Cloud is going to take time

Cloud spend will need to grow many more years before it becomes even a meaningful fraction of total IT spending

Cloud is going to take time
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$233.4 billion. That’s how much analyst firm IDC said the world spent on cloud (SaaS, IaaS, PaaS) in 2019. It sounds like a lot of money, right? According to a quick Internet search, $233 billion is how much China plans to spend on defense. It’s now much Bill Gates could save by “reinventing the toilet.” And it’s how much the meeting industry expects to lose due to the pandemic curtailing travel.

But $233.4 billion is a rounding error compared to the $4 trillion that organizations will spend on IT in 2020, according to IDC. Just 5.8 percent. The fixation on cloud revenues only serves to distort the reality of how organizations spend their IT budgets today.

But growth!

Sure, if we look at where the growth in IT is, cloud is hot. (Note: IDC includes Devices, Infrastructure (server/storage/network hardware and cloud services), Software, and IT services in its IT spending number.) As IDC vice president Stephen Minton recently said,

Where there is growth, most of it is in the cloud. Overall software spending is now expected to decline as businesses delay new projects and application roll-outs…. On the other hand, the amount of data that companies must store and manage is not going anywhere. Increasingly, even more of that data will be stored, managed, and increasingly also analysed in the cloud.

Let’s take China as an example.

On Alibaba’s recent earnings call, executive vice-chair Joe Tsai pointed out that China’s total cloud market is still relatively small compared to the western markets, just $15 to $20 billion. Even so, that’s a bigger share of the total Chinese IT market ($297 billion in 2020, according to IDC) than the global percentage.

As for growth, as Tsai went on to project, “The China market is going to be a much faster-growing market in cloud than the U.S. market.” At Alibaba’s roughly $7 billion annual run rate, coupled with 59 percent annual growth in the most recent quarter, there’s a long way to go to catch up to IDC’s other prediction: 90 percent of applications in China will be cloud-native by 2025. If the Chinese market gets anywhere near that number, that represents impressive growth, indeed.

And friction

But most economies don’t function like China’s, with its five-year plans. Nor do most companies, though we’ve seen the coronavirus pandemic kickstart a torrid era of digital transformation. As CircleCI CEO Jim Rose told me a few months back, “The pandemic has compressed the time that companies are taking to get to CI/CD [and cloud]. Everything we forecasted for the next year is now happening in the next three months.”

Writing about steps organizations should take to get ahead of pandemic-induced restrictions on employee movement and customer spend, InfoWorld’s David Linthicum notes a few to-do’s:

  • Move rapidly to public cloud-based resources, including IaaS and SaaS.
  • Eliminate data centers, either owned or leased.
  • Reduce or eliminate facilities to a functional minimum.
  • Change corporate culture to support remote collaboration.

Some of these are easier said than done. For example, companies like GitLab that have always had a remote-first policy found it much easier to adapt to work-from-home requirements than peers used to an office culture. You can give everyone a camera and headset, but enabling people to be productive in a work-from-home environment requires cultural change, and cultural change takes time.

Hurry up and wait

As such, even as we rightly expect to see a hastening toward more cloud adoption over the next few months (and years), we would be wrong to think we’ll magically go from $233 billion to $4 trillion by 2025. Don’t bet on it.

But also don’t bet on the fanciful notion that workloads are going to “repatriate” from cloud to on-premises data centers. There are all sorts of good reasons to pick that fever dream apart (analyst Corey Quinn highlights a few of them), but here’s perhaps the biggest: organizations are slow to change. Even the “hastening” I mentioned above about digital transformation will take years. It’s simply not the case that companies will move to cloud (and then back to their data centers) on a whim. That’s not how the real world works.

Don’t believe me? Let’s rewind to the beginning of this article. Yes, cloud is a big deal... but it’s still just 5.8 percent of total IT spending. Over time, I suspect we’ll see those percentages flip, with the 5.8 percent number relating to on-premises workloads, not cloud. But that’s not going to happen next year. Or the year after that. Change takes time.

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