Cloud, Data Center

Report: Cloud Spend Tops Data Center Spend for First Time in 2019

“Trend” stories have some value, in the same way virtual machine snapshots have some value: they’re helpful, and often quite helpful, as long as you understand their limitations. (And always remember: a snapshot is not a backup!)

You know the end-of-year trend articles: “Top Stories of 2019,” “Most Downloaded Songs of 2019,” and so on. They provide a look at what happened in the past year. For that reason, though, they’re not especially useful as analysis tools. A single year simply doesn’t provide a lot of value in terms of spotting trends. When we’re talking about a decade’s worth of data, however, things change—these are trends that are a lot more solid, more likely to continue, and more revealing about an industry.

That’s what Synergy Research Group has done with a series of articles called “The Decade’s Megatrends in Numbers”. It’s a five-part series, and we’re going to look at each one, seeing what useful information we can glean from them.

The first installment is about enterprise spending on cloud and data centers. What initially stood out was the statement that in 2019, enterprises for the first time spent more on cloud services—which they defined as Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and hosted private cloud—than they did on data center equipment.

The Earthquake

Did you feel the ground shift under your feet? The tremors of the earthquake are spreading.

According to Synergy, spending on these cloud services went from basically nothing to nearly $100 billion over the course of the decade. The spend for data center hardware and software is expected to come in at around $93 billion when the 2019 Q3/Q4 numbers are finalized, while cloud infrastructure services spending should hit right around $97 billion.

As Buddy the Elf would say, “That’s shocking!” Synergy said the biggest growth areas were within PaaS, “especially database, IoT and analytics.”

I was surprised by these figures. Anyone in the IT field who was conscious over the last decade knows that public cloud spending had skyrocketed. But the hype grew right along with it, leading some (including myself) to believe that although it was clear that XYZ-as-a-Service was surging, the actual dollars spent may not have matched the perception. Color me wrong (again).

Good News for IBM

But as analyst David Linthicum has pointed out, it’s also interesting to note that this increase hasn’t come at the expense of data center spend, sending it plunging over a cliff. This indicates that IT budgeting isn’t a zero-sum game, and that there’s no hard limit to what organizations will spend to do IT properly.

Because of that, I think the Synergy report has good news all around. For those blowing the cloud trumpet, it’s clear that cloud infrastructure spending is providing value to companies, and this is likely to continue—again, remember that this is a 10-year trend.

How that spending will shake out is another matter. A lot of the juice now seems to be moving into the areas of edge computing, artificial intelligence (AI) and machine learning (ML), for instance.

But the fact that data center spending is continuing to be strong tells me a couple of things:

  • For many (most?) organizations, there will always be a need—whether it’s for regulatory reasons, latency issues, COBOL programs that remain mission critical, or whatever—for on-premises IT. IBM’s still making and selling lots of Z-series mainframes, after all. It’s one thing to outsource HR, and another thing entirely to run a healthcare system.
  • Secondly, enterprises large and small are settling into the hybrid model of cloud computing. In this scenario, companies are using the cloud for stuff that makes sense, and keeping other stuff in-house when that makes sense. It’s that whole “have your cake and eat it too” thing. That means keeping the hardware onsite—and maybe even adding to it!—while offloading some of the work that’s better left to cloud vendors.

Some, like Linthicum, have said that they expect a big drop in data center spend to come within the next decade. While that’s certainly possible, I think it’s more likely that organizations will find a happy medium, deciding that there’s no reason to go all-in on either the public cloud or private data center. AI, ML, and the rest will get the press because it’s sexy, but the data center will continue to be the core for most established businesses.