9 Ways Cloud Will Eat Into Your 2019 IT Budget

Cloud Billing

By Terry Sweeney

Not whether, but when: That’s how most IT managers view the cloud’s prospects for hosting or managing their apps, systems and services. And they don’t need a crystal ball to arrive at this conclusion; they can look at line items in their technology budgets from the last 10 years to support the thesis that more of the IT dollar is going to the cloud.

Recent user surveys help flesh out the trend. Some 73 percent of IT buyers said they have at least one application or a portion of their computing infrastructure in the cloud, according to IDG. On average, respondents said 30 percent of their IT budget is devoted to cloud-based services; software as a service (SaaS) accounts for 48 percent of that cloud spending (up from 45 percent in 2016), along with infrastructure as a service (IaaS) at 30 percent, and platform as a service (PaaS) at 21 percent.

Throughout the fourth quarter of 2018, as part of our “In Focus” series, we are featuring a series of galleries designed to help partners grow their businesses in 2019 and beyond.

Small and midsize businesses (1,000 employees or fewer) expected to spend $889,000 on cloud in 2018, a whopping increase from $286,000 in 2016, IDG added. Respondents cited justifications like improving the speed of IT delivery, greater flexibility to changing markets and enabling business continuity in the wake of disasters and emergencies.

Forrester's Andrew Bartels

Forrester’s Andrew Bartels

C-suite executives like cloud services for all the obvious reasons: They can reduce headcounts and lend more predictability to service charges and reduce, if not eliminate, exorbitant (re-)licensing fees for software.

Cloud services also help end-user organizations’ balance sheets: For accounting purposes, cloud can be designated as an operating expense, rather than a capital expense. Recent changes to the federal tax code let companies account for cloud in either category, depending on the expenditure, according to Andrew Bartels, VP of research at Forrester Research.

All of that is welcome news as end-user organizations, cloud providers and channel partners prepare for a 2019 economy that’s predicted to be less robust than 2018. Interest-rate changes, trade wars and confused stock markets all undercut business confidence, resulting in less spending overall.

Whereas 2018 distinguished itself with a good balance between consumer and business spending to fuel the economy, 2019 is likely to be a different story, according to Bartels. In 2018, consumers accounted for about two-thirds of all spending, he explained.

“In 2019, consumers will have to spend closer to 90 percent to keep the growth growing,” Bartels said. “That’s going to be a significant difference.”

Still, that may be fuel to cloud’s fire. Forrester predicts that cloud will continue to thrive. Cloud spending is expected to grow 20 percent or more annually and should account for more than 15 percent of software and services spending in 2019, the consultancy said.

Where, then, are companies spending on cloud services? What follows in our selections run the gamut from the established to the newly emerging. What function, service or technology can’t be transformed in to the X-as-a-service model? Very little, as it turns out, if there’s money to made — or saved.

Click through our gallery below to see where end-user organizations can be expected to park their cloud dollars.

Datapipe's Robb Allen
Customer Relationship Management (CRM)

By nearly all estimates, CRM has been pivotal in cloud’s development and the SaaS business model, thanks in large part to Salesforce. According to figures from Forrester, 58 percent of CRM revenue was derived from the cloud in 2018, poised to grow to 64 percent by 2022. That’s just slightly ahead of office-productivity software, which Forrester predicts will derive 63 percent of its revenue from the cloud by 2022.

CRM tracks existing and prospective customer interactions and is as indispensable to salespeople as it is to the managers and executives who track them to stay abreast of orders, revenue and other important data in the customer life cycle. Oracle and SAP battle it out behind Salesforce to comprise the top cloud-based CRM software providers.
Ichelson, Chris_HTG 360
Financials and Human Resources/Payroll

Perhaps encouraged by the benefits and savings accrued with CRM, companies have embraced SaaS for other essential functions. As Forrester’s Bartels noted, financials and accounting applications are quite often packaged together; the same is true for software designed for the related functions of human resources and payroll.

Evolving to a SaaS-based delivery made perfect sense for these functions as individual standalone software applications, financials and HR-related apps were often expensive and their data was difficult to export for other uses. SaaS helped change that up.

By going to a monthly or annual per-seat model, SaaS for financials and HR helped reduce data-center footprints and cut down on servers dedicated to single apps, not to mention the corresponding backups, downtime for upgrades and big capital costs. Those dynamics also explain the popularity of these kinds of cloud-based apps with small and midsize business, which typically lack the market power and budgets of the Fortune 500.
Kore's Jason Rutherford
The Right Platform

Platform as a service, or PaaS, provides a cloud-based operating system that can run applications and code of all stripes, freeing customers from any worries about capacity, processing power, or storage issues — not to mention potential impact on the organization’s production network.

And PaaS environments are where leading-edge companies like to test code they’ve written — in many cases, specialized code that creates innovative effects on their websites to retain old customers or attract new ones. Or they could use PaaS to test code that runs on the back end for functions completely invisible to customers or users. While not as familiar to the technorati as other cloud-based services, IDG forecast 21 percent of cloud spending in 2018 was devoted to PaaS, up from 19 percent in 2016.

“Software testing and environments like DevOps definitely benefit from the ability to turn on and off” at will, noted Michael Warrilow, a VP of research at Gartner. PaaS gives that to end-user organizations in spades. And this is where organizations can truly innovate and make their services more competitive, which helps explain the pressure IT departments get from management and individual lines of business to migrate processes like software testing to the cloud.
Kore's Jason Rutherford
Outsourced Infrastructure

Infrastructure as a service (IaaS) typically refers to the bare bones of IT systems — usually databases, storage systems and other preconfigured hardware that gets spun up through some sort of virtual interface.

While users once bought their own storage systems and managed their byzantine complexity, cloud has completely transformed the storage landscape and hastened the commoditization of storage in general. While it’s hard to imagine an IT function less sexy than data being written to virtual disks, storage infrastructure is the basis for essential services like backup, archiving and disaster recovery/business continuity. In many industry sectors like health care and financial services, federal laws require data archiving and prompt restoration in the event of disaster or emergency.

Hence, IaaS not only reduces complexity for IT departments and their organizations, it lowers their risk against the inevitable outages — not to mention the potential fines and loss of market share that may follow. IaaS also helps contain escalating costs once associated with adding capacity on the fly, whether to storage systems or databases.

The shift toward cloud and IaaS occurs independent of cycles in the economy, according to Forrester’s Bartels.

“There’s no correlation between the strength of the economy and the cloud market itself,” he said.

And that points to the increasingly essential, non-negotiable nature of safety nets like IaaS.
Desktop and Office Productivity

Word processing, spreadsheets and presentations comprise the holy trinity of office productivity software. Gone are the days of physical distribution of these kinds of desktop applications with media like CDs.

As another cornerstone of the SaaS market (alongside CRM), the cloud is how desktop application software gets sold or updated — most typically in the form of Microsoft Office 365 or Google Office. Updates take place in the background, often while users are idle or away from their devices. That circumvents IT intervention (a welcome development, usually) and means more productivity for everyone.

The omnipresence of desktop applications will accelerate the dominance of SaaS. According to IDG, SaaS is the preferred delivery method of 89 percent of users; in 18 months, the consultancy forecasts that 95 percent will use SaaS as their delivery model. The per-seat, fixed-cost model of SaaS is a hit with IT buyers and those who perform the cost-benefit analyses.
GTDC's Tim Curran
Authentication and Access

Two of the most fundamental functions of network security are also among the most essential: making sure users are who they say they are (authentication), then ensuring they have only the privileges they need to be on a network and to open, use or store its data.

End-user organizations historically have been reluctant to outsource security functions and processes; for many, it’s too risky to hand over the keys to the kingdom. But with the mainstreaming of cloud services, that resistance has started to break down — especially as security budgets increase to fight threats like phishing, ransomware and other malicious code.

Remote employees and those in branch offices have typically been consigned to virtual private networks (VPNs) to access company networks, and perform content inspection and policy controls, said Doug Cahill, an analyst with the Enterprise Strategy Group consultancy. But those processes are merging into the cloud to handle access and authentication.

“Smart proxies can do smart inspection and are being cloud-delivered,” Cahill said. “With that centralized control point, [access and authentication] also auto-scale easily.”
8x8 DeLozier CP Evolution 2018
Key Management as a Service

Use of encryption is on the upswing, thanks to at least three factors: hacking, inadvertent data loss (laptops, tablets, thumb drives) and the prospect of a ransomware infection. Locking down data sounds great at first, but encrypted data takes up more space and requires more processing power than unencrypted data.

Then there is the critical issue of how, where and who manages the encryption keys that unlock or decrypt that important data. And that’s where the cloud comes in, according to ESG’s Cahill. Key stores and key management can both be moved to the cloud, which is well suited for managing large numbers of keys for data sets.

“Make sure to use the least-privileges model, and keep it limited as to who gets access,” he said.

Data and keys should be stored separately, Cahill warned. Key stores and key management can both be moved to the cloud.

“Some organizations believe they should have the keys on premises,” he explained.

And some industries face regulations that require them to be the physical custodian of their keys. Properly executed key management as a service can eliminate encryption headaches and keep organizations more safe at the same time.
BitTitan's Tony Rummans
Security Incident Analysis

Security professionals need their own dedicated environment to perform forensic research after an attack or malware infection; they also need an isolated platform, often known as a sandbox, to activate a software payload and see whether its contents are malicious. And from a simple logistics perspective, organizations don’t always have a way to process or organize all the events from their security logs.

By using cloud-based security analytics, organizations can centralize and aggregate all their incident information; they can also tap on-demand compute resources for machine-learning algorithms to identify patterns, sources and potential vulnerabilities, according to ESG’s Hill.

“Centralization of this information also helps make it available to the entire team, addressing the problem of scale, a regular problem in security management,” he said.

Anything that makes processing of security events more efficient means speedier detection and response, Hill added. And that makes a strong case for moving incident analysis and sandboxing to the cloud.
BitTitan's Tony Rummans
AI and Machine Learning

The internet of things has fostered a hyperconnected world and opened the door to emerging technologies like artificial intelligence and machine learning. While the hype can get a bit breathless, the technologies are poised to transform the economy — everything from manufacturing and transportation to health care and retail.

“AI and machine learning are still largely based on premises,” observed Gartner’s Warrilow.

Companies apply the technologies to business challenges or specific applications, keeping everything internal and discrete. What if AI and machine learning could somehow be cloud-based, with either downloadable code to add to experimental code, or fully formed apps that could also be customized for an electrical utility, for example?

The biggest cloud service providers are all working to “democratize” AI, according to the Cloud Academy.

“Over the past three years, Amazon, Google, and Microsoft have made significant investments in AI and machine learning, from rolling out new services to carrying out major reorganizations that place AI strategically in their organizational structures,” wrote Guy Hummel and Jeremy Cook on the academy’s website.

It’s a good bet we’ll see more movement with cloud AI and machine learning in 2019. Maybe the best way to track it is to set an alert with Alexa or Siri. Automation’s never looked so smart.

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