Gartner: Cloud putting crimp in traditional software, hardware sales

Enterprise spending on cloud computing growing at a faster rate than overall IT spending will pose a challenge to legacy hardware and software vendors, Gartner cloud forecaster Ed Anderson says.

Cloud computing is expected to grow 19% in 2012, becoming a $109 billion industry compared to a $91 billion market last year. By 2016, it's expected to be a $207 billion industry, according to Anderson's latest findings. That compares to the 3% growth expected in the overall global IT market. While it's true that the $109 billion cloud market represents just a 3% chunk of the overall $3.6 trillion spent on IT globally, Anderson says it's still responsible, in part, for a slowdown in growth for traditional on-premise hardware and software sales.

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Software delivery is shifting from a traditional license sale to install an application on-premise, to a per-user cloud-based software-as-a-services (SaaS) model. Meanwhile, hardware is shifting from on-premise capital expenditures to off-premise operational expenditures.

In the long term, Anderson says, the cloud model will create new IT spending opportunities. Integration, customization, hybrid cloud and on-premise cloud installations will all grow in significance as cloud adoption continues. "There will be some short-term decline, but in the long term, it will level out," he says.

In Gartner's latest quarterly IT spending report, the research firm for the first time broke out cloud computing as a separate forecast category, providing an in-depth analysis of current and future cloud spending trends. The hottest growth in the cloud market in the coming year will be in infrastructure as a service (IaaS), which is expected to grow by 41%. Management and security is the second-hottest cloud growth area, expected to rise 27.2%, with platform as a service (26.6%), SaaS (17.4%) and business process as a service (15%) rounding out the top five. "The cloud market is growing at a pretty rapid clip," Anderson says. "Cloud services within the broader IT spending market are still small, but the growth rate looks promising."

Meanwhile, computing hardware sales are expected to rise only 3.4% this year to $420 billion, which compares to 7.4% growth last year. Enterprise software, after increasing 9.8% last year, is expected to reach $281 billion this year, a 4.3% growth clip.

Examples of Anderson's predictions about cloud's promise can be seen across the market. Some startup e-commerce sites, like Coupa, don't own any infrastructure and have decided to run their entire company from the Amazon Web Services cloud. Other companies are taking a more measured approach to embracing the cloud.

GFI Software, which provides a range of IT service management software products, including infrastructure, security and email services, recently announced a plan to transition all of its software offerings to a cloud-based SaaS delivery model. "We have to do it, it's the wave of the future," says CEO Walter Scott. "Customers want simplicity, and the cloud is the simplest way to deliver a software service." The cloud offers faster deployment for consumers and easier management. In a cloud-based model GFI will be able to automatically install security patches or other updates from a central point and have those distributed to all of the application's users.

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It's still a transition for the market though, Scott says, and not all customers are ready to fully embrace the cloud. Many European companies are adopting the technology at a slower pace than U.S. counterparts. GFI will continue to offer on-premise installations as well as cloud-based services as the company transitions its dozens of applications to a hosted model.

Network World staff writer Brandon Butler covers cloud computing and social collaboration. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW.

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