Cloud Growth Isn't Killing the Hardware Business

CLOUD Communications

Cloud Growth Isn't Killing the Hardware Business

By Peter Radizeski, RAD-INFO Inc.  |  August 11, 2016

I often get asked how hardware and data center sectors can still be going strong. Let’s take a look.

According to IDC’s (News - Alert) Worldwide Quarterly Cloud IT Infrastructure Tracker, worldwide spending on cloud IT infrastructure – servers, disk storage and Ethernet switches – will increase 21 percent year-over-year in 2015 to reach $32 billion. Cloud IT infrastructure spending totaled $26.4 billion in 2014, up 18.7 percent from 2013, according to IDC.

Hardware is still required. As servers move out of the office and corporate data center to the cloud in its various forms – IaaS, PaaS, SaaS, VPS, Azure, AWS – hardware is still being purchased. What changed is who the buyer is (cloud providers) and where the hardware resides (data centers).


Facebook, Google, Apple, Amazon, Microsoft (News - Alert), LinkedIn and the NSA are building massive data centers throughout the US. They will be filled with gear in no time. What happened to the spaces that they were using before they built their own data centers? These cages and racks in the data center are being filled by cloud providers that store data; provide voice and video, collaboration, conferencing, analytics and so much more. There are also racks and racks of servers providing websites, blogs, email and social media. Twitter (News - Alert) and Snapchat are storing your data, snaps, tweets and especially your photos and videos by the terabyte. Where did you think it was all housed?

Gartner (News - Alert) says the Worldwide Public Cloud Services market will reach $204 Billion in 2016. That works, if you include cloud advertising (largest chunk at $80B), SaaS, IaaS, PaaS, BPaaS and cloud management and security services. These totaled $175 billion in spending in 2015 on an average of 13.7 percent growth overall. That is the monthly recurring revenue driven by piles of gear housed in non-descript buildings everywhere.

There was a time when a business bought a CD-ROM of the software application and ran it on a dedicated computer in the office. Now, we have moved that dedicated machine to a virtual instance running on computer infrastructure in a data center. Instead of buying the software application, we rent it (forever). We were heading that way with the number with the number of updates required for security as well as the number of varying operating systems in the marketplace (Windows 95, 98, XP, ME, NT, Apple, Linux, OS/2 Warp).

The data center building trend now is to get closer to the user. With the amount of data that a given user is creating, storing and consuming, content delivery needs to get closer to the user. This means data centers need to be built in rural America; then hardware has to be stacked and racked to provide the latest software update or movie from Amazon, iTunes or Netflix.

SDN has made some gear go away; but it also means different hardware has to be purchased and deployed. SD-WAN will change the customer premises equipment as more of it will look like a white box appliance whose functionality is controlled by the service provider. Again, different hardware and functions are being deployed, but it is still hardware.

Those managed services that will be deployed with SD-WAN are going to make NOC (network operation centers) important again. This is just another example of data center at the middle of the latest IT trend.

Cloud firewall, cyber-security, unified threat detection and monitoring, analytics and network monitoring will all be provided from afar, from a NOC by a service provider. As new threats, like Ransonware, become known, the necessity for managed services, data storage, encryption and security will erupt. This will fuel the current cloud fire that is re-vitalizing the IT industry.

If you consider the 2000+ Hosted VoIP providers in the US, that alone accounts for 4000 racks of gear at the very least. Even more racks of gear in data centers if the VoIP provider delivers UCaaS or UC&C as most of the additional functionality is a separate box. Then we are discussing a cage per provider and double that for redundancy. Now we just filled up 8000 racks with blade servers, switches, SBCs and more.

There are at least 100 data backup providers in the US. That is a lot of server and storage gear housed in data centers far and wide. There are hundreds of hosting companies still providing website hosting and email services to SMBs everywhere., GoDaddy, 1and1, IX Web and many more are all utilizing hardware and data center space and power. Instead of running that website on a local server connected to a T1 or cable modem, people pay $8 to $50 per month to run it on someone else’s gear. The same goes for blogs running on Medium, Wordpress or Blogger.

Every service that once was local is now in the cloud, housed in a data center somewhere, running on hardware that the cloud provider bought or rents. It explains the data center boom and why Intel (News - Alert) and HP aren’t done yet.

Edited by Stefania Viscusi
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