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The Future of IT: Cloud Computing and Beyond

Authored by Dawid Piotrowski

Edited by Hazel Teh



Cloud computing is rising rapidly at a global level and will continue to grow. It is estimated that the revenue in 2025 will be 100% greater than that in 2019[1]. Cloud computing has also contributed to almost 50% of all revenue growth in the IT sector from 2015 to 2020 (ibid.). Those astonishing numbers are reflective not only of cloud computing’s potential, but also of greater systemic pressures in the economy – namely, digital transformation and the shift toward a “subscription economy”[2]. In addition, economic lockdowns due to the COVID-19 pandemic have only accelerated those trends[3].



INTRODUCTION TO CLOUD COMPUTING


Cloud computing is a delivery of computing services, such as servers or storage, over the internet[4]. Like any subscription, it is seen as a more affordable alternative to owning assets. There are three types – public, private, and hybrid; the first being accessible to the public, the second used exclusively by singular private entities, and the last being a mix of the previous two. The available services encompass computing, infrastructure (e.g. servers), platform provision (e.g. for app development), and the software itself.



WHAT'S FLOATING?


Cloud computing’s growth is strong and persistent. According to Bain & Company, cloud computing amounted to 70% of global IT market growth from 2012 to 2015. The results for years 2015-2020 fall in line with this trend, as it is estimated that cloud computing accounted for approximately 50% growth in those years[1]. It is no surprise then, that according to the International Data Corporation, cloud’s share of global IT Infrastructure market will rise from c. 49% to c. 63% in the years 2018-2024[5].

Companies are also spending more on cloud computing. Just in the U.S., total cloud spending increased more than four times from 2011 to 2015[1]. Globally, annual spending on cloud tripled from 2013 to 2019. Till 2024, it is expected that the value will increase by c. 61%[6].


The share of firms utilising cloud computing is enormous. In a global survey, Flexera found that approximately 90% of surveyed companies utilise cloud services, with many on course to increase their cloud spending[7]. It is expected that the share of users will continue to rise.


Judging by those figures, it is easy to see that cloud computing is a rapidly growing sector. In combination with macroeconomic pressures, we can only expect the cloud computing market to increase its total revenue and continue dominating the IT market. Taking that into consideration, potential investors should expect positive returns.


We can only expect the cloud computing market to increase its total revenue and continue dominating the IT market.


ADVANTAGES & SHORTCOMINGS


Such astonishing growth has its foundations on macro and micro scales. Firstly, the undergoing shift toward cloud computing is reflective of an increasing pressure to digitalise[8]. Secondly, cloud computing offers a sizeable set of benefits to its users: accessibility, flexibility, and cost efficiency[9].


Setting up cloud services is easier than creating self-owned IT centres. Moreover, the usage of such services can be easily amended, in contrast to increasing or decreasing self-owned IT capacity[11]. Utilising cloud may generate sizeable savings, as costs related to legacy IT solutions seem higher e.g., purchasing, maintaining, and upgrading IT assets or training IT staff needed to oversee such operations. An increase in demand is met with an easily available and relatively inexpensive supply. As a result, the sector booms.


However, upon further inspection, the picture begins to blur. Although the advantages of the cloud are persuasive, there are some noticeable drawbacks as well. Primarily, cost efficiency begins to drop as cloud usage increases[10]. The prima facie assumption about cost reduction is only true for small-scale operations[10]. Costs increase as the volume of data rises, leading to a “breaking point”, after which cloud computing becomes less affordable in comparison to legacy IT solutions.


Moreover, flexibility in changing service providers is constrained by vendor lock-ins. Relying on one cloud provider could be risky, as the consumer has little to no impact on the supplier’s behaviour. Consequently, downtimes and outages at the cloud provider’s end may be detrimental for companies relying on their services. As such, diversifying cloud supply is necessary, which will further increase costs.


Lastly, utilising cloud entails giving up privacy and security, which can generate additional costs and risks[12], including being more prone to hacker attacks. In order to minimise the threat of valuable data being targeted, companies are increasingly shifting to private cloud providers to manage company-critical tasks, which incurs higher costs, reversing the cost efficiency advantage of cloud computing.


...cloud computing offers a sizeable set of benefits to its users: accessibility, flexibility, and cost efficiency.

THE COVID FACTOR


Although the economic downturn may have impacted afore-mentioned market projections, it is worth noting that the cloud computing sector grew despite the overall slowdown[6]. Moreover, lockdowns are accelerating the trends, brought about by digital transformation and a shift toward a subscription economy[13]. This, in turn, creates an additional demand for cloud services. In addition, long-term lockdowns have also led to changes in work culture, as working from home became visibly more appealing. Consequently, the share of work done over the internet has increased, along with the demand for cloud services[3]. Most importantly, it is estimated that these changes will be permanent[14].


CLOUD COMPUTING: HERE TO STAY


In conclusion, the cloud computing industry will continue to see rapid growth. Projections indicate strong increases in both revenue and market share, while the usage of cloud is likely to remain widespread. In addition, businesses are estimated to increase their cloud spending in the future. This is reflective of the inherent strengths of cloud computing, which can thrive due to greater digital transformations and an increasing macroeconomic shift towards a subscription economy. Lastly, the COVID-19 pandemic has only accelerated those trends.


...inherent strengths of cloud computing, which can thrive due to greater digital transformations and an increasing macroeconomic shift towards a subscription economy.

However, companies should remain careful. Although cloud computing may be heralded as a booming business of the future, there are some considerable drawbacks. Namely, cost efficiency decreases as its usage increases. Moreover, flexibility is limited by vendor lock-ins, while reliability and security concerns lead to increased costs.


Yet, despite the drawbacks, the projections for cloud computing remain strong. In addition, powerful systemic pressures will ensure that demand for cloud persists in the coming years. As such, the outlook for cloud computing is positive and it should be considered by both consumers and investors alike.



[1] Brinda, M. & Heric, M., 2017. The Changing Faces of the Cloud, s.l.: Bain & Company.

[2] Gale, M., 2020. Are We At The Subscription Economy Tipping Point? With Tien Tzuo. [Online] https://www.forbes.com/sites/forbesinsights/2020/06/02/are-we-at-the-subscription-economy-tipping-point--with-tien-tzuo/

[3] McKinsey, 2020. Accelerating digital capabilities to recover from the COVID-19 crisis. [Online] https://www.mckinsey.com/about-us/covid-response-center/leadership-mindsets/webinars/accelerating-digital-capabilities-to-recover-from-the-covid-19-crisis

[4] Microsoft, 2020. What is cloud computing? [Online] https://azure.microsoft.com/en-gb/overview/what-is-cloud-computing/

[5] International Data Corporation, 2020. Spending on Public Cloud IT Infrastructure Surpasses Spending on Traditional IT Infrastructure for the First Time in the Second Quarter of 2020, According to IDC. [Online] https://www.idc.com/getdoc.jsp?containerId=prUS46895020#:~:text=Long%20term%2C%20IDC%20expects%20spending,growing%20at%20a%2010.9%25%20CAGR.

[6] Holst, A., 2020. Global cloud IT infrastructure spending 2013-2024. [Online] https://www.statista.com/statistics/503686/worldwide-cloud-it-infrastructure-market-spending/

[7] Flexera, 2020. Flexera 2020 State of the Cloud Report. [Online] https://info.flexera.com/SLO-CM-REPORT-State-of-the-Cloud-2020

[8] Aldalou, M., 2017. Digital transformation ‘driven by competitive threats’. [Online] https://www.businesscloud.co.uk/news/digital-transformation-projects-driven-by-competitive-pressu/

[9] Digital/McKinsey, 2018. Creating value with the cloud. [Online] https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/Creating%20value%20with%20the%20cloud%20compendium/Creating-value-with-the-cloud.ashx

[10] Backup Systems, 2018. How Cheap is the Cloud? Pure Myth or Simply Convenience. [Online] https://www.backup-systems.co.uk/blog/how-cheap-is-the-cloud-pure-myth-or-simply-convenience

[11] IBM, 2020. Benefits of cloud computing [Online] https://www.ibm.com/uk-en/cloud/learn/benefits-of-cloud-computing

[12] Larkin, A., 2019. Disadvantages of Cloud Computing. [Online] https://cloudacademy.com/blog/disadvantages-of-cloud-computing/

[13] Gale, M., 2020. Are We At The Subscription Economy Tipping Point? With Tien Tzuo. [Online] https://www.forbes.com/sites/forbesinsights/2020/06/02/are-we-at-the-subscription-economy-tipping-point--with-tien-tzuo/

[14] Guyot, K. & Sawhill, I., 2020. Telecommuting will likely continue long after the pandemic. [Online] https://www.brookings.edu/blog/up-front/2020/04/06/telecommuting-will-likely-continue-long-after-the-pandemic/

London Strategic Consulting 2021

Pushing Boundaries. Creating Enduring Change.

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