IDC highlights big investment needed for cloud migration

Published on the 19/02/2019 | Written by Jonathan Cotton


Increase spend in the cloud_IDC

Australian cloud services market tracking to jump 150 percent over 2017-22. Why?…

In a typically dry assessment of market prospects, the latest managed cloud services report from IDC  contains some rather juicy forecasts with the managed cloud services (MCS) market in Australia set to grow from US$816 million in 2017 to US$2.03 billion in 2022 – a five-year compound annual growth rate of 20 percent.

‘As Australian enterprises’ cloud strategies reach levels that include more critical workloads, the challenges associated in maintaining these increasingly complex environments have also increased,’ the report explains.

‘While business managers are looking for more agility and/or speed from IT as well as helping increase revenue, IT departments face challenges in achieving project deadlines and service level agreement goals.’

But let’s take another look at those numbers again. In Australia dollars it translates to companies planning to spend A$340 million more every year until 2022.

Just what is behind that level of increase?

According to IDC’s cloud and digital transformation specialist and senior analyst Prabhitha Sheethal Dcruz, the figures reflect the sheer number of enterprises looking to invest their IT budgets in building cloud capability.

“Enterprises indicate high levels of interest in cloud delivery models as they invest in simplifying and standardising IT infrastructure and application platforms, and upgrade, expand or replace data centres,” said Dcruz.

About 60 percent of Australian enterprises plan to use MCS for legacy application modernisation, the report says.

But as organisations adopt new on-premises and cloud applications, a broad set of new cloud management capabilities are required to assuage customer concerns, including a lack of operational control in utilising multiple cloud options, ensuring they have services with a prominent level of availability, assurance and meeting regulatory environments.

Reading that another way: when businesses combine on-premise with cloud hosting and SaaS applications, things get expensive, and fast.

“As enterprises transform from a world of legacy technologies and delivery techniques to a world centred on digital technologies and disruptive delivery models, traditional outsourcing as we know it will decline and will be replaced by managed digital services involving cloud, mobile, social, analytics, IoT and cognitive capabilities”, says Dcruz.

All of which demands investment.

Another of the drivers of this growth is, according to IDC, the cost of regulatory compliance.

“Compliance is becoming a major overhead for many user organisations,” says Dcruz.

“A managed services provider working a one-to-many model can better afford to invest in specialists in critical areas – security, data management, industry regulations etc.

“A service with auditable compliance processes and policies in place is an attractive proposition to the mid-market enterprise in particular.”

OK so there are some efficiencies in moving to the cloud.

The report further notes that managed cloud services providers are facing increasing competition from public cloud vendors offering their own managed cloud services.

So in a world where everyone’s got Salesforce or Workday, how do you differentiate? And where does this leave local cloud partners trying to help their clients compete?

“This can be answered from a benefits and challenges of managed cloud services point of view,” says Dcruz. “Managed cloud services will allow MCS providers to arbitrage costs for hardware and software across public cloud providers, offering a set of agnostic technology-based and partner-based services (avoiding lock in), improved orchestration across multiple service providers and portfolio optimisation across cloud options etc.

“The flip side is that the market pressure on public cloud providers drives them to automate out the labour component to show value from automation, while managed cloud services providers are trying to demonstrate value from labour – which providers will claim cannot be automated.”

And scale will win that fight, so local providers need to be constantly updating and evolving as services are commoditised.

Other challenges include back-to-back service level agreements and downward price pressure says Dcruz.

“For local cloud service providers’ this means having skills, like integration and cloud management, as well as partnerships with leading public cloud vendors.

“We have also observed SPs providing their own automated platforms for hybrid cloud management, which is gaining more acceptance with end users.”

So with so much change afoot, just what will look different about the Australian enterprise tech landscape in 2022 – after the money’s been spent?

“That is a big question,” says Dcruz.

“Increased concentration of services in major data centres, significant multi-cloud adoption, cloud management platforms aided by AI-driven automation,” she predicts.

“The adoption of MCS will evolve from ad-hoc to more mature processes – depending on the organisations’ maturity.”

With the appetite for digital services unlikely to wain any time soon, we can probably conclude a 20 percent CAGR feels…about right.

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