Cloudy IT Is Big Business, Say Gartner and IDC

July 12, 2010 Timothy Prickett Morgan

There is a lot of talk about cloudy IT infrastructure these days, and it just makes me laugh. The shift from virtualized, utility-priced server and storage capacity is transformational and important, no doubt, but no more so than many of the other transitions in the systems business in the past 45 years. Cloudy infrastructure will ultimately just be infrastructure, the way it was evolving to be all along.

But in the meantime, everybody is excited by change, and I can’t really blame them–the news business being based on change, after all. What people are mostly excited about are new players getting money and what they are not talking about is how the overall IT market, in terms of revenues and profits, will be affected as people get more efficient about using and paying for IT resources.

Over at Gartner, the box and license counters are now counting clouds, and they reckon that cloud services revenues worldwide will hit $68.3 billion this year, an increase of 16.6 percent compared to sales levels in 2009. By 2014, cloud services is expected to account for $148.8 billion in revenues.

Of course, what Gartner is calling cloud services, a few years ago we would have called application hosting. So the shift is not just to new utility-style infrastructure as much as it is in labeling what is what in the Gartner numbers. The company said that as far as it could see, the true cloud computing–software as a service, platform as a service, and infrastructure as a service, with abstract software, application platform, and raw virtualized infrastructure and sold under utility-style pricing–will account for a mere $112 billion cumulatively over the next five years. When I play around with the Gartner numbers in a spreadsheet, I calculate that true cloudy infrastructures (and I am being generous mixing SaaS with PaaS and IaaS) will comprise only about a fifth of what Gartner is calling cloud services. The rest is what I would call plain-old hosting and outsourcing.

And this is but a tiny fraction of the global IT budget. No matter how hard people try to make these cloud numbers look big, they are defying the efforts. Not that the numbers can’t be bigger. I think people are sick of managing IT, but that may just be me projecting after living with a data center in my home for seven years. All I know is the switch was binary for me. I went from doing everything I could to justify keeping my own systems right up to the point where I didn’t want to build or support another server again in my life.

“We are seeing an acceleration of adoption of cloud computing and cloud services among enterprises and an explosion of supply-side activity as technology providers maneuver to exploit the growing commercial opportunity,” explained Ben Pring, a research vice president at Gartner, in a statement announcing the cloudy infrastructure estimates. “The scale of application deployments is growing; multi-thousand-seat deals are increasingly common. IT managers are thinking strategically about cloud service deployments; more-progressive enterprises are thinking through what their IT operations will look like in a world of increasing cloud service leverage. This was highly unusual a year ago.”

IDC put out its own estimates recently, too, restricting itself to a forecast for public IT cloud services. IDC believes public IT cloud services accounted for $16 billion in revenues in 2009, and projects that this space will see revenues rise by a compound annual growth rate of 27.4 percent over that time, to hit $55.5 billion in revenues by 2014. That’s more than five times the growth rate of the IT hardware and software rackets over the same term, says IDC.

“For vendors, cloud computing is critically important for two key reasons–market growth and leadership disruption,” says Frank Gens, senior vice president and chief analyst at IDC, in a statement delivering his latest cloudy prognostications. “The cloud model will propel IT market growth and expansion for the next 20 years and will help the industry to more rapidly develop and distribute a new generation of killer apps, and to more successfully penetrate small and medium-sized businesses. As this happens, industry leadership ranks will certainly change. Additionally, our research with many CIOs about their plans for adopting cloud computing shows that IT customers are excited about the cost and agility advantages of cloud computing, but they also have serious concerns about the maturity of cloud computing offerings, specifically around security, availability, cost monitoring/management, integration, and standards.”

Well, that’s what mainframe shops said about minicomputers in the 1970s and Unix boxes in the 1980s; it is also what mainframe and midrange shops said about NetWare and other PC-based servers in the 1980s, about Windows servers in the 1990s, and about the Internet in the 1990s. Recessions drive transitions, and the simple fact is this: for many new workloads at midrange or large enterprises and for many SMBs who do not have the expertise or money, owning systems is a luxury and one they can ill afford. And a headache they can avoid by using cloudy infrastructure. OpEx and pay per use is generally better than CapEx and depreciation. And yes, we are right back to timesharing in the 1960s.

Here’s what I want to know: where is the AS/400-based cloud? I’m not gonna do it, but one of you most certainly should.

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