Morgan Stanley recently released a report detailing a survey it did of 50 chief information officers. We got our hands on the report and found it interesting from a market perspective.
We do not ordinarily follow what the investment banks say about the cloud computing and virtualization markets. But the viewpoints from this breed of analysts provides a perspective about the maturity of the space.
Overall, the report shows that investment bankers are paying more attention to cloud computing with particular interest in the acceptance of virtualization in the enterprise.
The report surveyed CTO's from a number of industries. Most of them were from companies in financial services, telecommunications and healthcare. The majority of the CIO's work for companies that have more than $1 billion in revenues. Forty percent of the companies have revenues of more than $10 billion.
The survey covers software, hardware, hosting and IT services. The report cites several key trends as reasons for the interest in cloud computing:
- Quality of home based computing is evolving at a far faster pace than the enterprise. With the advent of cloud computing, the enterprise is being forced to catch up.
- Wireless devices such as smartphones empower employees to expect and even demand universal connectivity.
- The recession has meant less spending in the enterprise. As a result, it has given cloud-based service providers the chance to catch up and provide more enterprise-ready services.
- Cloud-based security concerns are abating to some degree as the enterprise realizes that the difference in security between internal and external environments is negligible at best. CIO's have a far better understanding of how to manage applications spread across cloud environments.
According to Morgan Stanley, half of the CIOs surveyed plan to use desktop virtualization next year, which the firm believes could double the reach of client virtualization. Morgan sees the VDI (Virtual Desktop Infrastructure) market growing to a $1.5 billion opportunity by 2014. This would represent a 67% compound annual growth rate. No surprise, VMware and Citrix are expected to be the dominant vendors behind that trend.
Email, CRM and human resources applications will be the first to move to a cloud environment. Email will come out on top with an expected three-times increase in hosted email usage over the next year.
CIO's will aggressively deploy virtualziation technology over the next year, altering the cycle for how frequently PCs are refreshed within the enterprise. CIOs will decrease spending on PCs due to the investment in virtualization.
Due to the acceptance of virtualization, desktop PCs represent the only hardware category that will see a decrease in spending. CIOs will virtualize 55% of production servers next year, up from 42% this year. Morgan Stanley says Dell is most at risk in light of its 25% revenue exposure to desktop PCs as compared to 14% revenue exposure to storage and servers.
Of the respondents, 56% say they expect to increase spending on storage.
IT departments will continue to shed IT assets, benefitting data center and cloud services. CIOs will reduce PC and server footprints while managing capacity for latency and bandwidth.
CIOs expect to move 3% of their IT infrastructure and application workloads off-premise in each of the next two years. Public cloud providers should see higher growth compared to co-location facilities.
Many CIOs see the benefits of outsourcing non-critical functions to the cloud while keeping transaction-based or compliance-oriented applications on a dedicated platform.
Similarities to past technology adoption will benefit the IT services soak. ERP, for instance, drove demand for implementation and continues to generate maintenance revenues. That's a pattern that should unfold with the adoption of cloud computing. Systems are complex and require expertise.
Trusted advisers will continue to be in high demand.; what's in vogue will not alter the relationship. Again, cloud computing implementation is a complex affair. Companies need trusted advisers to guide them through the maze.
Cloud computing projects are starting small but will become standard as the efficiencies and benefits become more tangible. Sales cycles will be shorter as acceptance grows.
Business processing optimization is an opportunity for cloud computing. The cloud opens up a number of other enterprise outsourcing opportunities.
Finally, there is some expectation that cloud computing will open the small and mid-sized business market:
"We like this processor-like approach and think that several of its attributes could translate well to IT services companies. For one, transaction-based pricing would break the linearity between headcount and revenues that puts a theoretical limit on IT services revenue growth today. As new solutions reach scale, they also offer the prospect of higher, more processor-like operating margins. Finally, multi-tenant platforms allow almost infinite scalability, potentially opening up the small- and mid-sized market to the major vendors for the first time in a meaningful way."
The Morgan Stanley report is most significant in its illustration about how virtualization is affecting the largest companies in the world. PC spending will go down. This may not be a huge surprise but it shows how cloud computing and virtualization are becoming mainstream in the enterprise. Cloud computing is here to stay.