Tech providers warned of public cloud’s triumph over traditional IT

Tech providers warned of public cloud’s triumph over traditional IT

Enterprise IT spending on public cloud computing is anticipated to overtake spending on traditional IT in 2025.

Michael Warrilow (Gartner)

Michael Warrilow (Gartner)

Credit: Gartner

In 2020, global enterprise spending on cloud infrastructure services outstripped enterprise spending on data centre hardware and software for the first time. Now, it looks as though a similar shift in enterprise IT spend more generally is set to take place in the next three years.

Enterprise IT spending on public cloud computing is anticipated to overtake spending on traditional IT in 2025, according to industry analyst firm Gartner. However, this prediction comes with a few caveats, the main one being that Gartner’s analysis only captures “addressable market segments”. 

Specifically, Gartner’s ‘cloud shift’ research includes only those enterprise IT categories that can transition to cloud, within the application software, infrastructure software, business process services and system infrastructure markets.

Regardless, it is thought that by 2025, 51 per cent of IT spending in these four categories will have shifted from traditional solutions to the public cloud, compared to 41 per cent this year.  

Moreover, almost two-thirds (65.9 per cent) of spending on application software will be directed toward cloud technologies in 2025, up from 57.7 per cent in 2022.

This year, it is anticipated that traditional offerings will constitute 58.7 per cent of the addressable revenue, but growth in traditional markets will be much lower than cloud, according to Gartner’s analysis.  

Meanwhile, demand for integration capabilities, agile work processes and composable architecture is anticipated to drive a continued shift to the cloud among enterprises, as long-term digital transformation and modernisation initiatives are brought forward to 2022.

“The shift to the cloud has only accelerated over the past two years due to COVID-19, as organisations responded to a new business and social dynamic,” said Michael Warrilow, research vice president at Gartner.  

On the downside, for players in the traditional, non-cloud IT market at least, more than US$1.3 trillion in enterprise IT spending is expected to be at stake from the shift to cloud this year, growing to almost US$1.8 trillion in 2025, according to Gartner.

Sizing cloud shift, worldwide, 2019 – 2025.Credit: Gartner
Sizing cloud shift, worldwide, 2019 – 2025.

Additionally, ongoing disruption to IT markets by cloud products and services will be amplified by the introduction of new technologies, including distributed cloud.  

The analyst firm also reckons that enterprise adoption of distributed cloud has the potential to further accelerate the broader cloud shift because it brings public cloud services into domains that have primarily been non-cloud, expanding the addressable market.

All of this is shaping up to see some providers in a potentially awkward position further down the track.

“Technology and service providers that fail to adapt to the pace of cloud shift face increasing risk of becoming obsolete or, at best, being relegated to low-growth markets,” said Warrilow.  

But there are opportunities. According to Gartner, technology and services providers should think about targeting market segments where the cloud shift is occurring most aggressively if they want to capitalise on the coming changes. They could also seek new high-growth cloud opportunities.  

For example, infrastructure-related segments have a lower level of cloud penetration and are expected to grow faster than segments such as enterprise applications that are already highly penetrated.

As of the third quarter last year, Amazon Web Services (AWS), Microsoft and Google continued to attract over half of worldwide cloud spending, with market shares of 33 per cent, 20 per cent and 10 per cent, respectively.

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