The new normal: Cloud, it’s not just early adopters anymore: Part I
With last month’s sold out AWS re:Invent conference in Las Vegas and the jam-packed media frenzy around cloud industry announcements, it’s clear that “the cloud” continues to drive enormous PR and marketing spend. Conversations with IT decision makers across companies large and small, within many different industries, indicate that the level of adoption advanced significantly in 2014. Not only are the vast majority of companies now using numerous SaaS applications, but mission critical IT resources are increasingly moving to cloud platforms. With this momentum, it seems 2015 will be the year that ‘utility computing’ — or buying IT just as you would electricity — will become more the norm among corporate users.
Before getting into some of the recent trends, it is important to step back and remember what is at stake. Global enterprises spend $4 trillion dollars on information technology each year. That is an enormous number, and a very large portion is for software, hardware and networking technologies that have been deployed and must be maintained in their data centers. Cloud computing promises to move all, or at least the vast majority, of this technology from on premise or in-house, to off-premise, or to internet-based service providers. The most fitting analogy is electricity; originally, all companies had to produce their own power, but that all changed when utilities took over production, lowered costs and made it possible to purchase only what was needed when it was needed. That same massive shift is now underway for all of IT, and it means that how that $4 trillion is spent will change dramatically over the next decade.
IaaS Goes Mainstream
SaaS applications have taken the lead and have the broadest adoption by users, but IaaS appears to be the fastest growing with an expected 30 percent compound annual growth rate. Amazon, the largest of the cloud platform providers, owning as much as 80 percent of the current market, claims to also be the fastest growing, with 2014 revenue estimates of $5B billion for Amazon Web Services across one million customers and 13,000 partners. The customers that presented at re:Invent were not just startups and technology companies; they were major organizations such as Coca-Cola, Nike, MLB and the Boston Consulting Group, proving that AWS is playing in the big leagues.
This data proves consistent with the companies that we speak to and work with as well. In 2012 and 2013, our cloud conversations revealed increasing adoption of SaaS providers such as SalesForce.com and EMC, but fairly light usage of IaaS, like AWS, mainly for development and testing, but not for core IT or production systems. That is why 2014 represents a big step forward – these companies have moved passed the ‘testing it out’ and ‘modest project’ phase and are now shifting major workloads and mission critical IT to the cloud platforms. Some are even adopting a “cloud first” initiative, including the U.S. government. An IDG study suggests that in the past two years, the percentage of enterprises with either applications or infrastructure running in the cloud has gone from just 12 percent to an enormous 69 percent. And 62 percent of IT professionals claim that roughly a third of their IT systems are now cloud-based. Verizon recently reported that their industry survey suggests enterprise spending on cloud is up 38 percent year over year. These numbers are far from inconsequential and clearly show the extreme proliferation of cloud adoption both this year as well as in the year to come.