The cloud is quickly drawing the bulk of enterprise data activity, and the rate of transition is likely to accelerate as high-speed data loads take on a more prominent role in the business model.
This leads to the conventional wisdom that those who specialize in data infrastructure, and physical layer infrastructure in particular, are facing bleak times because the enterprise spend in this segment is about to dry up. But while there is some truth to this, the fact is that spending on traditional data infrastructure has a way to go before it fades completely, while the cloud infrastructure that many traditional vendors have already embraced has nowhere to go but up.
IDC’s latest report has the cloud infrastructure market on pace to hit $38.2 billion in 2016, a more-than-healthy 18.9 percent gain over last year, with public deployments climbing more than 14 percent to $24.4 billion and private clouds gaining 11 percent to $13.9 billion. By comparison, non-cloud spending will drop on the order of 4 percent, but this still makes up nearly two-thirds of the overall market. For the remainder of the decade, IDC is calling for the cloud to grow at a compound annual rate of 12.5 percent to $57.8 billion by 2020 while non-cloud will drop by 1.3 percent annually, which should put the two sectors at roughly even levels of investment by the end of the decade.
The report sheds some light on the recent M&A activity within IT infrastructure circles, says eWeek’s Jeffrey Burt. The Dell-EMC deal in particular should push Dell past HPE in terms of overall market share, while at the same time it puts Dell on a more cloud-friendly footing through EMC’s connections with companies like VMware and Pivotal. In the end, existing enterprise customers will have no choice but to convert their legacy data centers to private clouds, and who better to do that than the very same vendors who helped build that infrastructure in the first place?
This still leaves a problem for the leading IT vendors, however. As Seeking Alpha points out, the majority of spending will go to the public providers, with the enterprise retaining dense, modular infrastructure for critical applications. And since size is everything in the cloud, most of the activity on the public side will come from the hyperscale giants like Amazon and Google who are designing their own white box platforms and buying them directly from ODM manufacturers like Quanta and Compal. How will Dell, HPE and others maintain their current revenue streams when no one has need for the expensive integrated hardware platforms that have driven their profit margins for so long?
Clearly, a transition is underway, and companies like HPE will have to wean themselves off of the old ways before the future gets away from them. But virtually everywhere you look, there are signs that this is happening. HPE is on the verge of releasing its new Synergy platform aimed at building hybrid clouds through “composable infrastructure,” while Cisco has added Docker support to its ACI platform to bolster the deployment of microservices. Even software developers like Microsoft are tweaking their wares toward greater cloud functionality as they seek to juggle the complex infrastructure requirements of the hybrid cloud.
Clearly, the writing is on the wall for old-style, integrated IT platforms. The infrastructure footprint at most enterprises will shrink and more of the workload will transition to public, private and hybrid architectures.
And while today’s market leaders undoubtedly have a tough road ahead, and may even see their stock valuations fall in line with revenues, there is no reason to think that branded hardware cannot fit comfortably within a hyperscale cloud environment. Indeed, unless Amazon, Google and other top cloud providers literally take over the world, there will likely be a vibrant data platform market going forward.
Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.