Why Hardware Spending Remains on Top, Despite the Shift to Cloud

Before COVID-19, the winds of change were already gently guiding workloads towards public cloud platforms such as AWS and Azure. Then in 2020, the pandemic-driven shift to remote work catalyzed change and propelled cloud migration plans forward in many organizations. Despite the shift to cloud — hardware spending still remains on top.

On-Premises Servers Are Dead? No! No, They’re Not

Around this time, you probably noticed an uptick in the number of articles proclaiming that “on-premises servers are dead” and that the pandemic would seal hardware’s demise.

Some hardware spending has indeed shifted into cloud services since 2020, but reports of the death of servers and an imminent drop in all hardware spending have been greatly exaggerated.

Reliable Future Tech Trend and Spending Behaviors

How do I know? I don’t have a crystal ball, but my company, Spiceworks Ziff Davis (SWZD), has a very reliable way of predicting future tech trends and spending behaviors.

The Voice of IT

Through the Spiceworks Community, we’ve built authentic relationships with millions of tech decision-makers who visit the site to exchange best practices and explore how technology can help solve business problems. Research specific solutions they’re interested in.

Many members are eager to voice their opinions to our research team through the Voice of IT, our research program that tracks trends across a wide range of technologies. This invaluable feedback from IT professionals in the trenches gives us actionable insights that we can share with everyone in the industry, including IT buyers, vendors, and journalists.

Cloud Rising

Remote workers have increased cloud adoption. In a recent Cloud Trends study, IT buyers said that half their workloads would run in a public cloud by 2023, up from 40% in 2021. Additionally, over one-third of organizations said they accelerated cloud migration plans due to COVID-19.

No doubt, there are strong use cases for many businesses to migrate workloads to the cloud, and there is data to back this up.

Current beliefs among IT buyers despite the shift to cloud

• 80% say cloud is helpful in supporting remote workers
• 54% think cloud providers can offer superior security compared to their own data centers
• 50% said their organization prefers to pay for infrastructure as a recurring operating expense vs. as a larger capital expense

But while leveraging cloud is compelling for many use cases in many organizations, this delivery model isn’t a magic bullet that solves every IT problem.

Hardware is Here to Stay, and Hardware Spending is on Top

Our research reveals that hardware still accounts for the largest portion of IT spending despite cloud headwinds. According to the State of IT, our annual report on tech adoption and spending, 30% of IT budgets will be allocated to hardware in 2022, compared to 26% for hosted/cloud-based services.

While it’s true that cloud budgets have grown (in 2020, they accounted for 22% of IT budgets), the truth is that very few organization will abandon their on-premises servers altogether. According to the SWZD Hardware Trends in 2022 and Beyond study, 94% of businesses still plan to use self-hosted physical servers going forward, and for many reasons.

Data-backed Reasons Why Hardware Spending is Here to Stay

• Cloud is not 100% foolproof

  An overreliance on cloud services can lead to downtime and lost productivity. Outages might be rare, but they are inevitable. Many businesses require a level of redundancy and fault tolerance capabilities for mission-critical applications and services. Many organizations don’t want to risk having their business grind to a halt due to a hiccup at a cloud provider or connectivity issues with an ISP.

• The future is hybrid

  • Instead of abandoning on-prem hardware, most organizations are planning for a hybrid future where they can easily run workloads wherever and wherever it makes the most sense, whether on-premises or in the cloud.
  • Adoption of hybrid cloud (the integration of on-premises infrastructure with a public cloud) often requires many organizations to modernize their server infrastructure, which will drive hardware spending: 36% of companies currently have hybrid capabilities, and an additional 18% plan to implement them within two years.

• New models are bringing the convenience of cloud to on-premises infrastructure

  • The “pay-as-you-go” cloud model is increasingly making its way into a server room near you. Many hardware vendors now offer on-premises infrastructure “as-a-service” where customers pay for usage on a consumption basis, just like they do with AWS or Azure.
  • These solutions (going by names such as composable infrastructure and infrastructure on demand) are designed for interoperability with public clouds, providing organizations a relatively easy way to gain flexibility through a product that offers hybrid cloud capabilities by design and a cloud-like billing structure.
  • 25% of organizations have already adopted solutions that allow for “as-a-service” billing of on-premises infrastructure, and an additional 12% plan to within two years.
  • More than half (57%) of enterprises expect to adopt “pay-as-you-go” consumption-based infrastructure by the end of 2023.

• Most of the workforce will be in-office once the pandemic ends

  • While cloud services are excellent for supporting the remote workforce, but most employees’ work from home won’t last forever. According to the SWZD Future of Remote Work study, 74% of the workforce will return to the office entirely once the pandemic ends.
  • Transferring data back and forth from a public cloud can get expensive. From a budget and latency perspective, on-premises hardware will make more sense for many organizations where most workers will regularly report to the office.

• Not all organizations can use cloud services

  • In rural areas, 69% of organizations report poor internet connectivity as a problem, which is a limiting factor for using cloud-based services and supporting remote work.

• Falling prices will spur interest in storage purchases

  • As fast flash-based storage technologies become more affordable, businesses have big plans to accelerate on-prem infrastructure, which will help alleviate storage bottlenecks.
  • 37% of companies currently use ultra-fast NVMe storage technology in server rooms, and an additional 17% are planning to adopt it by the end of 2023.
  • Usage of previously price-prohibitive all-flash arrays will grow significantly within the next two years: 24% of companies currently use the technology, and an additional 20% plan to within the next two years.

• Businesses plan to diversify server purchases

  • As companies invest in new servers, they’re increasingly willing to purchase servers powered by non-Intel processors.
  • Currently, 30% of businesses use AMD server processors, and an additional 14% plan to start using them in the next two years.
  • The adoption of ARM server processors is expected to double from 11% of businesses currently to 22% within the next two years.

• The need for client devices will drive hardware spending

  • Cloud or no cloud, end-users will need a device to do their job. Following the shift to remote work, portability now comes at a premium (remember how hard it was to get laptops at the outset of the pandemic?).
  • Laptops will account for the largest percentage of 2022 hardware budgets (19%), followed by desktops (14%) and servers (11%).
  • As laptops become more prevalent, businesses will spend more on client devices. Unfortunately, while desktops can often go 5-6 years before requiring a replacement, less-durable laptops don’t hold up as well.

Hardware spending in the future

In 2022, hardware spending will still come out on top, with 30% of IT budgets going towards hardware vs. 26% being allocated to cloud services.

Our Hardware Trends in 2022 and Beyond study (SWZDdotcom) concluded that adoption in the next two years is expected to grow significantly in AMD-powered servers, all-flash storage, and consumption-based infrastructure models. Additionally, the shift to remote work will likely continue to drive spending on laptops.

Despite the buzz around the cloud, any claims that hardware spending is dead should be taken with a grain of salt. Almost every business will continue to use on-premises servers in the coming years, as many companies continue to invest in new on-premises technology.

Cloud will not replace on-premises server and storage infrastructure anytime soon. Instead, on-premises storage will become more cloud-like, and businesses will increasingly gain the ability to seamlessly migrate workloads between their server rooms and the public cloud of their choice.

The result will be a world where businesses will enjoy the benefits of increased flexibility and resilience. They’ll have more options and the flexibility to run workloads wherever it makes the most sense for their individual needs.

Image Credit: by Tima Miroshnichenko; Pexels; Thank you!

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