Worldwide enterprise cloud spend surpasses spend on data centers

Dive Brief:

Global enterprise spending on cloud significantly surpassed the amount spent on data centers for the first time in 2020, according to data from Synergy Research Group released Thursday. The cloud and data markets were almost equal in 2019, only slightly favoring cloud.
Cloud infrastructure services grew by 35% from 2019 to 2020, totalling $130 billion while data center spend decreased 6% to $89 billion. Synergy credits the COVID-19 pandemic with fueling the growth of cloud spend.
"We do not expect to see such a drastic reduction in spending on enterprise data centers over the next five years, but for sure we will continue to see aggressive cloud growth over that period," said John Dinsdale, chief analyst at Synergy Research Group.

Dive Insight:

While the exact growth of cloud spend varies from analyst to analyst, the acceleration of cloud adoption in the pandemic is largely agreed upon.

"The observation that those businesses that had moved to the cloud seem to fare better has not been lost on those that are now making their plans for how to spend for IT," said Craig Lowery, VP analyst at Gartner.

The gap between data center and cloud/edge computing will tighten in 2021, according to Gartner projections. But public cloud managed services spending won't overcome traditional data center spend until 2022.

In the next decade, average spend on cloud services is projected to grow 52% annually while spending on data centers will grow 2%, according to Synergy.

"As the exodus to virtual work underscores the urgency for scalable, secure, reliable, cost-effective off-premises technology services, we imagine this trend will persist," Bob Moore, principal and partner of cloud engineering at PwC, said in an email to CIO Dive.

Cloud-enabled tools — such as email, video conferencing, ERP, supply chain systems and more — proved valuable, according to Moore. Businesses will continue to use those tools as employees return to the office and some companies embrace a hybrid work model.

Forty percent of businesses accelerated cloud adoption plans because of the pandemic, according to a MariaDB survey released in June. With value proven, more businesses are likely to take the leap, increasing spend and changing the relationship between businesses and vendors.

Nine in ten respondents to Flexera's 2021 State of the Cloud report that answered a question about COVID-19 said they expect cloud use to exceed plans due to the pandemic. Organizations also sped up migrating to the cloud from data centers due to reduced headcount, difficulties accessing data center facilities and delays in the hardware supply chain.

No longer do businesses work transactionally with vendors, according to Lowery. "You're actually working together on a day-to-day basis" to build a relationship as the enterprise and providers alike constantly innovate with cloud platforms, Lowery said.

Vendors take advantage of this changing relationship by altering their offerings accordingly. Selling sector-specific clouds, for example, acknowledges the niche requirements each industry looks for in cloud offerings to aid rapid transformation.

And cloud vendors get in early with businesses to build the relationship. Free vendor-specific training provides foundational cloud knowledge for employees, while simultaneously building brand loyalty and awareness early on.