Enterprises spend big on cloud services in 2020, cut back on data center spending

data center
Enterprise spending on data center hardware and software dropped by 6% in 2020. (Pixabay)

Synergy Research Group finds that enterprises are continuing to spend heavily on cloud infrastructure. This spending grew by 35% in 2020 to reach almost $130 billion. Meanwhile enterprise spending on data center hardware and software dropped by 6% to under $90 billion.

“This continued a decade-long trend of explosive growth in cloud and virtual stagnation in the market for enterprise-owned data center equipment,” stated Synergy.

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In 2019 the two markets were almost equal in size, but in 2020, especially, the Covid-19 pandemic fueled the continued shift in worldwide IT operations. Over the decade, average annual spending growth for data center was just 2%, and for cloud services it was 52%. Cloud services includes infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and hosted private cloud.

“Over the last 10 years we have seen a dramatic increase in computer capabilities, increasingly sophisticated enterprise applications and an explosion in the amount of data being generated and processed, resulting in an ever-growing need for data center capacity. However, 60% of the servers now being sold are going into cloud providers’ data centers and not those of enterprises,” said John Dinsdale, a chief analyst at Synergy Research Group, in a statement. “We do not expect to see such a drastic reduction in spending on enterprise data centers over the next five years, but for sure we will continue to see aggressive cloud growth over that period.”

Synergy chart

In 2020 worldwide spending on enterprise data center hardware and software (comprising servers, storage, networking, security and associated software) was $89 billion. The major segments with the highest growth rates over the decade were virtualization software, Ethernet switches and network security. Server share of the total data center market remained steady while storage share declined. 

Within the $130 billion cloud infrastructure services market, the major segments with the highest growth rates over the decade were mainly within PaaS – especially database, IoT and analytics. IaaS share of the total held reasonably steady while managed private cloud service share declined somewhat.