Cloud vs. On-Prem: Infrastructure Spending Trends

Cloud Infrastructure Spending Surpasses On-Premises Expenditure

A common belief suggests that despite rapid growth, the majority of computing workloads continue to be hosted on traditional, on-premises infrastructure. However, recent findings from Synergy Research Group indicate a significant shift, revealing that cloud infrastructure expenditure exceeded on-premises spending for the first time in 2020 – and by a substantial margin.

Significant Growth in Cloud Investment

Synergy Research Group’s latest data demonstrates a continued, aggressive increase in enterprise investment in cloud infrastructure services throughout 2020. This resulted in a 35% growth rate, reaching nearly $130 billion. Conversely, enterprise spending on data center hardware and software experienced a 6% decline, falling to under $90 billion, according to the firm’s statement.

Although the trend has favored cloud adoption for the past decade, on-premises software maintained a spending advantage until the previous year, when both categories reached parity, as per Synergy’s data. John Dinsdale, chief analyst and research director at Synergy, emphasizes that this new data signifies a clear redirection of CIO spending towards cloud solutions in 2020.

CIOs Prioritize Cloud Services

“The crucial factor is where companies are allocating their financial resources, and our research focuses on that aspect,” Dinsdale explained. “It’s evident that CIOs are significantly increasing their investment in cloud services while simultaneously reducing expenditure on on-premises – or collocated – data center assets.”

Components of On-Premises Spending

The total on-premises spending figure encompasses servers, storage systems, networking equipment, security measures, and the associated software necessary for hardware operation. Dinsdale clarified that the software component within this data primarily consists of server operating systems and virtualization software. He noted that comparing Software-as-a-Service (SaaS) with traditional on-premises business application software presents a separate, more complex analysis.

Hybrid Cloud Complexity and Workload Quantification

As these on-premises and cloud spending figures diverge, questions arise regarding their comparison to research from firms like Gartner, which suggests that cloud still represents a relatively small portion of overall global IT expenditure. Dinsdale acknowledges that the dynamic nature of workloads moving between environments in today’s hybrid cloud landscape makes precise quantification challenging.

“Numerous observations have been made regarding the limited percentage of workloads operating on public clouds. While this may be accurate – or not – the core issue lies in the ambiguous definition of ‘workloads,’ particularly when attempting to measure it,” he stated.

Pandemic Acceleration and Long-Term Trends

The COVID-19 pandemic undoubtedly accelerated the migration of companies to the cloud, potentially at a pace exceeding what might have occurred otherwise. However, Dinsdale asserts that this trend has been developing for years, with the pandemic potentially serving as a catalyst.

A Clear Shift in Investment Strategy

Regardless of the specific figures considered, it is undeniable that the cloud infrastructure market is currently experiencing significantly faster growth than its on-premises counterpart. The latest data from Synergy Research Group confirms that CIOs are increasingly directing their investments towards cloud-based solutions.