Technical aspects of IT infrastructure are fascinating, and we at The Next Platform are eager to learn more about them. However, there is a financial aspect that we keep a close eye on as well.
We have always held the view that investments in server and storage infrastructure are forward-looking indicators of the state of the world economy, and that brash investments indicate either company optimism or fear for the future. One such bubble was the dot-com boom, which brought together hope for revolutionary new applications and the fear of falling behind in the computing race amongst businesses. Another is the revolutionary impact of AI.
This is why we analyze and visualize infrastructure spending trends whenever we can get our hands on relevant data. To give you a feel for the situation, we have just done this with the cloud and bare server and storage spending statistics given by IDC today. We have also included the market researcher’s most current spending prediction.
Unfortunately, IDC has only been talking about converged server-storage spending since last year and has stopped giving information about raw server sales to the public. The good news is that the convergence of servers and storage has prevented duplicate counting, but the bad news is that we have lost access to a dataset that dates back to 1995.
The new approach divides serving and storing infrastructure into three categories: shared cloud, or what many people call public clouds; dedicated cloud, or what can be hosted in a co-lo, in the cloud, or on-premises within a company; and non-cloud, or what we would have called bare metal perhaps, but that is not exactly precise because some virtualized systems are not precisely cloudy.
We work with the datasets we have and do all we can to make them usable. It takes a long time to gather this data together, which is why we are getting Q2 2022 figures on server and storage costs just as Q3 2022 is ending.
Spending on cloud-based infrastructure with utility pricing for all capacity, including capacity shared on a cloud like Amazon Web Services, Microsoft Azure, Google Cloud, IBM Cloud, Alibaba Cloud, and so on, or dedicated on a cloud, a hosting provider, a co-lo, or on corporate premises via mechanisms like AWS Outposts, Hewlett Packard Enterprise GreenLake, Dell APEX, or Lenovo TruScale, in the period ending in June.
Total spending on cloud servers and storage increased by 22.4% in the second quarter, to $22.6 billion; of this amount, $7 billion was for dedicated cloud infrastructure (up 46.3%, demonstrating the very fast growth of this segment of the infrastructure market) and $15.6 billion was for shared cloud infrastructure (up a still-healthy 18.9 percent).
Of the $7 billion in dedicated cloud sales, $3.2 billion was spent on infrastructure placed on corporate premises, an increase of 45.7% year over year. Over 46.9 percent of the increase in sales of $3.8 billion can be attributed to the use of off-site, dedicated servers and storage infrastructure. According to IDC’s estimates, the two subsets of the dedicated cloud market are expanding at roughly the same rate.
Non-cloud infrastructure spending increased by 15.2 percent, reaching $17.3 billion. This category includes servers and storage that are purchased outright or leased, as opposed to being part of a shared resource that allows users to adjust their usage as needed.
This is the model we’ve developed over the past two years with the IDC data, including revisions as we’re aware of them in prior data, for those of you who want to see the raw data:
The expenditure of service providers, or what we call hyperscalers, cloud builders, service providers, and telecommunications companies, increased by 19.7 percent to $22.6 billion in the quarter and accounted for 56.7 percent of overall sales. There was an increase of 18.5%, to $17.3 billion, in infrastructure spending by businesses, government organizations, and universities to purchase or lease physical assets. The IDC predicts that the service provider pack will continue to account for more than half of all telecommunications revenue, a percentage it first surpassed during the height of the coronavirus pandemic.
Now here’s where things get intriguing: Between 2022 and 2026, revenue generated by service providers (using IDC’s broad definition) is projected to increase at a CAGR of 10.9%, reaching $130.21 billion. If you do the math, that means that by 2022, service providers will be responsible for 66 percent of all server and storage purchases, while businesses, governments, and educational institutions would only account for 34 percent.
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