Keeping control of IT dollars in the days of the cloud

How do you save IT cash these days? The easy answer is: “Doh! The cloud.” The real answer, though, is a bit more complicated.

IDC estimates that the global cloud infrastructure spending will jump up by 18.9% in 2016.

To be more exact, IDC thinks the total server, storage and Ethernet cloud spend will reach $38.2 billion. By contrast, traditional enterprise IT infrastructure will decline by 4% in 2016. Still, while the cash being spent on server rooms and data centers is going down, it still amounts to the largest share, 62.8%, of spending.

Breaking it down further, IDC belies that spending on private cloud IT infrastructure will grow by 11.1% year over year to $13.9 billion. At the same time, public cloud IT spending will increase by 14.1% in 2016 to $24.4 billion. Even at this rate, IDC doesn’t see the cloud surpassing old-school data centers before 2021.

Gartner, the other giant analysis firm, has a different take.

True, “worldwide IT spending [which is far broader than cloud-related technology] will total $3.49 trillion this year, but that’s still a 0.5% decline from 2015. Looking ahead Gartner predicts that global IT spending will rise only 2 to 3 percent from 2017 to 2020. How can that be?

Easy, Gartner sees two trends. The first is that clouds are cheaper. You get more bang for the buck.

The second is that, it’s so easy for business units to spin up clouds of their own, IT cash is moving from the CIO to business units.

In short, while IT spending is going down, businesses are getting more value from cloud-based IT. Or they hope to, because they need to make the most of their diminishing IT dollars.

As John-David Lovelock, Gartner research vice president, explained, “There is an undercurrent of economic uncertainty that is driving organizations to tighten their belts, and IT spending is one of the casualties.” Concurrently, the need to invest in IT to support digital business is more urgent than ever.

Lovelock continued, “Business leaders know that they need to become digital businesses or face irrelevance in a digital world. To make that happen, leaders are engaging in tough cost optimization efforts in some areas to fund digital business in others. As an example, the savings from legacy system optimization and enhancements are being redirected to fund digital initiatives. It’s about doing more with the same funds.”

IT departments aren’t happy about this. On the one hand, they’re being asked to do more with less. At the same time, they can only do this easily by relaxing their grip on IT management by moving to the cloud.

Looking at it in another way, as Lovelock pointed out, “Things that once had to be purchased as an asset can now be delivered as a service. Most digital service twin offerings change the spending pattern from a large upfront payment to a smaller reoccurring monthly amount. This means that the same level of activity has a very different annual spend.”

In this changing IT environment, there will be winners and losers.

David S. Linthicum, a Cloud Technology Partners consultant, observed, “The losers are vendors that live off centralized IT, such as the big enterprise software and hardware companies, as well as consulting firms.”

The winners will be “business units that have dedicated technology resources, especially those that leverage the more agile and cheaper resources of cloud computing,” he said.

And for the men and women of in-house IT departments? Well, it could go either way for them. Linthicum thinks, “Central IT may lose as well because their portfolio shrinks as some of it moves to business units. Or central IT may win because it still provides critical unified governance and perhaps cloud service brokering.”

I’d sum it up this way. If you’re working in corporate IT, you can either be part of the problem by hanging on to your old-style IT, or you can be part of the solution by embracing the cloud.

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