New Cloud Figures Forecast a Gloomy Outlook for Network Vendors

A study from IDC predicts spending on public cloud services to increase by 21.5% year on year to 2020

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Unified Communications

Published: March 22, 2017

Ian Taylor Editor

Ian Taylor

Editor

Cloud spending figures rarely make sunny reading for on premises IT businesses, but the latest numbers from IDC are bound to dampen spirits in the network hardware vendors.

IDC’s latest Worldwide Semiannual Public Cloud Services Spending Guide predicts that global spending on public cloud services and infrastructure will reach $122.5 billion in 2017, a huge increase of 24.4 per cent compared to 2016.

And the report does not expect the pace of growth to drop off by much to the end of the decade, either. It estimates that by 2020 spending will be worth $203.4 billion a year, a five year compound annual growth rate (CAGR) of 21.5 per cent.

The market will continue to be dominated by Software as a Service (SaaS), which will account for two thirds of spending this year. Half of this will be made up by app purchases. However, Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) is expected to claw back some ground on by 2020, both growing at a faster rate than the SaaS market with CAGR’s of 30.1 per cent and 32.2 per cent respectively.

None of this is good news for companies selling servers, switches, routers and other on premises networking hardware. Cisco has reported declining revenue for five consecutive quarters, the latest seeing a 3 per cent drop. Although Cisco has made major inroads into the enterprise and UC software markets, the biggest part of its business remains selling switches and routers.

A major attraction of public cloud services to business is the reduction in expenditure on hardware it offers. The more businesses turn to the cloud for their IT solutions, the smaller the market for data centre hardware will become.

According to IDC senior vice president Frank Gens, the cloud is only going to become more and more attractive to businesses. “As cloud adoption expands over the next four years, what clouds are and what they can do will evolve dramatically – in several important ways,” he said.

“The cloud will become more distributed (through Internet of Things edge services and multi-cloud services), more trusted, more intelligent, more industry and workload specialised, and more channel mediated. As the cloud evolves these important new capabilities – what IDC calls ‘Cloud 2.0’ – the use cases for the cloud will dramatically expand.”

UC Today Opinion

The cloud is by now well established as a mainstream mode of IT and communications deployment, so no one should be surprised by IDC’s latest forecast. The market for public cloud services is growing partly because it is still a lot younger than its on premises equivalents so has not yet reached saturation point, and partly because it offers genuine benefits. Low capital costs and hassle free remote management of IT services appeals to lots of businesses.

However, all is not lost for traditional network vendors, as long as they are prepared to move with the times. Although Cisco offers a big name example of the impact declining demand for routers and servers can have, it is actually a good case study for where enterprise tech and communications firms need to be looking – software, cloud services and end point hardware. Cisco is a big presence in all of these markets, and will offset the falling revenue from network hardware as these grow.

What is your opinion on increased spending on the public cloud? How do you see it affecting the UC industry? Do you think developers and vendors are doing enough to meet changing market demand? Let us know your thoughts in the comments section below, and why not get your friends and colleagues involved by sharing this article.

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