Cloud IT Infrastructure Market Development
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Competitive Differentiation
Publication | Update: Oct 2020
According to David Deans, Technology Media Telecom analyst, new IT infrastructure investment continues to shift as more leaders execute their digital transformation plans. Many enterprise CIOs and CTOs prefer to develop customer-facing applications within public cloud environments, and then connect those Web services to apps and data that reside on legacy systems within their on-premises data center.
Vendor revenue from sales of IT infrastructure products (server, enterprise storage, and Ethernet switch) for cloud environments -- including public and private cloud -- increased 2.2 percent in the first quarter of 2020 (1Q20) while investments in traditional, non-cloud, infrastructure declined 16.3 percent year-over-year, according to the latest market study by International Data Corporation (IDC).
The impact of COVID-19 pandemic was a major factor in the first quarter, that fueled procurement of server, storage, and networking infrastructure utilized by public cloud service providers. As a result, the public cloud was the only deployment segment escaping year-over-year declines in 1Q20 reaching $ 10.1 billion in spending on IT infrastructure at 6.4 percent year-over-year growth. In contrast, spending on private cloud infrastructure declined 6.3 percent year-over-year in 1Q to $ 4.4 billion.
IDC expects that the pace set in the first quarter will continue through the rest of the year as cloud service adoption continues to get an additional boost driven by demand for more efficient and resilient infrastructure deployment.
For the full year, investments in cloud IT infrastructure will surpass spending on non-cloud infrastructure and reach $ 69.5 billion or 54.2 percent of the overall IT infrastructure spend.
Spending on private cloud infrastructure is expected to recover during the year and will compensate for the first quarter declines, leading to a modest 1.1 percent growth for the full year.
Spending on public cloud infrastructure will grow 5.7 percent and will reach $ 47.7 billion representing 68.6 percent of the total cloud infrastructure spend.
According to the IDC, the disparity in 2020 infrastructure spending dynamics for cloud and non-cloud environments will ripple through all three IT infrastructure domains -- Ethernet switches, server compute, and storage platforms.
Within cloud deployment environments, compute platforms will remain the largest category of spending on cloud IT infrastructure at $ 36.2 billion, while storage platforms will be the fastest-growing segment with spending increasing 8.1 percent to $ 24.9 billion. The Ethernet switch segment will grow at 3.7 percent year-over-year.
At the regional level, year-over-year changes in vendor revenues in the cloud IT Infrastructure segment varied significantly during 1Q20, ranging from 21 percent growth in China to a decline of 12.1 percent in Western Europe.
Long term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 9.6 percent, reaching $ 105.6 billion in 2024 and accounting for 62.8 percent of total IT infrastructure spend.
Public cloud data centers will account for 67.4 percent of this amount, growing at a 9.5 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.8 percent. Spending on non-cloud IT infrastructure will rebound somewhat in 2020 but will continue declining with a five-year CAGR of -1.6 percent.
David Deans contests that given the current trends, the opportunities for adapting legacy software applications via modernization and refactoring -- enabled by transformation into cloud services and/or container-based microservices -- must be carefully considered. Existing IT workloads rarely migrate fully to cloud service equivalents. Instead, new cloud-native apps can tap into the resources on legacy systems via RESTful APIs.
He expects that leaders will perform a detailed analysis to fully comprehend the business value and operational cost of maintaining legacy systems, versus the expense of public cloud service subscriptions.
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Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
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Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
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The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
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