One benefit of using cloud-computing services is that firms can avoid the upfront cost and complexity of owning and maintaining their own IT infrastructure, and instead simply pay for what they use, when they use it. In turn, providers of cloud-computing services can benefit from significant economies of scale by delivering the same services to a wide range of customers. Cloud computing is becoming the default option for many apps: software vendors are increasingly offering their applications as services over the internet rather than standalone products as they try to switch to a subscription model. However, there are potential downsides to cloud computing, in that it can also introduce new costs and new risks for companies using it. These ’time-sharing’ services were largely overtaken by the rise of the PC, which made owning a computer much more affordable, and then in turn by the rise of corporate data centres where companies would store vast amounts of data. Indeed, it’s increasingly clear that when it comes to enterprise computing platforms, like it or not, the cloud has won. Tech analyst Gartner predicts that as much as half of spending across application software, infrastructure software, business process services and system infrastructure markets will have shifted to the cloud by 2025, up from 41% in 2022. It estimates that almost two-thirds of spending on application software will be via cloud computing, up from 57.7% in 2022. Gartner said that demand for integration capabilities, agile work processes and composable architecture will drive the continued shift to the cloud. The scale of cloud spending continues to rise. For the full year 2021, tech analyst IDC expects cloud infrastructure spending to have grown 8.3% compared to 2020 to $71.8 billion, while non-cloud infrastructure is expected to grow just 1.9% to $58.4 billion. Long term, the analyst expects spending on compute and storage cloud infrastructure to see a compound annual growth rate of 12.4% over the 2020-2025 period, reaching $118.8 billion in 2025, and it will account for 67.0% of total compute and storage infrastructure spend. Spending on non-cloud infrastructure will be relatively flat in comparison and reach $58.6 billion in 2025. All predictions around cloud-computing spending are pointing in the same direction, even if the details are slightly different. The momentum they are describing is the same: tech analyst Canalys reports that worldwide cloud infrastructure services expenditure topped $50 billion in a quarter for the first time in Q4 2021. For the full year, it has cloud infrastructure services spending growing 35% to $191.7 billion Canalys argues that there is already a new growth opportunity for cloud on the horizon, in the form of augmented and virtual reality and the metaverse. “This will be a significant driver for both cloud services spend and infrastructure deployment over the next decade. In many ways, the metaverse will resemble the internet today, with enhanced capabilities and an amplified compute consumption rate,” the analyst said.
Cloud-computing case studies
There are plenty of examples of organisations deciding to go down the cloud-computing route: here are a few examples of recent announcements. SaaS is the largest chunk of cloud spending simply because the variety of applications delivered via SaaS is huge, from CRM such as Salesforce, through to Microsoft’s Office 365. And while the whole market is growing at a furious rate, it’s the IaaS and PaaS segments that have consistently grown at much faster rates, according to analyst IDC: “This highlights the increasing reliance of enterprises on a cloud foundation built on cloud infrastructure, software-defined data, compute and governance solutions as a Service, and cloud-native platforms for application deployment for enterprise IT internal applications.” IDC predicts that IaaS and PaaS will continue growing at a higher rate than the overall cloud market “as resilience, flexibility, and agility guide IT platform decisions”. That means being able to connect and integrate cloud services from multiple vendors is going to be a new and increasing challenge for business. Problems here include skills shortages (a lack of workers with expertise across multiple clouds) and workflow differences between cloud environments. Customers will also want to manage all their different cloud infrastructure from one place, make it easy to build applications and services and then move them, and ensure that security tools can work across multiple clouds – none of which is especially easy right now. No more buying servers, updating applications or operating systems, or decommissioning and disposing of hardware or software when it is out of date, as it is all taken care of by the supplier. For commodity applications, such as email, it can make sense to switch to a cloud provider, rather than rely on in-house skills. A company that specializes in running and securing these services is likely to have better skills and more experienced staff than a small business could afford to hire, so cloud services may be able to deliver a more secure and efficient service to end users. Using cloud services means companies can move faster on projects and test out concepts without lengthy procurement and big upfront costs, because firms only pay for the resources they consume. This concept of business agility is often mentioned by cloud advocates as a key benefit. The ability to spin up new services without the time and effort associated with traditional IT procurement should mean that it is easier to get going with new applications faster. And if a new application turns out to be wildly popular, the elastic nature of the cloud means it is easier to scale it up fast. For a company with an application that has big peaks in usage, such as one that is only used at a particular time of the week or year, it might make financial sense to have it hosted in the cloud, rather than have dedicated hardware and software laying idle for much of the time. Moving to a cloud-hosted application for services like email or CRM could remove a burden on internal IT staff, and if such applications don’t generate much competitive advantage, there will be little other impact. Moving to a services model also moves spending from capital expenditure (capex) to operational expenditure (opex), which may be useful for some companies.
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Some companies may be reluctant to host sensitive data in a service that is also used by rivals. Moving to a SaaS application may also mean you are using the same applications as a rival, which might make it hard to create any competitive advantage if that application is core to your business. While it may be easy to start using a new cloud application, migrating existing data or apps to the cloud might be much more complicated and expensive. And it seems there is now something of a shortage in cloud skills, with staff with DevOps and multi-cloud monitoring and management knowledge in particularly short supply. In one report, a significant proportion of experienced cloud users said they thought upfront migration costs ultimately outweigh the long-term savings created by IaaS. And of course, you can only access your applications if you have an internet connection. Of course, this doesn’t mean that cloud computing is always or necessarily cheaper that keeping applications in-house; for applications with a predictable and stable demand for computing power, it might be cheaper (from a processing power point of view at least) to keep them in-house.
Cloud computing spending is growing even faster than expected
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And if that sounds unrealistic, it may be that figures on adoption of cloud depend on who you talk to inside an organisation. Not all cloud spending will be driven centrally by the CIO: cloud services are relatively easy to sign-up for, so business managers can start using them, and pay out of their own budget, without needing to inform the IT department. This can enable businesses to move faster, but also can create security risks if the use of apps is not managed. Adoption will also vary by application: cloud-based email is much easier to adopt than a new finance system, for example. And for systems such as supply chain management, that are working efficiently as they are, there will be less short-term pressure to do a potentially costly and risky shift to the cloud. However, concerns do remain about security, especially for companies moving their data between many cloud services, which has led to growth in cloud security tools, which monitor data moving to and from the cloud and between cloud platforms. These tools can identify fraudulent use of data in the cloud, unauthorised downloads, and malware. There is a financial and performance impact, however: these tools can reduce the return on investment of the cloud by 5% to 10%, and impact performance by 5% to 15%. The country of origin of cloud services is also worrying some organisations (see ‘Is geography irrelevant when it comes to cloud computing?’ below)
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A survey of 500 businesses that were early cloud adopters found that the need to rewrite applications to optimise them for the cloud was one of the biggest costs, especially if the apps were complex or customised. A third of those surveyed cited high fees for passing data between systems as a challenge in moving their mission-critical applications. The skills required for migration are both difficult and expensive to find – and even when organisations could find the right people, they risked them being stolen away by cloud-computing vendors with deep pockets. Beyond this, the majority also remained worried about the performance of critical apps, and one in three cited this as a reason for not moving some critical applications.
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Secondly, there is the issue of data sovereignty. Many companies, particularly in Europe, have to worry about where their data is being processed and stored. European companies are worried that, for example, if their customer data is being stored in data centres in the US or (owned by US companies), it could be accessed by US law enforcement. As a result, the big cloud vendors have been building out a regional data centre network so that organizations can keep their data in their own region. Some have gone further, effectively detatching some of those datacenters from their main business to make it much harder for US authorities – and others – to demand access to the customer data stored there. The customer data in the data centres is under the control of an independent company, which acts as a “data trustee”, and US parents cannot access data at the sites without the permission of customers or the data trustee. Expect to see cloud vendors opening more data centres around the world to cater to customers with requirements to keep data in specific locations. Cloud security is another issue; the UK government’s cyber security agency has warned that government agencies need to consider the country of origin when it comes to adding cloud services into their supply chains. While it was warning about antivirus software in particular, the issue is the same for other types of services too. Google uses a similar model, dividing its cloud-computing resources into regions that are then subdivided into zones, which include one or more datacenters from which customers can run their services. It currently over eight zones: Google recommends customers deploy applications across multiple zones and regions to help protect against unexpected failures. Microsoft Azure divides its resources slightly differently. It offers regions that it describes as is a “set of datacentres deployed within a latency-defined perimeter and connected through a dedicated regional low-latency network”. It also offers ‘geographies’ typically containing two or more regions, that can be used by customers with specific data-residency and compliance needs “to keep their data and apps close”. It also offers availability zones made up of one or more data centres equipped with independent power, cooling and networking.
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Previous coverage
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