Enterprise cloud usage post-COVID-19 - more necessary, more prevalent and more costly

Even in a disaster, there are winners. While the coronavirus crisis has been an unmitigated economic calamity, likely leading to the most severe global depression since the 1930s, the damage varies widely by industry. Even as airlines, oil companies and hotel chains have seen their business decimated and stocks dumped, retailers like Amazon, Walmart and Costco have flourished by selling staples to a nervous locked down populace.

As I detailed last month, disruption wrought by this year’s pandemic changes the behavior of both businesses and consumers, accelerating trends that are well suited to a remote workforce and financial uncertainty. One of these is the adoption of cloud infrastructure and application services.

We will get a better measure of any acceleration in cloud adoption after Amazon, Microsoft, Google, Salesforce report a couple of quarters of earnings in the new environment. While this week’s reports will offer some clues, the crisis unfolded too late in Q1 to make a significant difference in AWS, Azure or GCP usage.  For example, Google Cloud (GCP) revenue increased by 52 % year-over-year in Q1, about the same increase as in Q4 2019, but up just 6.2% sequentially, i.e. 27 %annually.

As we wait for audited revenue numbers over the next few quarters, we can look to other measures such as surveys to see how IT leaders and their organizations have changed their cloud usage and plans over the past months. One of the best long-term trackers of enterprise cloud sentiment and use is the annual Flexera (formerly RightScale) State of the Cloud Survey which, among more general metrics included a question about COVID-inspired changes to cloud usage in the 2020 edition just released.

Accelerating the pace of public cloud adoption

As in prior years, the Flexera survey’s demographic leans towards large enterprises and early cloud adopters, with 53 % characterizing themselves as advanced cloud users. The survey validates several trends that we have discussed over the years including:

• A shift in application environments from VMs to containers.
• The increasing popularity of cloud managed container services.
• Struggles to find cloud expertise prompting the use of cloud consulting services.
• A lack of cost controls and management leading almost a quarter of organizations to exceed already increased budgets.

Consistent with independent estimates, Flexera found that AWS continues to be the most commonly-used cloud, while GCP had the largest jump in market penetration. AWS users are also more committed to cloud infrastructure, at least as measured by their budgets, with 27% spending at least $200,000 per month, compared to 24% of big spenders on Azure and just 12% at GCP.

 

The sample population explains why virtually all of them use at least one public cloud service with an average of 3.4 cloud providers in production or testing. Indeed, 20% of large enterprises, defined as those with more than 1,000 employees, spend at least $1 million per month on cloud infrastructure.

Since the survey was open as the coronavirus epidemic spread to the U.S. and Europe and precipitated a series of business-altering lockdowns and behavioral changes, Flexera added a question about how the crisis might change cloud plans. The results were astounding, albeit less statistically significant since only a quarter of the respondents addressed the question. Nonetheless, 30% of large enterprises expect their cloud usage to significantly increase as a result of the crises, while only two percent said they planned a significant reduction. Overall, for both SMBs and enterprises, a net 47 percent of organizations plan for increased cloud usage in light of the coronavirus crisis. Flexera offers some logical and likely reasons for the changed plans (key points highlighted),

Some of the increase is a result of the extra capacity needed for current cloud-based applications to meet increased demand as online usage grows. Other organizations may accelerate migration from data centers to cloud in response to reduced headcount, difficulties in accessing data center facilities and delays in hardware supply chains. As the pandemic runs its course, some organizations may also find that public cloud providers offer a more reliable option for business continuity.

Even as overall cloud usage increases, there isn’t a uniform migration of workloads and data from on-premises systems. For example, the Flexera survey found that 50-60%  of respondents plant to move all or most of their non-sensitive data to the cloud, while 46% expect all or most of their financial data to stay on-premises. There is an interesting split regarding consumer PII, with a mere 7-point difference between those saying that most data will stay on-premises versus move to the cloud.

Regardless of the application, the biggest hurdle for enterprises moving workloads is finding application dependencies to ensure that nothing breaks post-migration. More general challenges to increased enterprise adoption of cloud services haven’t changed in years, led by worries about security, difficulty managing cloud spending and resource consumption and a lack of cloud expertise.

The cloud as business catalyst

Amidst IT’s propensity to focus on the challenges and drawbacks of cloud adoption, it’s easy to forget the primary reasons attracting enterprise executives to cloud services, however, the Flexera survey documents some of the primary measures by which organizations measure their cloud success, such as:

• Access to leading edge infrastructure and innovative IT services and applications without the operational overhead or capital expense, which is particularly important in organizations with obsolescent infrastructure.
• The flexibility to rapidly prototype and deploy new products and services.
• The scalability to almost immediately adjust infrastructure capacity in response to changing business needs.

In sum, executives are drawn to cloud services by the value they can deliver, as measured by increased revenue and more efficient operations, to their business.

A separate report from DXC Technology, an IT consultant and service provider, illustrates how executives are using the cloud to adapt and transform their business to an online, digital world. For example, just over half say moving to cloud infrastructure (IaaS) and application (SaaS) services is one of their top three priorities, while a similar number cite initiatives to improve operational efficiency in which cloud services can play a pivotal role. Indeed, cloud adoption came out on top when asked to identify the area receiving the most current focus.

 

As the Flexera data illustrated, many DXC respondents are moving to the cloud to address deficiencies in their decaying internal data centers. For example, Damian Bunyan, the CIO of German energy company Uniper said (emphasis added):

Historically, we were part of the E.ON group, and we sat in an E.ON data center. That data center is well over 10 years old; it’s no longer able to meet the demands of our applications, so we’re exiting that data center. And when you exit a data center in 2020, you don’t think about building yourself a new one, you just go fully into the cloud. Where other CIOs are worrying about whether the cloud is appropriate, safe and really cheaper, I don’t need to worry about that. I just go fully into the cloud.

The benefits of cloud services directly tie into broader competitive strategies identified in the DXC report, particularly the development of new products and services and the resulting creation of new revenue streams. Indeed, when used as part of a comprehensive cloud-native application and security strategy, greater use of cloud services also facilitates two customer-related competitive strategies identified by DXC respondents: improving the customer experience and assuring data privacy. Indeed, by immediately shifting customers into a virtual existence, the Coronavirus crisis accentuates the need for such customer-focused digital services.

My take

We are still far too early in an unfolding crisis to confidently predict many long-term implications of the current pandemic. Still, cloud services, both infrastructure and applications, will undoubtedly benefit from new consumer and business habits. As I discussed in an earlier column, such disruptive events cut through personal and bureaucratic inertia to catalyze changes at a rate seemingly impossible during placid times. Indeed, the DXC survey documents such behavioral friction in the form of employee foot-dragging and management indecisiveness as prime impediments to digital transformation strategies.

After digesting and addressing the many hardships imposed by a global pandemic, hopefully, business leaders can seize the opportunities afforded by the resulting disruption to the status quo to accelerate the changes necessary to position their organizations for a more prosperous future.