digital transformation efforts.

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Companies also struggle with ongoing management of their IT spending. The number of manual processes in spend management was cited as a challenge by 86 percent of respondents and avoiding waste was cited by 89 percent.

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These challenges get even larger as companies shift workloads to the cloud. Less than a quarter of enterprises consider themselves very mature at optimizing traditional software license spend. That number falls to less than 15 percent who consider themselves mature at managing and optimizing public cloud and SaaS spend.

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The cloud shift will impact enterprise use of vendors

As enterprises continue to increase their cloud investments, their use of vendors is shifting as well. Traditional vendors such as Microsoft, VMware, SAP, and Oracle are still among the most heavily used vendors, but now SaaS and cloud vendors such as AWS and ServiceNow are cracking that list.

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Going forward, though, respondents expect the largest increases in their use of cloud and SaaS vendors, with AWS topping the list at 65 percent. Traditional software vendors will be under pressure to drive growth by increasing customer use of their SaaS or cloud solutions.

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IT spend optimization must extend to cloud

With the rapid shift to cloud investments, enterprises are faced with increasing levels of on-demand and decentralized IT spend. Spend optimization for cloud requires a different approach that takes into account the continual nature of purchasing cloud resources by individuals, departments, and business units.

Get the full Flexera 2020 State of Tech Spend Survey to learn more.

Kim Weins is vice president of cloud strategy at Flexera. She has held executive marketing positions at a variety of enterprise software startups and public software companies. She received a B.S. in engineering from Duke University.

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