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4/2/2010
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IT Spending On Cloud Ratcheting Up

A Sandhill Group survey shows enterprise interest in -- and IT spending on -- cloud computing accelerating over the next three years.

The weak economy and IT cost cutting appear to have been a primary driver of cloud computing over the last two years, but the report found those to be secondary reasons to go to the cloud. "Forty-nine percent of companies are driven to the cloud for business agility reasons, while only 46% are motivated by cost efficiency," the report states.

The ability to produce the software that supports a new product or service seems to happen faster in the cloud. A developer can produce iterative versions that deploy easily because they've been developed in the deployment environment, and they scale there without added work.

A chief architect at a petroleum company is quoted as saying: "I've seen 'skunkworks' projects where smart developers figure out something to do with the cloud over the weekend. They come in and show it to their boss and their boss is blown away because it took a tenth of the time and cost of what it would if done in the normal way... The cloud brings together these pockets of innovation in the company. We need that."

"Innovation is one of the key ingredients. Let's go out there and find new ways to get to market with new applications. It's a big driver," Pemmaraju said.

Nevertheless, the cloud remains an attractive alternative cost-wise. Interviewees didn't hesitate to describe the cloud in the report as "an order of magnitude cheaper than comparable on-premises solutions."

A different angle on the savings came from a CIO, quoted as saying cloud computing and on-premises computing are roughly equal in expense at the three-year mark. But cloud computing starts to pile up savings over the next few years because there is no hardware refresh involved at the end of three years. None of the interview subjects were named.

Another conclusion in the report is that many small businesses and some medium sized businesses consider the cloud to be a more secure form of computing than their own operations. The survey and followup interviews indicated small companies "know they don't have the security they need to have in their own environments. They consider the security of the leading cloud vendors to be far better than anything they could hope to have," Pemmaraju said.

Many companies will weigh their need to continue secure handling of certain kinds of data with their desire for lower cost and more agile cloud computing. The result, the report predicts, will be rapid adoption of hybrid cloud computing approaches, where some use is made of the public cloud in conjunction with internal operations.

"Both our qualitative interviews and survey data found little use of hybrid clouds today. However, our survey indicated the biggest growth will be in this area," the report concluded.

The Sandhill Group reports on major trends in computing for the investment community, such as the venture capitalists located along Sandhill Road in Menlo Park, every two years.

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