2014: More bad news coming for 'old IT' as cloud dominates

Cloud and offshore delivery continue to drive down cost as companies look to shake off the shackles of their existing tech infrastructure.
Written by Steve Ranger, Global News Director

The tech market is splitting into two – a fast growing cloud sector and a declining legacy element as companies look to dump their ageing infrastructure

European analyst house Pierre Audoin Consultants (PAC) said that while cloud computing, big data and mobile remain hot topics, changes in operating and delivery models – in particular cloud and offshore models – will continue to drive down cost.

In a nutshell: users want to spend less on their legacy IT by moving to the cloud and are willing to invest the resulting savings on new projects.

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Many of the incumbent IT services leaders have seen flat or decreasing revenues for 2013 across the world, in particular in their European business, and PAC warned the IT market is splitting into two main segments heading in different directions; the legacy market that continues to shrink faster than before, and an innovation segment that will generate double-digit growth for a lucky few suppliers.

PAC is only expecting around two percent growth in the IT market in Western Europe, compared to six percent in the US and as much as 10 percent in the Middle East and Africa.

Cloud computing is causing all the upheaval here for suppliers. PAC said cloud computing has a similar impact on the business of IT suppliers as the internet had on the telcos in the last decade.

"While it generates a few new opportunities, it has above all a dramatic impact on the pricing model for infrastructure services," it said.

On the applications side, the analyst house noted that moving to SaaS usually also involves standardisation and simplification, which will have a negative impact on the application services market in the long term, even if in the short-to-medium term it will boost the consulting market because these new cloud applications need to be integrated both with each other and legacy infrastructure.

PAC's survey of 1,500 CxOs across 20 countries found that cost reduction and efficiency pressure are the biggest IT challenges – with both of them gaining in importance in the past months.

One area of opportunity for traditional suppliers is security; companies are increasingly ready to pay for securing their IT, making it a higher priority than mobility, CRM and big data, digital transformation and social collaboration. When it comes to cloud, CxOs said they plan to double the usage of SaaS and to triple the usage of IaaS within the next two years – and quadruple use of big data.

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