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Is Cloud really about eliminating CAPEX and bringing Operational Efficiency in OPEX spending? A few days ago while searching for “Global Cloud Spending” I came across this very interesting report right below:

The chart comes from IDC’s recent “Worldwide Semiannual Public Cloud Services Tracker” and depicts Public Cloud OPEX (i.e., cloud provider revenues) and “Traditional IT and Private Cloud” enterprise capital investment for the period 2016 – 2022. In other words, how much are users spending on cloud services versus how much are they investing in their own Private Datacenter infrastructure?

Public Cloud use is exploding

Over the seven years from 2016 to 2022, public cloud spending will jump by more than 500%. By 2022, users will be spending more than $100 billion on public cloud. Let me repeat my point: This is clearly the fastest adoption of a new technology in the history of the industry. And from the slope of IDC’s chart, it doesn’t look like public cloud adoption will slow down in out years beyond 2022.

AWS, Azure and Google, are spending tens of billions of dollars annually on building facilities to support the massive user adoption as IDC’s chart describes.

It’s important to understand the impetus behind public cloud provider revenues and capital investment: application deployment. Users are deploying tens of millions of applications into cloud infrastructure, drawn by cloud computing characteristics unavailable in the long durations and upfront investment associated with traditional infrastructure.

This represents a massive movement within the industry. Public cloud computing is clearly a critical component in the software value chain. Moreover, what we think of as an application is itself morphing, evolving in response to those characteristics noted above. Cloud-native applications are partitioned into micro-services, respond dynamically to changing workload, implement performance measures to improve user satisfaction, address much larger amounts of data, and implement new techniques of monitoring and management.

So, one clear implication of IDC’s chart is that massive adoption of cloud is occurring, driven by ginormous numbers of applications being deployed there, and that trend will continue for the foreseeable future.

Unfortunately, Private Cloud is Not Going Away

Here’s an interesting thing, though: all that public cloud adoption does not appear to be coming at the expense of private infrastructure. IDC’s chart shows private infrastructure holding steady at around $75 billion. Despite the huge adoption of cloud computing, enterprises are clearly maintaining their on-prem environments and continue to operate applications there. Frankly, this is a bit of a surprise to me.  I have been involved in cloud computing for well around a decade, and always expected that there would eventually be a significant migration out of conventional Datacenters and into the cloud, based on the manifest advantages of public cloud environments.

Clearly, I was wrong. I was a strong believer that Private Datacenter will face slow but inevitable death.

In fact, despite high profile companies like Expedia, Dow Jones, and Time Inc., most enterprises have left much of their existing application portfolio in their data centers.

One question might be whether they will continue this practice. After all, the IDC chart extends only to 2022. Given the steady level of investment over the entire span of the chart, it’s unlikely that there will be a significant reduction in on-prem investment for the foreseeable future — a fact that carries important implications for new applications, a topic I will address in my next blog post. The clear message of IDC’s chart, though, is unmistakable: on-prem computing environments will remain present and serve as the computing infrastructure for significant portions of most enterprise legacy applications.

Conclusion

IDC is very well known for its quantitative research based on extensive surveys of users and vendors. For this Tracker report, it covered companies working in general cloud computing located in geographies across the world. Overall, IDC addressed 53 geographies and 80 discrete market segments. There are a couple of things that jump out from the chart.

The IDC chart presents a seeming paradox, one which we might call the Cloud Capex Conundrum. Public cloud providers, led by AWS, Azure and Google, have been pouring money into capex as they build out global collections of massive data centers — and yet, all of that spend hasn’t seemed to affect ongoing IT capital spending by enterprises. This blog post has explained this as the result of a growing bifurcation of enterprise application portfolios: maintenance of the existing legacy applications, requiring ongoing investment in on-prem data centers, and a rapidly growing deployment of public cloud-based applications, resulting in massive capital spending by the public providers.

An implication of this bifurcation is the need for an enterprise computing strategy that incorporates architectures that can span the two environments, allowing applications to connect across the Internet in order to access other applications or data. The need for an interoperable orchestration layer that can handle multi-cloud services in a native mode will be a game changer.