How a slowing economy could accelerate public cloud growth

In tough economic times, companies need every ounce of efficiency. That’s where the cloud comes in.

clouds cloud computing
Matthew Mikaelian

As we all know, the public cloud has been growing incredibly fast. What may be less obvious is that growth is likely to continue even if the overall economy—and tech spending—slows.

At least, that’s what cloud companies are seeing… and betting on. According to the Wall Street Journal, ”business demand for cloud services remained strong even amid signs of a broader economic slowdown.” And according to RBC Capital projections reported in the Journal, capital spending among the 18 cloud service providers it tracks jumped 29 percent in 2014, rose just 6 percent in 2015, but will accelerate to 15 percent in 2106. The Journal also said that Amazon, Microsoft and Google spent $26 billion in capital expenditures in 2015, a good chunk of it on data center capacity.

These projections are in line with IDC projections from last year, despite growing fears of a global economic slowdown. How can that be?

See also: Nearly one-third of all IT infrastructure spending now devoted to cloud and Cloud to consume almost half of IT infrastructure sales by 2019

According to the Journal’s Dan Gallagher, “A slowing economy drives businesses to wring more efficiency from their technology budgets.” And the enormous scale of modern cloud service providers is nothing if not efficient.

A few companies, such as Dropbox, eventually reach a point where they have the scale to replicate the kinds of efficiencies created by the giant cloud services companies in their own private clouds. To be clear, Dropbox will still be using cloud-based principles: it is not abandoning the cloud, just the public cloud. Others will leverage the public cloud for some things, but keep their own data centers for high-value workloads.

See also: Why Dropbox dropped Amazon’s cloud

But relatively few companies have the scale to run a private cloud with the efficiency of an AWS, even given AWS’ reported 24 percent profit margins, which dwarf the 3 percent earned by the company’s retail business.

While public/private hybrid clouds certainly make a lot of sense for many companies during this transition period, the long-term trend seems inarguable. More and more workloads will end up in the public cloud. That’s the new default: Only those companies and workloads with a particular reason not to live in the cloud will stay out of it. And the list of appropriate reasons to avoid the cloud is shrinking, not growing.

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Copyright © 2016 IDG Communications, Inc.

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