Sand Hill Group’s “2010 Leaders in the Cloud” study indicates a dramatic shift of budgets allocated for the cloud. From the figure below, we make the following observations:
- Currently, 42 percent of the respondents do not spend any of their IT budget for cloud projects while 26 percent spend less than three percent of their IT budget on cloud.
- In three years, 70 percent of the respondents will spend between 10 – 30 percent of their IT budget in the cloud.
This data clearly shows that cloud budgets are poised to increase dramatically in the next three years.
“We spend about 30 percent of our IT budget in the cloud today. I see that only going up in the future. We have a strong preference to choose cloud vendors if they meet all our functional and cost needs.”– CIO, software company
For companies that have experienced the business benefits of the cloud with their cloud projects, the plan is full speed ahead wherever possible. A bank executive participating in the Sand Hill study described how his company plans to increase his investments in the cloud. Today, less than one percent of the company’s services are externally hosted, but the plan is to have 10 – 20 percent hosted in the cloud in the next five years.
The transition to the cloud will impact companies’ IT staffing levels as well. One executive forecasted her group would flip from 100 percent internal IT now to 100 percent external IT in three years. “We will only have a few folks in our internal IT department with architectural and deep technology skills,” she commented.
An executive at a media company offered a variety of predictions for the cloud’s next evolutionary steps:
“You will see more business services and more highly collaborative applications in the cloud. The solutions from SaaS vendors will be easier to use, cheaper and the innovation curve will be much faster.” – CIO, media company
The CIO of a major software maker is quite bullish about the future of the cloud. His predictions:
“There will be steady growth in the cloud market. It will grow at a couple of percentage points ahead of the general technology market, and it will take market share from some of the other deployment choices out there. However, I don’t expect a major change until two to three years out, because it will take a long time for enterprises to figure out their applications landscape. It will be a nice business for the next two to three years, and then it will become very compelling after that. I think, in three years, the industry will get to 40 percent in the cloud. In five years and beyond, it could get to 70 percent. And there will always be 20 – 30 percent that can’t or won’t go to the cloud.” – CIO, software company
The 20 – 30 percent of applications that won’t move to the cloud usually falls into these categories:
- Mission-critical applications running on legacy hardware
- Custom applications developed in house to meet specific strategic needs of companies
- Applications that process and move large amounts of data
- Applications that are time sensitive and have strict response-time requirements
In Sand Hill Group’s 2011 cloud computing survey software executives expressed optimism about the growth of the cloud market in the longer term. Forty-three percent of the executives forecasted that cloud-based services and products will dominate their revenues (81 – 100 percent) in five years.
Clearly, customers are gearing up to use cloud services, and the software vendors are innovating and expect to serve those customer needs in the next several years. Companies should take advantage of the cloud to find new avenues of growth to remain viable in the long term. Those that enter late to the game will lose early-adopter advantage of the cloud leaders.
However, before embarking on the cloud journey and making investment decisions that could impact business over the next decade, companies should understand the challenges and pitfalls of disruptive innovations from an organizational perspective.
Kamesh Pemmaraju heads cloud computing research for Sand Hill Group. Follow him on Twitter @kpemmaraju.