Half of key IT spending to shift to cloud

Cloud services will account for over half of IT spending in key areas in the next three years, according to research by Gartner, underscoring the surging adoption of the cloud model among enterprises.

Gartner’s “cloud shift” research includes only enterprise IT categories that can transition to cloud, in the application software, infrastructure software, business process services and system infrastructure markets.

By 2025, 51% of IT spending in those four categories will have shifted from traditional solutions to the public cloud, compared with 41% in 2022. Almost two-thirds (65.9%) of spending on application software will be directed towards cloud technologies in 2025, up from 57.7% in 2022.

“The shift to the cloud has only accelerated over the past two years due to Covid-19, as organisations responded to a new business and social dynamic,” said Sydney-based Michael Warrilow, research vice-president at Gartner.

In Australia and New Zealand, Warrilow said organisations have always been ahead of the curve when it comes to cloud adoption, particularly on the infrastructure side. “But skills are hard to find and ANZ organisations aren’t investing in the higher value skills and capabilities needed to go to the next level, particularly in areas such as artificial intelligence, machine learning and DevOps,” he said.

Also, even though ANZ organisations are as equally interested in using business process as a service (BPaaS), their lower investment in BPaaS is likely due to the constrained size of the market, said Jaideep Thyagarajan, principal analyst at Gartner.

“Organisation size also plays a role, with the majority in ANZ organisations belonging to the mid-size category,” he added.

Gartner said the demand for integration capabilities, agile work processes and composable architecture will continue to drive the shift to cloud as long-term digital transformation and modernisation initiatives are brought forward to 2022.

In addition, ongoing disruptions to IT markets by cloud will be amplified by the introduction of new technologies, including distributed cloud. Many will further blur the lines between traditional and cloud offerings, Gartner noted.

Enterprise adoption of distributed cloud has the potential to further accelerate cloud shift because it brings public cloud services into domains that have primarily been non-cloud, expanding the addressable market. Organisations are evaluating it because of its ability to meet location-specific requirements, such as data sovereignty, low-latency and network bandwidth.

In 2022, Gartner expects traditional IT offerings to account for 58.7% of enterprise IT revenue, but growth in traditional markets will be much lower than cloud. More than $1.3tn in enterprise IT spending will be at stake from the shift to cloud this year, growing to almost $1.8tn in 2025.

To capitalise on the shift to cloud, Gartner advised technology and service providers to target segments where the shift is occurring most aggressively, in addition to seeking new high-growth cloud opportunities.

For example, infrastructure-related segments have a lower level of cloud penetration and are expected to grow faster than segments such as enterprise applications that are already highly penetrated. Providers should also target specific personas, adoption profiles and use cases with go-to-market initiatives.