07 Jan While data center spending stagnates, cloud closes in on $100B – report
Over the past decade, spending on cloud infrastructure services has gone from virtually nothing to close to $100 billion in annual revenues, according to Synergy Research Group. Synergy Research Group (SRG) cited enterprises’ switch from spending money on their own data centers to using cloud providers to satisfy their computing needs as the primary reason for cloud spending growth.Synergy Research Group took an in-depth look at the biggest enterprise IT spending trends over the past decade, and found that spending on data center hardware and software was stagnant over most of that time frame.
Data center spending did get a bump in 2018 even though server unit shipments remained flat due to more richly configured and higher-priced servers. Despite the 2018 increase in data center spending, growth in cloud spending remained robust that year, and increased by almost 40% in 2019. Over the past 10 years, the average annual spending growth for data centers clocked in at 4%—most of which occurred in the first three years—while cloud service spending increased by 56%.
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Enterprise IT is moving outward and becoming more distributed, which means enterprises are relying on cloud providers. Because enterprises are going to the cloud, what used to be an enterprise data center could now be a colocation tenancy inside of someone else’s data center with different functions that can then be pushed to clouds like Amazon Web Services or Microsoft Azure.
Last year marked the first time that enterprises spent more on cloud services, such as hosted private cloud, infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS), than they did on data center equipment.
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Based on spending in the first three quarters of last year and its forecast for the fourth quarter, SRG projects that 2019 worldwide spending on data center and hardware—which includes servers, storage, networking, security and the associated software—will be more than $93 billion.
The sectors with the highest growth rates over the past decade included virtualization software, Ethernet switches and network security. While server share of the total data center market remained steady over the same time frame, storage share declined.
SRG projects that 2019 worldwide spending on cloud infrastructure services will reach $97 billion. The major segments with the highest growth rates over the decade were mainly within PaaS, especially database, IoT and analytics. IaaS share of the total held steady while managed private cloud service share was down a bit
“The decade has seen a dramatic increase in computer capabilities, increasingly sophisticated enterprise applications and an explosion in the amount of data being generated and processed, pointing to an ever-growing need for data center capacity. However, over half of the servers now being sold are going into cloud providers’ data centers and not those of enterprises,” said John Dinsdale, a chief analyst at Synergy Research Group, in a statement. “Over the last 10 years we have seen a remarkable transformation in the IT market. Enterprises are now spending almost $200 billion per year on buying or accessing data center facilities, but cloud providers have become the main beneficiaries of that spending.”