After a brief decline in 2021, cloud spending began rising again. The reasons may not be what many people expected, because common assumptions about cloud investment are often incomplete or outdated.
The Pandemic Increased Cloud Usage
Since the pandemic triggered a sharp increase in cloud spending, global cloud infrastructure spending rebounded in the third quarter of 2021 after its first quarterly decline. According to IDC research, spending on cloud infrastructure environments grew 6.6% year on year to USD 18.6 billion in Q3 2021.
When the pandemic first emerged in early 2020, many enterprises and technology companies planned to cut IT spending significantly, including spending on cloud services. Most companies soon recognized the role of cloud in remote work and the new normal of virtual cloud-based IT. That judgment proved correct. Cloud spending grew most strongly in the second quarter of 2020, increasing 38.4% year on year.
Cloud usage is expected to continue growing over the next decade, although the pace and drivers will change over time. Analysts often rely on assumptions that worked in the past when predicting future cloud computing spending, but those assumptions may no longer hold. Different forces are driving quarterly cloud spending, and many of those forces are still emerging.
Assumptions and Reality Behind Cloud Spending
The following assumptions are likely to be wrong, or at least too simple.
One assumption is that lower traditional computing spending always becomes higher cloud spending. Many technology and business analysts make this assumption because it appears logical. In reality, reductions in traditional computing budgets do not automatically mean the same money moves directly into cloud computing.
Lower spending on traditional computing is not always linked to legacy systems being replaced by cloud hosting or software as a service (SaaS). Enterprises also spend differently on traditional systems and cloud-based systems. Traditional systems usually require large software and hardware purchases, while cloud computing costs are more closely tied to functions and real usage.
Another assumption is that cloud spending follows overall IT spending. This was a common misconception at the start of the pandemic. Many people assumed that if IT spending fell, cloud spending would also fall. Although that sounds reasonable, cloud computing expenditure is not closely tied to general IT spending patterns.
Cloud as a Strategic Way to Reduce Risk
Many enterprises invest in cloud to respond to pressure on IT budgets. More often, however, cloud adoption is a strategic investment.
The pandemic highlighted the strategic advantages of cloud computing because cloud can reduce or remove many operational risks. For example, cloud can move applications and data away from enterprise data centres. These operations previously required staff to be physically present, which made them vulnerable to quarantine restrictions and workplace disruption during the early stages of the pandemic.
By 2021, cloud spending increasingly reflected a strategic need. A typical example is the ability of cloud platforms to support business-related innovation and bring new services to market faster.
Cloud will continue to grow, although its growth rate will vary as market conditions and enterprise priorities change. The key is to understand how these shifts relate to actual cloud spending and why they happen. Too many old assumptions about spending drivers are no longer reliable. It is time to update measurement standards for today’s evolving cloud environment.
Source: InfoWorld, “The forces behind enterprise cloud spending trends”
Translation supported by AI.