Storage Soup

Oct 20 2008   7:20PM GMT

Will recession drive businesses to the cloud?

Beth Pariseau Beth Pariseau Profile: Beth Pariseau

Over the last few weeks, I’ve written a couple of stories about how the current global economic crisis is being projected to impact the storage market. While users say they don’t anticipate much of a change in their daily life–storage budgets are lean and adoption of products in the storage market is conservative as it is–financial analysts and storage experts see a much bigger impact for storage vendors from the collective effects of declining storage spending growth.

However, there’s one area where, if you’ll pardon the phrase, a potential silver lining has been spotted: cloud computing. One theory is that less available capital or credit for capital outlay makes the economies of scale and zero-hardware options offered by cloud vendors more attractive. But another theory is that in the current economic climate, users become more risk averse than ever, and the cloud remains a new, relatively bleeding-edge phenomenon.

Today there have been some more analyses released about the possibilities for the cloud market, one a cloud computing spending forecast from IDC and the other is an analysis of the barriers to cloud entry by Gregory Ness for Seeking Alpha.

With or without economic downturns, according to Ness, the nature of today’s network infrastructure is a hurdle to widespread cloud deployment (not to mention the bandwidth of the average data center’s connection to the wider Internet):

Certainly there will always be a business case for elements of cloud, from Google’s pre-enterprise applications to Amazon’s popular services and the powerhouse of CRM, HR and other popular cloud services.  Yet there are substantial economic barriers to entry based on the nature of today’s static infrastructure.[...]Until the current network evolves into a more dynamic infrastructure, all bets are off on the payoffs of pretty much every major IT initiative on the horizon today, including cost-cutting measures that would be employed in order to shrink operating costs without shrinking the network.

Automation and control has been both a key driver and a barrier for the adoption of new technology as well as an enterprise’s ability to monetize past investments.  Increasingly complex networks are requiring escalating rates of manual intervention.  This dynamic will have more impact on IT spending over the next five years than the global recession, because automation is often the best answer to the productivity and expense challenge.

IDC acknowledges that the growth opportunity is “in its infancy” but says the marginal growth will be irresistible to vendors:

Of the $383 billion customers will spend this year within the five major IT segments noted above, $16.2 billion – or a mere 4% – will be consumed as cloud services.  By 2012, customer spending on IT cloud services will grow almost threefold, to $42 billion.By 2012 – based on a conservative forecasting approach…customer spending on IT cloud services will grow almost threefold, to $42 billion, accounting for 9% of customer spending.

On one level, one could argue that – in spite of the all the buzz about Cloud Computing and Cloud Services – this model will not even crack 10% of IT spending four years from now. And therefore, one could reasonably ask: why all the fuss?On one level, one could argue that – in spite of the all the buzz about Cloud Computing and Cloud Services – this model will not even crack 10% of IT spending four years from now. And therefore, one could reasonably ask: why all the fuss?

One reason IT suppliers are sharpening their focus on the “cloud” model is its growth trajectory, which – at 27% CAGR – is over five times the growth rate of the traditional, on-premise IT delivery/consumption model.  Spending on IT cloud services is growing at over five times the rate of traditional, on-premise IT.As noted in our recent user survey, this rapid growth is being driven by the ease and speed with which users can adopt these offerings, as well as the cloud model’s economic benefits (for users and suppliers alike) – which will have even greater resonance in the current economic crisis.

Even more striking than this high growth rate, is the contribution cloud offerings’ growth will soon make to the IT market’s overall growth.  By 2012 – even at only 9% of user spending – cloud services growth will account for fully 25% of the industry’s year-over-year growth in these five major segments.  In 2013, if the same growth trajectories continue, IT cloud services growth will generate about one-third of the industry’s net new growth in these segments.

It will be interesting to see how things actually play out.

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