According to Gartner’s recent research, enterprise IT spending on public cloud computing within addressable market segments will overtake spending on traditional IT in 2025. The research includes only those enterprise IT categories that can transition to the cloud, within the application software, infrastructure software, business process services, and system infrastructure markets. By 2025, 51% of IT spending in these four categories will have shifted from traditional solutions to the public cloud, compared to 41% in 2022. In addition, almost two-thirds (65.9%) of spending on application software will be directed toward cloud technologies in 2025, up from 57.7% in 2022.
“The shift to the cloud has only accelerated over the past two years due to COVID-19, as organizations responded to a new business and social dynamic,” said Michael Warrilow, research vice president at Gartner. “Technology and service providers that fail to adapt to the pace of cloud shift face increasing risk of becoming obsolete or, at best, being relegated to low-growth markets.”
In 2022, traditional offerings will constitute 58.7% of the addressable revenue (see Figure 1), but growth in traditional markets will be much lower than cloud. Demand for integration capabilities, agile work processes, and composable architecture will drive a continued shift to the cloud, as long-term digital transformation and modernization initiatives are brought forward to 2022. Technology product managers should use the cloud shift as a measure of market opportunity.
In 2022, more than $1.3 trillion in enterprise IT spending is at stake from the shift to cloud, growing to almost $1.8 trillion in 2025, according to Gartner. Ongoing disruption to IT markets by the cloud will be amplified by introducing new technologies, including distributed cloud. Many will further blur the lines between traditional and cloud offerings.
Enterprise adoption of distributed cloud can further accelerate cloud shift because it brings public cloud services into domains that have primarily been non-cloud, expanding the addressable market. In addition, organizations are evaluating it because of its ability to meet location-specific requirements, such as data sovereignty, low latency, and network bandwidth.
To capitalize on the shift to cloud, Gartner recommends technology and services providers target segments where the shift is occurring most aggressively, in addition to seeking new high-growth cloud opportunities. For example, infrastructure-related segments have a lower level of cloud penetration and are expected to grow faster than segments such as enterprise applications that are already highly penetrated. Providers should also target specific personas, adoption profiles, and use cases with go-to-market initiatives.