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Cloud spend overtakes enterprise data centre investment for the first time

Cloud spend overtakes enterprise data centre investment for the first time

Enterprise spending on cloud infrastructure services continued to ramp up aggressively in 2020, growing by 35 per cent, to reach almost US$130 billion.

Credit: Dreamstime

Last year was notable for more than just the onset of a global pandemic – it also marked the first time global enterprise spend on cloud infrastructure services outstripped enterprise spending on data centre hardware and software.

This is according to new data from industry analyst firm Synergy Research Group, which claims that enterprise spending on cloud infrastructure services continued to ramp up aggressively in 2020, growing by 35 per cent, to reach almost US$130 billion.  

At the same time, in 2020, worldwide spending on the enterprise data centre hardware and software typically used in on-premises environments – comprising servers, storage, networking, security and associated software – was US$89 billion.   

The analyst firm pointed out that this ratio continued a decade-long trend of explosive growth in cloud and virtual stagnation in the market for enterprise-owned data centre equipment.  

Credit: Synergy Research Group

It is thought that COVID-19 helped to egg the trend on, with the two markets being of nearly equal size in 2019, but 2020 saw a major shift in worldwide IT operations, with a swing towards cloud.  

Over the decade, average annual spending growth for data centre hardware and software was just 2 per cent and cloud services, including infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and hosted private cloud), was 52 per cent.

“Over the last ten years we have seen a dramatic increase in computer capabilities, increasingly sophisticated enterprise applications and an explosion in the amount of data being generated and processed, resulting in an ever-growing need for data centre capacity,” said John Dinsdale, a chief analyst at Synergy Research Group.

“However, 60 per cent of the servers now being sold are going into cloud providers’ data centres and not those of enterprises. When a company needs computing power to manage its data and to run its business apps, it can either invest in its own data centre infrastructure or it can use cloud services provided by a public cloud provider."  

“Clearly companies have been voting with their wallets on what makes the most sense for them. We do not expect to see such a drastic reduction in spending on enterprise data centres over the next five years, but for sure we will continue to see aggressive cloud growth over that period,” he added.

The major segments with the highest growth rates over the decade were virtualisation software, Ethernet switches and network security, the analyst firm claimed. The server segment’s share of the total data centre market remained steady while storage share declined.  

Within the US$130 billion cloud infrastructure services market, the major segments with the highest growth rates over the decade were mainly within PaaS, especially database, internet of things (IoT) and analytics.  

Meanwhile, the IaaS segment’s share of the total held reasonably steady while managed private cloud service share declined somewhat, the analyst firm said.


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