In-Depth

Cloud Spending Gets Serious

Almost half of all the money spent on cloud computing is new IT spending -- some of it diverted from other, non-cloud projects.

• By Stephen Swoyer
• 10/05/2010

Cloud computing today accounts for an important share of the money shops are spending on third-party IT services, according to market watcher Gartner Inc., which says this share will only increase over time.

As of this year, spending on third-party cloud computing services comprised slightly more than one-tenth (10.2 percent) of all spending on external IT services.

Gartner based its tally on a general survey of more than 1,500 respondents in more than three dozen countries. Of these, almost 500 respondents -- Gartner's sample consisted of CIOs, IT vice presidents, IT directors, and other IT-oriented decision-makers -- participated in a cloud computing "drill down."

Some of the results of this drill-down were surprising.

For example, almost half (47 percent) of all the money spent on cloud computing is new IT spending -- the product either of an incremental boost in existing cloud spending or diverted from other, non-cloud projects.

"The cloud market is evolving rapidly, with 39 percent of survey respondents worldwide indicating they allocated IT budget to cloud computing as a key initiative for their organization," said Bob Igou, research director at Gartner, in a prepared release.

"One-third of the spending on cloud computing is a continuation from the previous budget year, a further third is incremental spending that is new to the budget, and 14 percent is spending that was diverted from a different budget category in the previous year."

Almost half of all shops that have already earmarked IT budget dollars for cloud computing plan to boost their uptake of cloud services from third-party providers.

At the same time, however, Gartner researchers also identified a "shift toward the 'utility' approach for noncore services, and increased investment in core functionality, often closely aligned with competitive differentiation."

Although enterprise spending on public or third-party cloud services continues to increase, IT organizations are looking to private clouds. Respondents say they're more likely to boost spending on private cloud implementations (which tend to be implemented internally) than on external or public cloud services; 43 percent of respondents have plans to increase internal or private cloud spending, compared with just 32 percent for public cloud or external services.

Analysts say that the lay of the data center landscape is changing rapidly. The fixed, localized, and inescapably physical data center of today is giving way to a flexible, remote, and abstract data center in the clouds.

"Overall, these are healthy investment trends for cloud computing. This is yet another trend that indicates a shift in spending from traditional IT assets such as the data center assets and a move toward assets that are accessed in the cloud," said Igou.

Vendors must develop new revenue models if they're to survive the cloud-centric transition, Garther indicates. "The trends are good news for IT services providers that have professional services geared to implementing cloud environments and those that deliver cloud services," Igou indicated. "It is bad news for technology providers and IT services firms that are not investing and gearing up to deliver these new services seeing an increased demand by buyers."