Cloud spending outstrips on-premises investments for the first time

The pandemic has finally pushed enterprise cloud spending past on-premises investments for the first time, marking a historic moment for the worldwide IT industry.

Cloud spending outstrips on-premises investments for the first time
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Enterprise spending on cloud infrastructure bypassed spending on data center hardware and software for the first time in 2020, as the COVID-19 pandemic accelerated a decade-long industry trend towards running enterprise workloads in the cloud instead of on-premises servers.

That’s according to the latest data from Synergy Research Group, which shows that enterprise spending on cloud infrastructure services (IaaS, PaaS, and hosted private cloud combined) grew by 35% to reach almost $130 billion in 2020, while enterprise spending on data center hardware and software dropped by 6% to less than $90 billion over the same period.

Over the last decade, enterprise cloud spending has grown significantly from a base of virtually zero in 2010, compared to stagnating data center spending, which has grown just 2% on average annually over that period.

The data also shows that 60% of new server sales are now going into the data centers of the cloud providers themselves, instead of to individual organizations, marking a major shift in the customer base for the hardware makers.

“While 2020 can be viewed as something of an anomaly due to COVID-19, the trends are absolutely clear, and we expect them to continue for many years to come,” said John Dinsdale, chief analyst at Synergy Research Group.

Companies of all shapes and sizes—from charities like Anthony Nolan to retailers like Sainsbury’s and oil and gas giants like BP—are increasingly looking to exit their on-premises data centers, and the pandemic has pushed many of those plans into fifth gear.

Spiceworks Ziff Davis, a business-to-business tech marketplace, polled 1,073 IT buyers in North America and Europe in June and July of 2020 for its 2021 State of IT report, finding that budget holders plan on aggressively shifting away from owning hardware to operating more cloud services.

“Spending on on-premises hardware and software was constrained because people weren’t on-premises to install it, maintain it, or use it. Spending on cloud was inflated because people needed it to keep their business operating,” said Paul Miller, a principal analyst at Forrester. “As companies gain greater access to their offices, factories, warehouses, and data centers I’d expect to see some restoration of on-premises spending, possibly at the short-term expense of cloud. We’ll then see a return to the earlier trend, with cloud spend again rising.”


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