Digital demand sets cloud computing on course for next stage

Although cloud computing has been pervasive for the best part of two decades, investment in its infrastructure by big companies remains sluggish, as many industries cling on to old technologies.

But that is soon expected to change in markets such as the UK, North America and Germany, where cloud use among large companies is, according to industry data, poised to enter a new stage.

Cloud computing — essentially the transfer of data and IT services to a third-party’s servers — is widely seen as an essential tool for companies looking to become more agile, and hoping to embrace artificial intelligence and data mining.

Because of the additional computing power required, many companies have turned to cloud providers such as Amazon’s AWS, Microsoft’s Azure and Google Cloud, as well as a thriving industry made up of smaller, local players.

The Next Tech Growth Markets in Cloud Computing

CLOUD COMPUTING: COUNTRIES TO WATCH 2020-2024

US Despite high relative adoption of cloud services in 2020, use by top enterprises will continue to expand, driven by the benefits of flexibility that come with digital transformations.

GERMANY Adoption of cloud services by the manufacturing sector will accelerate to support the growth of the digital workforce, with a shift from private cloud (servers used exclusively by one company) to public cloud (servers operated by a third party and available to many).

UK Despite having a relatively high cloud penetration, a shift to a cloud-first approach by large UK enterprises, particularly financial services groups, is forecast.

FRANCE A cloud-first approach to new digital development is becoming mainstream, with the cost and flexibility of cloud computing driving further adoption.

Source: FT-Omdia Digital Economies Index

Since 2011, UK spending on cloud technologies “has grown at significant pace”, says Simon Hansford, chief executive of British cloud provider UKCloud. “As ever more businesses implement digital transformation and look to the future, this trend shows no sign of slowing,” he notes.

The Covid-19 pandemic has heightened the importance of the cloud, as industries adapt to support a more digital workforce and to cater to digitally-focused customer needs.

Yet, in many markets, analysts believe that large enterprises have underinvested in cloud. By 2025, the portion of overall technology spend allocated to cloud computing by big businesses will remain below 20 per cent, according to data from Omdia, a technology consultancy. The average proportion of IT spending on the cloud will rise from 8.9 per cent in 2020 to 12.4 per cent in 2025, with the remaining bulk of IT spending consumed by infrastructure, network, applications and staffing costs.

Daniel Mayo, an analyst with Omdia, argues that, while start-ups and smaller companies have found it easier to run businesses from the cloud, it has proved more difficult for large enterprises to move away from their legacy systems. For them, the transition to cloud solutions can take five to 10 years.

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“Large enterprises are now making steady progress,” Mayo says. He adds that the advances in AI and automation have meant that the cloud is now seen as an enabling technology, rather than simply a method of reducing spend on data centres.

“Cost is not necessarily the driving factor,” he says. It can be about accessing the intense computing power today’s advanced cloud services require. “It is more challenging to do that in-house,” Mayo explains.

That much is evident in industries that have long resisted cloud computing. Telecoms companies were among the first to offer cloud-like services in Europe, but soon lost the battle to “hyperscalers” from Silicon Valley including Amazon, Google and Microsoft.

We envisage a thriving market in the years to come, supporting high wage, high skilled jobs across the country

Nevertheless, telecoms companies have started to consider how they can harness the cloud themselves — as demonstrated by Vodafone’s tie-up with Google to co-develop cloud-based technologies to sell to their respective customer bases. Dish, a soon-to-launch US network, will run its entire network on AWS servers.

Dish’s decision highlights how companies, from banks to telecoms groups, are willing to move critical functions to the cloud.

Omdia predicts that North America, the UK, the Nordic countries, Benelux, France, Germany and Australia will soon become “late majority” markets, where the average spend on cloud computing will reach between 17 and 20 per cent. That will be driven by an increasingly cloud-first approach from banks and government departments in markets including the UK and France.

Growth in Latin America and Asia Pacific is likely to be higher, according to Omdia, but in line with IT spending in those markets.

A hybrid cloud solution — where a mix of third-party cloud computing and on-premise technologies is used — will remain the reality for many large enterprises while legacy systems remain hard to shift. For a telecoms company, for example, it is just too risky to move entire network functions to the cloud en-masse, as the risk of disruption would be too high. However, more companies may be tempted to follow Dish’s example, if it proves successful.

Those trends could spur government ambitions to increase the digital skills of the workforce as more investment goes into cloud analytics and away from traditional IT spend. “We envisage a thriving market in the years to come, supporting high wage, high skilled jobs across the country,” says UKCloud’s Hansford.

All this will have a significant impact on the technology industry itself, says Omdia’s Mayo, noting that it will need to adapt to a cloud-first market. “There will be a big impact in the technology industry who have to ask how they will deliver these services to their clients,” he says.