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Is Cloud Computing hurting traditional IT? Yes and No, says Gartner

It is a much debated question – Cloud computing results in enormous savings for companies, but will all that saving mean IT budgets (and the IT market) will shrink, hitting jobs everywhere?

In other words, when you don’t need an army of IT engineers to install and maintain a huge array of local software in offices and datacenters, will that not result in a shrinkage of the industry?

Now Gartner has come up with a rather complicated answer — cloud computing will hit certain areas, such as application development, but because it will make IT cheaper, it will also enlarge the end-market. The survey found that some areas, such as datacenters, are more vulnerable to a budget-shrinkage caused by the adoption of cloud computing.

“Software as a service (SaaS) adoption, particularly in large enterprise application suites, will continue to reduce the total potential market available for application outsourcing. At the same time, SaaS adoption in the near term offers consulting and implementation services opportunities for IT services providers, as well as ongoing integration and configuration,” Gartner said.

“Public cloud services are also growing within the traditional target market for market-share-leading IT services providers. It is within this group of large clients, with large IT budgets, that the cannibalization of traditional IT services by public cloud services is most significantly felt,” said Bryan Britz, research director at Gartner.

In its survey of 556 organizations in nine countries, conducted from June 2012 through July 2012, it found that only a few organizations actually plan on cutting IT budgets because they are implementing Cloud technologies.

“Fewer organizations plan to reduce spending during the next three years for established external IT services as a result of public cloud strategies. Reduced spending is most noticeable in the data center, where 14 percent of respondents plan to decrease external spending,” it found.

Indeed, it may be a case of companies using the savings for other IT projects, instead of withdrawing the funds from their technology budgets altogether.

The move to SaaS will help drive additional revenue to the application outsourcing market by drawing applications to external, cloud-based implementations where they would otherwise be considered only for internal deployment, Gartner said. It will also encourage many companies to think about hiring outsiders to help with their IT workloads, expanding the market for IT services.

“Public cloud services are being adopted in markets that were previously not the target market for most IT services providers. Adoption in these emerging markets and small and midsize business/smaller enterprise clients also creates consideration for increased use of established IT services to assist with the non-public cloud workloads,” Britz added.

Public cloud adoption offers service providers the opportunity to accelerate externalization (hiring of external companies, instead of in-house engineers) of spending for the non-public cloud workloads and IT operations and service management responsibilities in tandem with clients pursuing a public cloud initiative, Gartner said.

Many organizations plan to increase external spending as a result of public cloud adoption through a combination of accelerated externalization of responsibilities and net new adoption of external services. Seventy-one percent of leading cloud adopters expect to increase external spending on end-user computing infrastructure management, and 70 percent of leading adopters plan to increase external spending on application development. Many of these organizations will be first-time buyers of these established IT services

“Opportunity exists for providers able to address, directly or through an ecosystem of partnerships, the broad spectrum of hybrid delivery environments that will permeate most organizations in the coming years,” said Mr. Britz. “Threats abound for providers that are too narrowly focused on legacy systems and legacy approaches.”

The Gartner survey found that 19 percent of organizations are using cloud computing for most of production computing, and 20 percent of organizations are using storage as a service for all, or most, storage requirements.

It found that public cloud adoption varies by service. IaaS is moving from lower-risk pilot programs and into production environments. Organizations’ stated plans to adopt IaaS in the near future reinforce the importance of IaaS in an overall portfolio of infrastructure service offerings.

Similarly, platform as a service (PaaS) adoption clearly indicates the growing strategic importance of public cloud services for organizations that are adopting cloud infrastructure to support their business needs. Current and anticipated adoption rates of PaaS are leading indicators of a more substantive move to cloud environments and represent an opportunity for service providers to deliver PaaS-oriented solutions to help their clients make this move.

When it comes to data center services, the number of organizations indicating planned spending increases in hosting, and the number of organizations planning spending increases related to data center infrastructure management, point to continued client consideration of various delivery models and options that are available from the data center services marketplace. This competitive dynamic does not, however, inherently favor “one-stop shop” providers.

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