Rational exuberance drives IT spending

“IT spending remains recession-proof.” Thus spake John-David Lovelock, distinguished VP analyst at Gartner. This might raise eyebrows, given Big Tech’s big layoffs (more than 200,000 and counting) over the past 12 months. Lovelock’s views notwithstanding, Gartner very recently revised downward its 2022 forecast of 5.1% IT spending growth to just 2.4%. However, this apparent reversal belies the reality of where cuts are coming: The personal devices segment is declining, coupled with headwinds from a strong dollar, rather than diminished cloud/software spending, which is holding steady at 5.4%.

Even so, it might be too much to call IT spending “recession-proof.” In a cloud world, it’s unclear how any enterprise could cut their way to relevance. Cloud is a force multiplier for enterprise innovation. Cutting that, especially in a bad economy, is myopic, as enterprise buyers seem to recognize.

What, me worry?

Even David Heinemeier Hansson (DHH), cofounder of Basecamp and Hey, who blogged his adios to the cloud in October 2022, had all sorts of supposedly good reasons for leaving the flexibility of cloud infrastructure, perhaps most succinctly stated as, “Renting computers is (mostly) a bad deal for medium-sized companies like ours with stable growth.”

As I’ve noted, virtually no company on the planet fits that “stable growth” canard. Not now, anyway. Everyone is stable until they’re not, and that’s precisely when you want the flexibility of both cloud pricing and cloud elasticity. Hoping to get the hardware you need fully loaded with all the processing power you think you’ll need? Good luck managing that supply chain, as Gartner analyst Lydia Leong has argued.

But you needn’t take my word for it. Take DHH’s, who by January 2023 was lamenting that moving from cloud to on-premises hardware/software involved pricing that was a “total turd.” And it wasn’t just the bloated price tag he didn’t like: “We should have smelled something was off when getting basic information about pricing took several online meetings” with “haggling, … hoodwinking, … [and] game-playing.”

Super pricey and a pain in the butt? What’s not to love!?

“The only thing worse than cloud pricing is the enterprisey alternatives,” he griped. “WHY ARE THEY WASTING OUR … TIME IN MEETING AFTER MEETING WITHHOLDING DEAL-BREAKER PRICING?” he continued. (The use of all caps is his.)

There’s a reason IT is moving to cloud

If this doesn’t sound like how you’d like to spend your dollars in a recession, you’re not alone. The entire industry has spent years running away from the nightmare of enterprise software. It’s partly about cost, but it’s also about how it costs: money to procure the hardware and software and money to pay people to manage it all. Unlike cloud, there’s no way to turn that money off once it’s spent, except by letting those servers sit idle. In the cloud, you can spin down resources, and the fixed cost of buying the underlying hardware is on the cloud provider, not you. It’s the ideal way to fend off costs unassociated with actually running your business.

With downside protection, enterprises keep looking for the upside in cloud. It’s not surprising that infrastructure-as-a-service (IaaS) spending on things like cloud compute and cloud storage is projected to jump 30% in 2023, according to Gartner. A significant chunk of that cash will pave the way to more enterprise spending on machine learning (ML) projects. Although enterprises will likely continue to try to use existing hardware to power ML experiments, the very nature of experimentation is somewhat orthogonal to on-premises hardware and software. Almost by definition, you need elasticity to power such innovative experimentation, as AWS exec Matt Wood has detailed.

Couple that forward-thinking reliance on cloud with the new reality of how IT money gets spent. If a company has built its customer-facing applications in the cloud, how does it cut back on spending without hurting the customer application associated with it? This isn’t to say that projects aren’t getting shelved in the face of macroeconomic headwinds. Of course they are, and that impacts both on-premises spending and cloud spending. But when a great customer experience depends on keeping the application’s “lights on,” there’s not a good way to turn it off without hurting customers.

All this means, as Gartner projects, we should continue to see healthy spending on cloud, even as (and perhaps particularly because) a recession hits.

Copyright © 2023 IDG Communications, Inc.