Cloud Budgets: A Balancing Act

By Jack M. Germain

Start off your new business year with an assessment of your cloud activities. Hosting and cloud services are two critical areas that demand your attention if you want to get the best bang for your IT bucks.

451 Research released a study in late November that shows enterprises are spending 28 percent of their total enterprise IT budgets on internet hosting and cloud services. The report, titled Voice of the Enterprise: Hosting and Cloud Managed Services, predicts IT budgets for cloud activities will grow to 34 percent this year.

Why? The growing IT budget needs reflect a widening reliance on infrastructure, application, management, and security services.

The breakdown on just how that IT spending is dispersed may surprise you. The report shows that cloud users are feeding nearly one-third of their resources to cloud infrastructure. The 451 Research results show that cloud hosting and services providers are often not the primary infrastructure builders.

For instance, 31 percent of the typical IT budget spending goes towards infrastructure services. Nearly 70 percent of enterprise budgets for hosting and cloud goes on acquiring other services.

Calculating Costs

You might not have guessed that a key portion of your hosting and cloud services costs goes towards unmanaged or self-managed infrastructure or application services. Two key factors are in that mix.

Some 44 percent of IT cloud budgets pay for infrastructure services enterprise users consider essential. Even more, 49 percent, pays for application services, according to the 451 Research study. Application services include products bundled with additional managed or security services.

Here is the bottom line:

• 56 percent figures into unmanaged or self-managed infrastructure or application services.
• 42 percent funds application services.
• 14 percent fuels managed services.
• 9 percent finances security services.
• 5 percent furnishes professional services for cloud enablement.

“The markets for unmanaged IaaS and SaaS are dominated by large, hyper-scale vendors. However, this spending trend indicates there is an appetite for the type of bundled services a broader market of managed service providers are well positioned to deliver,” said Liam Eagle, Research Manager at 451 Research and lead author of the study.

He sees a strong opportunity for service providers offering a diversified set of hosting and cloud services. Those include infrastructure and application hosting. Do not forget the managed and security services delivered around them, noted Eagle.

Who Provides What?

A range of provider types offered hosting and cloud services to the users participating in the 451 Research IT budget study. For example, 69 percent of the respondents use public cloud infrastructure providers.

That comprises the most common provider class. A solid 26 percent of enterprises rely on managed hosting providers, according to the research.

A third provider class, “as a Service” — IaaS (Infrastructure as a Service) and SaaS (Software as a Service) — is strong. Small numbers of established leaders dominate these niche markets.

“The market for managed infrastructure and application services is a longer tail market, with greater opportunities for providers who emphasize expertise in operating, optimizing, and securing the infrastructure and application products they deliver,” said Eagle. “This includes opportunities to deliver services based on reselling infrastructure and application services from the largest IaaS and SaaS vendors.”

Thoughts on Cloud Budget Needs

Users moving to the cloud should consider which applications they might have already virtualized in house or services that are ending their life cycle, suggested Michael Leroux, engineer and cloud expert at Accelerated Connections. If such products already exist, create a copy and upload it with minimal effort. For products nearing the end of a lifecycle, cloud users can build new environments without investing in up-front capital expenditures like servers and storage to test a development.

“This lets them build, test and deploy multiple times without adding capital on physical assets,” Leroux said.

Managing cloud needs becomes a two-fold entry. The cloud user either has in-house resources or relies heavily on third parties to manage the applications in the cloud.

“The cloud doesn’t remove the need to manage the risk, but simply provides the ability to properly manage its resources,” he said.

Focus on How Much Cloud

Your IT cloud budget does not have to be a drain on a company’s bottom line. View it as an economy measure. Some of those costs would be much higher if you were not in the cloud.

“Most companies are no longer questioning whether they should move to the cloud. Instead, they have realized they can take advantage of the many benefits the cloud has to offer and still satisfy their security and compliance needs,” said Leigh Moore, vice president of marketing at cloud security firm, Threat Stack.

Plenty of cloud-based solutions exist today. Just be clear about the need to rely on a custom-built solution, a third-party service, or public cloud infrastructure, said George Tatar, founder of software firm Akruto Inc.

“With increasing costs for each option, companies get better customization and services tailored to their needs, so this is always the process of finding the balance,” he said.

Please feel free to share below any comments or insights about your experience balancing IT budgets between cloud offerings and other priorities. And if you found this blog useful, consider sharing it through social media.

About the blogger: Jack M. Germain is a veteran IT journalist whose outstanding IT work can be found regularly in ECT News Network’s LinuxInsider, and other outlets like TechNewsDirectory. Jack’s reporting has spanned four decades and his breadth of IT experience is unmatched. And while his views and reports are solely his and don’t necessarily reflect those of Linode, we are grateful for his contributions. He can be followed on Google+.