Gartner Says Public Cloud Services Are Simultaneously Cannibalizing and Stimulating Demand for External IT Services Spending
November 01, 2012
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Public cloud services are simultaneously cannibalizing and stimulating demand for external IT services spending, according to Gartner, Inc.

Infrastructure as a service (IaaS) adoption — the most basic and fundamental form of cloud computing service — has expanded beyond development and test use cases.

"Public cloud adoption is accelerating and public cloud services do, and will, cannibalize IT services spending in the coming years, most notably in the data center," said Bryan Britz, research director at Gartner. "At the same time, public cloud adoption offers service providers the opportunity to accelerate externalization of spending for the non-public cloud workloads and IT operations and service management responsibilities in tandem with clients pursuing a public cloud initiative."

A recent Gartner survey found that 19 percent of organizations are using cloud computing for most of production computing, and 20 percent of organizations are using storage as a service for all, or most, storage requirements. Gartner surveyed 556 organizations, from June 2012 through July 2012, across nine countries and multiple industries where cloud planning is a critical issue.

The survey found that public cloud adoption varies by service. IaaS is moving from lower-risk pilot programs and into production environments. Organizations' stated plans to adopt IaaS in the near future reinforce the importance of IaaS in an overall portfolio of infrastructure service offerings.

Similarly, platform as a service (PaaS) adoption clearly indicates the growing strategic importance of public cloud services for organizations that are adopting cloud infrastructure to support their business needs. Current and anticipated adoption rates of PaaS are leading indicators of a more substantive move to cloud environments and represent an opportunity for service providers to deliver PaaS-oriented solutions to help their clients make this move.

Software as a service (SaaS) adoption, particularly in large enterprise application suites, will continue to reduce the total potential market available for application outsourcing. At the same time, SaaS adoption in the near term offers consulting and implementation services opportunities for IT services providers, as well as ongoing integration and configuration. The move to SaaS will help drive additional revenue to the application outsourcing market by drawing applications to external, cloud-based implementations where they would otherwise be considered only for internal deployment.

"Public cloud services are being adopted in markets that were previously not the target market for most IT services providers. Adoption in these emerging markets and small and midsize business/smaller enterprise clients also creates consideration for increased use of established IT services to assist with the non-public cloud workloads," said Britz. "Public cloud services are also growing within the traditional target market for market-share-leading IT services providers. It is within this group of large clients, with large IT budgets, that the cannibalization of traditional IT services by public cloud services is most significantly felt."

Many organizations plan to increase external spending as a result of public cloud adoption through a combination of accelerated externalization of responsibilities and net new adoption of external services.

Seventy-one percent of leading cloud adopters expect to increase external spending on end-user computing infrastructure management, and 70 percent of leading adopters plan to increase external spending on application development. Many of these organizations will be first-time buyers of these established IT services. Fewer organizations plan to reduce spending during the next three years for established external IT services as a result of public cloud strategies. Reduced spending is most noticeable in the data center, where 14 percent of respondents plan to decrease external spending.

When it comes to data center services, the number of organizations indicating planned spending increases in hosting, and the number of organizations planning spending increases related to data center infrastructure management, point to continued client consideration of various delivery models and options that are available from the data center services marketplace. This competitive dynamic does not, however, inherently favor "one-stop shop" providers.

"Opportunity exists for providers able to address, directly or through an ecosystem of partnerships, the broad spectrum of hybrid delivery environments that will permeate most organizations in the coming years," said Britz. "Threats abound for providers that are too narrowly focused on legacy systems and legacy approaches."

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