Jan 10, 2020 3:00 AM

Enterprises are still spending on data centers. What gives?

The tremendous growth in money spent on cloud computing was supposed to reduce data center costs, but new survey says no


Synergy Research Group’s review of enterprise IT spending during the last 10 years shows that “annual spending on cloud infrastructure services has gone from virtually zero to almost $100 billion.” No surprise here. 

However, “enterprise spending on data center hardware and software has been stagnant through much of the decade.” Huh? Not declining?

What’s most interesting about this analysis is that core IT spending doubled during the same time period, with the cloud seeing most of that growth. During the past decade, the average annual spending growth for data centers was 4 percent; growth was 56 percent for cloud services. 2019 was the first time that enterprises spent more on cloud services such as IaaS, PaaS, and SaaS than on hardware and software related to data centers. 

What’s surprising is that despite the growth in cloud, cloud spending is only catching up to or slightly exceeding data center spending. At the same time the cloud grew, data center spending did not decline. This, despite predictions that cloud would rapidly displace data centers. Most believed that a dollar spent on the cloud would be a dollar not spent on traditional data centers. That does not seem to be the case. 

Some of the most likely reasons for this odd result? 

  • We are still in a transition period where we need to keep the data centers going as we switch over to cloud-based systems. Enterprises are reluctant to completely shut down data centers. If something goes wrong with the migration, they retain the ability to revert to legacy.
  • Data center spending is not a tap that you can simply turn off. Data center leases may still have years left; there are sunk costs in equipment; you need to retrain data center staff, etc.
  • Some still believe that traditional local hosting is much less scary than the public cloud, and for whatever reasons, have pushed back on migration. Thus, the data centers remain. 

What will be interesting is data center spending over the next decade. At some point it should drastically decline. However, at this point in the cloud computing revolution, it does not seem that spending in the cloud directly affects data center spending—which is just weird.