Cannibal cloud: How spending on the cloud is eating into IT budgets

Spending on public cloud is replacing some types of IT services spending but also stimulating others, according to research.
Written by Steve Ranger, Global News Director

One of the biggest questions of the moment for the IT industry is what the shift to the cloud will mean for how IT budgets are spent.

The early indications are that when it comes to spending on IT services, while some areas will see budgets dwindle, cloud will lead to an increased expenditure on new types of IT services, research from analyst house Gartner has found.

According to Bryan Britz, research director at Gartner, the reality of how the cloud is affecting IT spending is complex, and while spending on cloud is cannibalising some revenues it is also creating new requirements for IT services.

For example, while an organisation may move some workloads to the public cloud – thereby spending less on datacentre outsourcing — this can often lead to a bigger rethink of their hosting strategies, which will often mean more IT services spending: "In a lot of cases it actually kicks off new growth," Britz told ZDNet.

Increase in demand

Elsewhere, cloud will have both positive and negative effects on application outsourcing. While software as a service (SaaS) adoption will cut into the potential market for application outsourcing, SaaS take-up will also lead to an increase in demand for consulting and implementation services, Gartner said.

"SaaS is still an implementation project for companies: they still, in most cases configure it – which is the new word for customise. What we've seen in SaaS implementations is there is still a fair amount – admittedly less than if they were doing a big package implementation – but still a fair amount of professional services associated with adopting a SaaS platform," Britz added.

Gartner said the move to SaaS will also help drive additional revenue to the application outsourcing market as a consequence of organisations considering cloud options for applications that would previously have been developed in-house.

The impact of cloud on IT budgets will also vary by company size — large enterprises are likely to replace some of their spending on traditional IT services with public cloud spending. However, as public cloud services are also being adopted by small and midsize businesses — previously not the target market for most IT services companies – there are new spending opportunities developing in the SME sector.

But just because moving to the cloud can lead to more spending on IT services – not less – that doesn't undermine the benefits of moving to the cloud, said Britz.

"The argument should really be about agility more than it is about cost. It's more about speed and agility and frankly that needs to be the tipping-point discussion," he said.

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