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What’s Driving the New Boom in Cloud Spend?

​We’re living through yet another boom in cloud computing. Depending on how you want to categorise these things, it might be the third or fourth such period of rapid expansion in cloud adoption.

When we look at the figures, this current cycle even puts previous cloud booms in the shade. According to one recent analysis, the global cloud computing market is set to grow by an incredible CAGR of 30.10% up until 2027. That’s an increase in cloud spending of nearly a third a year, over a five year period.

If that forecast is right, by 2027 the global cloud industry will be worth a mammoth $750bn.

Post-pandemic peak

So what is driving this new era of huge cloud investment and expansion? Well to start with, we can’t ignore the impact of the P-word. Funnily enough, spending on cloud actually took a dip in the second quarter of 2021 as most countries just started to open up from the deepest lockdowns of the whole pandemic.

But then it roared back in the final quarter of last year to end a massive 13.5% up year on year. The driver was the huge rush for organisations to invest in digital transformation projects. Over the course of the previous 18 months, businesses had had to adjust rapidly to remote working and running digitised sales channels and other operations at scale.

While COVID restrictions were in full swing, much of this had to be implemented via a make-good-and-do approach. But since restrictions started to ease in summer 2021, organisations have had the freedom to run with their digital transformation projects. Having seen how valuable the agility of the cloud could be in ensuring business continuity through a crisis, it’s understandable that businesses should rush to be ready next time.

Plus you could also say that the pandemic was something of a coming of age for cloud technology. Any lingering doubts that it was resilient enough, secure enough, reliable enough or had the capacity to support the global burden of trade, commerce and communication were laid to rest. At the same time, people realised remote working really could work, online spending soared as more and more people shopped online etc.

But isn’t what we’re seeing a relatively short term spike in cloud spending as organisations look to pivot to the digital first ‘new normal’ that has become the post-pandemic blueprint? Will it really last as long as five years?

A tipping point in IT spend

There are several things to unpick here. One is that, by the very nature of how the cloud works, for end users it isn’t a one-off capital investment. It’s an ongoing operational commitment, with delivery of cloud services defined by a subscription model (that famous ‘as-a-service’ phrase).

What we’re seeing is not just a sudden rush to invest in the cloud, but a fundamental reorientation of IT spend full stop. According to IDC, 2022 will mark the first year that spending on cloud IT infrastructure goes above non-cloud infrastructure. We’ve reached a tipping point where the cloud is now the dominant IT model. And that will of course drive growth.

At the same time, the way that organisations use cloud computing is becoming more and more complex and sophisticated all the time. It’s possibly no longer strictly accurate to talk about ‘the cloud’, because that suggests a single IT structure, possibly through a single vendor. Multi-clouds are by far and away the dominant model now used - some 89% of organisations use multiple cloud services from multiple vendors, and 80% use a hybrid blend of public and private clouds.

According to IDC, both shared/public and dedicated/private cloud infrastructure will experience double digit spending growth up to 2026. That’s a function of organisations looking to break down their IT requirements to a granular level and choose best-in-class providers to meet very specific needs.

The more cloud providers a business partners with, the more their cloud spend increases. Instead of networks of maybe a handful of cloud services, we’re now talking entire ecosystems comprising dozens. But that is against the background of spending on non-cloud IT going into decline.

Rapid, high-level growth in cloud doesn’t necessarily mean organisations are spending more on IT overall (although, as digital increasingly becomes a core business function, that is likely to happen, too). But what it does show is just how far business IT is moving into the cloud full stop.