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IT budgets remain tight due to cloud migration

News Analysis
Jan 31, 20184 mins
Cloud ComputingData Center

Computer Economics research echoes a common finding that on-premises computing is falling out of favor as IT shops look to migrate as much work as possible to the public cloud.

For the third straight year, IT organizations are keeping tight control over their IT budgets, but not because of economic uncertainty. Instead, the hesitancy to spend is because of the transition to the cloud.

That’s the findings from IT market research firm Computer Economics, which published the report Worldwide IT Spending and Staffing Outlook for 2018 (paywall), and it echoes a common finding that on-premises computing continues to fall out of favor as IT shops look to migrate as much work as possible to the public cloud.

“Typically, before the cloud transition, companies would grow IT budgets roughly to match expected revenue growth,” said David Wagner, vice president of research for Computer Economics in a statement. “This is no longer true in regions of higher cloud adoption, such as the U.S. and Canada, where IT budgets are not keeping pace with revenue growth.”

This is the first year where Computer Economics looked beyond the U.S. and Canada and into global spending patterns. It found there is greater growth in IT spending abroad, especially in Asia/Pacific, but that’s at least in part because they are not as far along as other world regions with the cloud transition. Google and Amazon are only just beginning to expand into China and are finding it slow going as they compete with many home-grown providers.

This is reflected in planned spending on data center infrastructure. Globally, Computer Economics projects a net of 2.2 percent of organizations planning to decrease data center infrastructure spending rather than increase it for 2018. However, among just the U.S. and Canada, a net of 17.1 percent of organizations plan on decreasing data center spending for the year, a reflection of how much momentum the cloud transition has in North America.

IT staff levels decrease for large companies

Also, IT staffing levels are actually decreasing by a small percentage for large companies while growing slightly in the SMB sector. The decline is unusual during a strong economy, but again, Computer Economics attributes this to outsourcing, reducing the need for internal staff, and that companies are making such good use of new technology that they do not need as much staff to maintain their existing systems.

The mood among IT executives is certainly better, as 43 percent view the business outlook as more positive or much more positive than 2017, compared with 19 percent who worry that the business climate will be more negative or much more negative, and 38 percent feel the business environment will be about the same.

Operational budgets increase

While infrastructure spending is down, operational budgets are up, sort of. The company predicts 63 percent of companies will increase their operational budget, but that operating budget increase will be a mere 2 percent for U.S. and Canadian companies. It’s a reflection of the way the IT organizations are changing their spending because the cloud, SaaS, and related technologies are making them more efficient. They are not increasing budgets at pace of revenue growth because they are capable of meeting their IT needs for less.

Outsourcing is also taking a hit thanks to the move to the cloud. Almost two-thirds of companies surveyed, 63 percent total, plan no change or a decrease in outsourcing, while 37 percent plan an increase. Again, it’s the same story. With the move to the cloud, they don’t need to outsource. Non-mission-critical functions will be moved to the cloud, while the company will hold on to the important functions and applications.

Security and privacy are the top budget priority of IT executives, with 71 percent saying they plan to increase spending in that category, followed by 60 percent for cloud apps, 59 percent for business intelligence and 45 percent for cloud infrastructure.

Andy Patrizio is a freelance journalist based in southern California who has covered the computer industry for 20 years and has built every x86 PC he’s ever owned, laptops not included.

The opinions expressed in this blog are those of the author and do not necessarily represent those of ITworld, Network World, its parent, subsidiary or affiliated companies.