COVID-19 changed life for all of us, and it changed technology adoption in a major way. The seismic disruptions meant organizations had to find out the hard way if they could fully deliver digital services, and cloud computing was the only way to do it. Customers’ accelerated demand for cloud computing is clear evidence. Service providers exhibited significant restructuring to meet the growing demand, including new cloud investments, refreshed cloud offerings, co-creation approaches, workforce training, and graduate programs. Between enterprise leader’s investment preferences, the state of hyper-scalers, and the service providers that made the first move, there’s lots to unpack; let’s discuss!
Cloud is shifting to hybrid cloud and end-to-end delivery
As remote working becomes the new normal business operating model and the need to deliver services end-to-end, irrespective of location, becomes the critical benchmark, the requirements for cloud deployments are shifting. Further to that, managing data, business continuity, disaster recovery, cost, and many other critical business functions are only possible through cloud computing. Our recent research found that more than two-thirds of enterprise leaders expected to increase overall IT spending by around 5% in the next 12 months. Only 3% of the respondents believed that the pandemic impact would reduce cloud spending. Additionally, 41% of enterprise leaders strongly agreed and 47% agreed that cloud migration in the post-pandemic era is an absolute necessity (Exhibit 1). Furthermore, enterprise leaders believe that they must allocate their one-third of IT spending solely to the cloud in 2021.
Exhibit 1: Cloud requirements are shifting toward expansive capabilities and end-to-end delivery
To what extent do you agree/disagree with the following statement in the post-pandemic era: Cloud migrations become an absolute necessity.
Sample: 150 C-level executives across the Global 2000 enterprises
Source: HFS Research, 2020
The results suggest that enterprises expected overall IT spending to increase in the 12 to 18 months following the study. The pandemic triggered businesses to increase their use of cybersecurity, automation, analytics, cloud, AI, and IoT, driving most of the growth.
Hyper-scalers are the pandemic’s beneficiaries
Cloud providers’ quarterly revenues further underpin our observations; the report indicates that cloud spending isn’t going to slow down because of the pandemic (Exhibit 2). Enterprises are going to further invest in cloud computing and cloud-native computing. Azure and GCP posted double-digit YoY growth, 50% and 43%, respectively, in Q2 2020. AWS and Aliyun also achieved double-digit YoY growth in Q2 2020. Deutsche Bank partnered with Google Cloud to deliver its cloud services and co-innovate useful cloud-based financial products. Similarly, Microsoft’s $10 billion cloud contract from the US Department of Defense is a recent major win for hyper-scalers. In addition to our survey data, our discussions with providers and enterprise leaders further confirm the cloud investments in stages for the long-term benefits.
Exhibit 2: Cloud providers’ quarterly performance
Source: Company financials. We did not use Azure and GCP revenues because they announce only combined revenues.
Service providers are pivoting their organizational models toward the cloud
Identifying clients’ demands and delivering them is critical to thriving in any business. Some tier one service providers meet clients’ demands by realigning cloud offerings and investing funds to strengthen cloud capabilities, such as cloud transformation, cloud engineering, cloud platform, and infrastructure. We’ve seen numerous recent initiatives from service providers in the cloud space:
These are just some of the initiatives addressing the market’s cloud computing demand. Other providers are also equally part of the race: Wipro, HCL, Tech Mahindra, and others are also bolstering their cloud capabilities.
The Bottom Line: Cloud is shifting toward AI-infused, end-to-end, and verticalized focused capabilities; related realignments, investments, and M&A activities will intensify.
Our recent research revealed that 64% of executives believe that the combined use of emerging technologies such as AI-powered and cloud-enabled technologies is more beneficial than utilizing any of the technologies alone, and it is emerging as the foundation. The service providers’ investment and realignment activities in their cloud and AI offerings to meet the growing demand is a clear reflection of a paradigm shift in the market toward AI-infused, end-to-end cloud capabilities.
The pandemic revealed the power of the digitally native process. Cloud migration became an absolute necessity, and enterprise benefits are tangible. Additionally, many enterprise leaders believe AI has an even more prominent role in the current business environment. Cloud combined with AI is the must-have technology and a foundation for enterprises in the future. Therefore, the industry has yet to witness many cloud and AI-focused investments, realignments, and acquisitions to bolster and scale their respective capabilities.