Is Cloud Causing IT Spending Shift?

Ann All

Updated · Jul 16, 2015

In its latest forecast, research firm Gartner said global IT spending would hit $3.5 trillion this year, a 5.5 percent drop from 2014. Factoring in the rising U.S. dollar, in constant-currency terms the market will grow 2.5 percent. This is a downward adjustment from April, when Gartner predicted IT spending would fall 1.3 percent in U.S. dollars and grow 3.1 percent in constant currency.

Though the numbers look weak, it is “not a market crash,” said John-David Lovelock, a research vice president, in a statement. In fact, he said, “”IT activity is stronger than the growth in spending indicates. Price declines in major markets like communications and IT services, and switching to ‘as-a-service' delivery, mask the increase in activity.”

Cloud computing is the key to as-a-service delivery. So perhaps it is not surprising that research firm Computer Economics found a few notable trends in its latest research, including what John Longwell, vice president of Research, said appears to be a “tipping point” for cloud computing.

IT operational spend is rising at the fastest pace in years, with 69 percent of IT organizations getting bigger operational budgets. Yet capital spending is flat and hiring is weak, Longwell said. Not only that, but both IT spending as a percentage of revenue and on a per-user basis are falling. The per-user figure is at $6,847 in 2015, a drop of more than $3,500 since 2012.


Why is operational spend accelerating while capital spend has stalled? The cloud is playing a significant role, Longwell said. A net 56 percent of IT organizations are increasing spending on cloud applications, but just 10 percent are spending more on data center infrastructure.

Software spend is stronger than other categories. Noting that a net 50 percent of IT organizations expect to increase spending on business applications in general, Longwell said spending on apps continues to rise as a percentage of total IT spending.

But cloud's impact is undeniable, Longwell said.

Cloud's Tipping Point

“We think this is a secular trend and we don’t expect it reverse itself,” he said. “It may slow or speed up, but I think the direction is now undeniable. IT organizations are moving toward embracing cloud applications and it is beginning to influence IT spending patterns.”

Though Computer Economics has noted the growing adoption of cloud apps for a while now, adoption was at an early enough stage that it made little real impact on spending and the overall market. “Now we are seeing impact on the numbers,” Longwell said. “The next step, I think, is how quickly will IT organizations begin using cloud-based IT infrastructure. We are definitely at a tipping point.”

Spending on personnel has been shrinking as a percentage of IT budget since the start of the recession in 2008 and is not rebounding as much as other areas, Longwell noted. “Headcount is flat and wages somewhat stagnant. As organizations move their applications into the cloud, they will require fewer IT workers as well as less infrastructure.”

As IT organizations increasingly transition to the cloud, they must plan for ways to shed assets and transition their workforces, Longwell said.

“That means shifting from owning to leasing or outsourcing infrastructure. IT organizations will also find themselves needing fewer data center operations people and possibly application programmers. Having a flexible workforce strategy or engaging in partial outsourcing of some functions could be helpful,” he said.

While IT organizations will need fewer of some positions, they will require more service managers, business analysts and IT financial management personnel, Longwell said.

There is good news for organizations that do not delay a move to the cloud, he said. “Our research indicates that companies that have moved aggressively into the cloud spend less on IT than organizations with more traditional IT.”

Ann All is the editor of Enterprise Apps Today and eSecurity Planet. She has covered business and technology for more than a decade, writing about everything from business intelligence to virtualization.

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    Ann All

    Public relations, digital marketing, journalism, copywriting. I have done it all so I am able to communicate any information in a professional manner. Recent work includes creating compelling digital content, and applying SEO strategies to increase website performance. I am a skilled copy editor who can manage budgets and people.

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