Budgets, Business Needs Drive IT Workloads Off-Premises

10 SaaS Startups Every Enterprise Should Know

IT budgets are likely to grow slowly or remain flat, IT staffs are likely to shrink, and more workloads are headed out the door to multi-tenant facilities, according to a survey by the Uptime Institute, a unit of 451 Research.

The server footprint in the data center is shrinking, thanks in part to higher utilization rates through virtualization and more powerful generations of servers, according to the sixth annual Uptime Institute 2016 Industry Survey Results. Some 55% of the survey's 1,000 respondents said their enterprise server footprints are flat or shrinking, and 50% said their IT budgets are flat or shrinking also, according to Uptime Institute.

That still leaves 50% of respondents who say their budgets are growing, but mostly at low rates. Only 6% of respondents reported their IT budget would increase by 25% in the year ahead.

[Want to see how Amazon is making it easy to migrate? Read AWS Discovery Service Aims to Ease Legacy Migration Pain.]

Not every conclusion is spelled out in the data, but Peter Christy, the organization's research director, and Matt Stansberry, the report's author, have concluded IT budgets and staffs are not going to grow in the near future.

On the contrary, they may be poised to shrink, as the use of cloud and colocation facilities continues to increase. The movement off-premises is driven primarily by the desire for greater agility in the business, said Stansberry, director of content for the Uptime Institute, in an interview with InformationWeek. With IT services so close to the core of the business, whatever serves their rapid provisioning and deployment needs will tend to win out, he said.

Stansberry told us that for the past five years one survey question has been a standard repeat: "Where are our current IT assets located?" It's produced predictable results: 71% in the enterprise data center, 20% at a colocation or multi-tenant data center provider, and 9% in the public, multi-tenant cloud.

Stansberry said in our interview that these figures "understate" what is actually happening.

The numbers have been "fairly static" over a three-year period, he told InformationWeek, a result that doesn't square with other market forces observed by the staff of the Uptime Institute and analysts at 451 Research.

Christy cites some of these factors in his commentary in the report. For one thing, IT service companies are running into slowing sales, but Amazon Web Services is growing at 50% a year, currently headed for its first $10 billion in revenues with a 25% profit margin. "These are breathtaking numbers, especially in an IT industry that is at best slowly growing," Christy wrote.

Furthermore, Intel for three years has described cloud providers as a small but fast-growing segment of its business. More recently, Intel officials have said "2016 would be the crossover year in which cloud sales would exceed enterprise sales," Christy wrote in the report.

He further stated in the report: Enterprise server suppliers, HP, Dell, and IBM are struggling to keep enterprise sales from declining, and they're looking for more ways to sell to cloud providers.

While IT staffs don't want a rapid migration to the cloud, these factors "suggest the change may happen quickly," Christy wrote.

The Uptime report is based on survey responses from a mix of data center operators and IT professionals. The survey, conducted via email in February 2016, received 1,000 responses. Thirty-three percent of respondents were data center operators, 34% were IT managers, and 33% were C-level and other high-level executives.

Forty percent of respondents were from the US and Canada, 22% from Europe, 13% from Asia/Pacific, 12% from Africa and the Middle East, 10% from South America, and 3% from Russia.

In his interview with InformationWeek, Stansberry said, about half of the senior exective respondents say "they expect the majority of the IT workloads to reside off-premises in cloud or colocation sites." According to the report, 70% of senior executives surveyed expect that shift to happen by 2020.

When they were surveyed back in 2013, Stansberry told InformationWeek, senior executives weren't asking how much their data center infrastructure cost, or how its performance might be measured against the alternatives available. This year, such questions may be more commonplace. According to the report, IT staffs will need "to emulate service providers, as they will be increasingly competing with them."

In our interview, Stansberry said that, while CIOs "may be loath to relinquish their empires," line-of-business executives are demanding more scalable, responsive IT when they need it.

The report also delves into the sticky issue of corporate chargebacks, and how IT organizations need to adapt to this method of accounting. The report explains:

Chargeback is a method of charging internal consumers (e.g., departments, functional units) for the IT services they used. Instead of bundling all IT costs under the IT department, a chargeback program allocates the various costs of delivering IT (e.g., services, hardware, software, maintenance) to the business units that consume them.

Stansberry told InformationWeek there are many things an IT staff can do in an environment of chargebacks. One is to know the value of their own services by documenting what they cost versus the alternatives. IT needs to do "a better job of figuring out what your costs are" for a given service, he said, and implement a chargeback system that informs users what the service is worth.

The report also cites the "massive growth of colocation providers" over the last five years. These form a group of vendors that might include a range of businesses, from those providing internet access points to the wholesale data center space builders, such as Vantage or Digital Realty Trust.

Enterprises can rent colocation space, place their own equipment in it, and rely on the colocation vendor to manage the services. Colocation vendors offer an option for enterprises looking to expand or contract IT assets quickly in response to business demand, without investing in more data center space or migrating to the public cloud.

In our interview, Stansberry warned that new problems may emerge from pursuing colocation options. For example, an enterprise gaining a favorable deal to move into colocation space might face a major price increase at the end of, say, a seven-year contract.

The Uptime Institute was founded for the study of maintaining reliable data center operations. Over the last six years, its survey has evolved as cloud computing emerged and became a larger presence.