The rise of cloud is dramatically disrupting the on-premises (on-prem) IT data center providers.
Over the past decade, the average annual growth for data center spending was 2% while for cloud services (IaaS, PaaS and hosted private cloud) it was 52% notes Synergy. Data center spending is now in decline.
The cloud market grew faster in 2020 than in 2019, despite the steepest economic contraction in modern history. The reason is increased demand fueled by pandemic driven lockdowns and employees working from home, notes Deloitte.
At the outbreak of COVID-19 in March of 2020, many people believed the impact of the pandemic would only last for two weeks. And then it was two months. Now we’re coming up to two years and with the Delta variant that is very contagious and with the threat of emerging new variants — what if we never get out of this cycle? Imagine that COVID-19 becomes seasonal like the flu where each year we’re encouraged to get vaccinated against the latest variant strain.
Now that employees are used to working from home, will we move away from this trend? Dell doesn’t think so. It has 165,000 employees and expects that 50% of its staff will never work in the office again. They may come in once a month for a meeting, but will not be in the office full time.
Cloud Predicted Growth
IT spending on cloud providers at the start of 2021 was predicted to rise by 30% according to Deloitte, but the growth has exceeded expectations for the first half of the year. Global growth of the cloud could hit 33% for 2021, according to Duncan Stewart, director of research for Deloitte who forecasts global tech predictions. An April 2020 survey of 50 CIOs found that respondents expected to see the proportion of total workload done on-prem drop from 59% in 2019 to 38% in 2021.
Because of this, enterprise resource planning vendors are encouraging clients to go to the cloud notes Stewart and that will continue.
In 2016, I was leading a strategic planning exercise with an executive team at one of the largest IT consulting firms globally with $10 billion a year in sales. In preparing for the event, the president said he was excited with 8% projected growth for the following year and believed the business plan didn’t need tweaking.
I began my session highlighting the analysts’ consensus, at the time, was the cloud would experience 75% compounded annual growth rate (CAGR) for the next five years. My question to shake the executive team out of complacency was “How does 8% on-prem growth look now, compared to the predicted growth of cloud being almost 10 times faster?”
As an aside the actual CAGR from 2016 to 2020 has been only 42%. But 42% was still 5X the growth rate my client was happy with for on-prem.
Executives who are rooted in their existing business model have a tough time seeing other ways of working. How glaring do the signs have to be before leaders wedded to their current way of working recognize that the market has moved?
Once a trend is in place, a black swan event like the pandemic, can spell the end of an old way of working. In just one decade, the cloud has overtaken on-prem data centers. COVID spells the beginning of the end for the old, legacy business model of on-prem data centers