Another day, another report about how cloud computing will upend the way businesses buy and use technology. This time out, market research firm Gartner (IT) said $111 billion worth of IT spending will shift to cloud this year, and that number will almost double to $216 billion by 2020.
The move to cloud computing, which has given traditional hardware and software providers heartburn for years now, will thus become “one of the most disruptive forces of IT spending” since the beginning of the computing era, Gartner analysts said in a new research note.
That’s because many companies ranging from tiny startups to Fortune 500 behemoths that previously bought and maintained their own computer servers, storage, and networking gear in their own data centers are now shifting to having other companies handle it for them.
Public cloud providers that rent out these shared computing resources include Amazon (AMZN) Web Services, Microsoft (MSFT), Google (GOOG), IBM (IBM) or some other provider. One big benefit, in theory, is that the customer pays for the computing, storage, and networking power they use, but once they stop using it, the meter turns off.
In the traditional model, those customers updated their gear every few years and managed all the upgrades and patches themselves, which is both expensive and time consuming. And they paid for all of the gear even it was often underused.
More Bad News for Hardware Companies
In the public cloud model, all that scut work is handled by the provider at no additional charge. But public cloud is not the only IT model out there. There is also a private cloud option in which corporate customers still own their own data center equipment but offer their own internal users, say the human resources or accounting departments or business units, a pay-as-you-go model similar to that of the public cloud. It offers some of the flexibility of public cloud but keeps data and applications on company-controlled infrastructure.
“Cloud-first strategies are the foundation for staying relevant in a fast-paced world,” said Ed Anderson, Gartner research vice president. “The market for cloud services has grown to such an extent that it is now a notable percentage of total IT spending, helping to create a new generation of start-ups and ‘born in the cloud’ providers.”
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Companies espousing the cloud-first religion opt for subscription-based online software services rather than software that runs on their internal servers. For example, they’ll go for Microsoft Office 365 over traditional Office going forward.
AWS started blazing the trail for public cloud back in 2006 and is the largest public cloud company. Microsoft Azure is making a legitimate run. Google Cloud Platform is generally seen as the third big contender, although IBM (IBM) and other options are available.
Companies that sell hardware and software to corporate customers are all threatened by this shift. In the old days, a company would sell an operating system and software for each user. In the cloud realm, operating system are parcelled out on shared servers for use on a pay by the hour basis.
Public cloud deployment is seen as a godsend for small companies, which used to have to spend almost all of their initial funding on servers and software. AWS upended that model to let startups get going fast and cheap by paying pennies per hour for computing power.
However, the notion that public cloud is always the cheapest option once startups get big, is still debatable. Once a company hits a certain size and has to deal with lots of data, some analysts and corporate execs say it’s time to bring IT back in-house because cloud has gotten too pricey.
In May at a tech conference, Zach Dunn, a director of devops for Optoro an AWS customer, said when he realized he was sending Amazon chief executive Jeff Bezos “the equivalent of a BMW” every month in cash, he decided that the company had move to another IT model. (His comments come about 10 minutes into this video.)
Dropbox is the poster child for that narrative. In March, Dropbox acknowledged that it had spent the last few years moving petabytes of data off of AWS and into its own data centers. The reason? Akhil Gupta, Dropbox’s vice president of infrastructure, said the company simply got too big to rely on an outsider. And, it needed to be able to design its own hardware to fit its own needs, something that the public cloud model does not allow.
For example, as Gupta told Fortune earlier this year, Dropbox had realized that in order to get the biggest cost savings, it had to tweak the relative proportion of storage to computing to networking to best handle its needs.
“We wanted to build jumbo super storage servers that could hold immense amounts of data with a small amount of compute,” he noted. Holding onto and routing user files, does not require a ton of computing power.
Clearly, the Dropbox story does not fit into the “everything will flow to public cloud” story. Still, Dropbox, which claims 500 million users who synchronize 1.2 billion files every day, is an unusual case.
The question is, how many other Dropboxes are there out there?
