Pandemic consequences – the big get bigger, the IT cloud dependency gets greater

Pandemic consequences – the big get bigger, the IT cloud dependency gets greater
Kurt Marko
Wed, 08/26/2020 – 02:13

A look at the increasing fortunes of cloud providers fueled by accelerating adoption of services by enterprise over the pandemic period and beyond…



Medical science remains unclear on the long-term effects of the coronavirus, but many economic ramifications are already apparent. Fearful, locked down consumers, many temporarily or permanently unemployed, immediately tightened their belts and cut spending to the bone.

The sudden change favored companies supplying consumer staples, household goods and home office equipment with bonus points to those that could accommodate new in-store distancing and disinfecting protocols and scale online ordering and logistics systems to handle the dramatic shift away from in-person to online shopping. 

The winners in this disruptive environment were mega-cap corporations that had already built the requisite online infrastructure and could exploit online channels to supply customers with goods, business services, entertainment and social interaction. A look at the stock and financial performance of Wall Street’s largest companies illustrates how the big have gotten bigger. 


(Yahoo Finance)

But it’s not just tech Behemoths like Apple and Amazon, each of whose stock has soared this year, but retail and consumer giants like Walmart and Home Depot significantly outperformed the broader market. The reason is simple: sales are booming. As the Wall Street Journal noted, just six companies, Walmart, Amazon, Target, Home Depot, Lowe’s and Costco, accounted for 29.1% of all U.S. retail sales in the second quarter, up 3.5 points over last year, with Target notching a massive percent sales increase in Q2. AWS reported Q2 sales 29% higher than in 2019, while Microsoft reported Commercial Cloud revenue, Azure’s business segment, increased 30% over last year, while Google reported a 43% increase in cloud services revenue.

The five largest tech companies, all with enormous cloud operations, now have a collective market capitalization of $7.2 trillion


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, an increase of almost 50% or $2.4 trillion since the year began. While the pandemic has been deadly for many restaurateurs and travel agents, it’s been a boon to the hyperscale tech titans.

Many of the same attributes, namely massive size, economies of scale, an inherently online ecosystem and the ability to rapidly adjust to huge swings in demand, are the principal reason the largest cloud service providers have so benefitted from pandemic-caused disruption. As enterprises emptied their offices and were forced to operate essential services like data centers and other core infrastructure on skeleton crews, the cloud became an increasingly attractive option for remotely delivering IT services with fewer IT employees.

The nexus of changing consumer behavior, new business operating environments and the tendency of online operations, whether in retail, cloud services, content distribution or social networks, to foster natural monopolies created enormous advantages for the world’s largest businesses. Thus, a great irony of the biggest economic calamity in nearly a century, with almost a quarter of the population out of work and thousands of small businesses shuttered, has been the astounding gains, in both revenues and stock performance, of the largest companies, and in  IT, most of these provide public cloud services.

When the cloud is the low-risk option

As I wrote in the early days of the disruption, events like the pandemic can create cultural shifts, such as the replacement of face-to-face meetings with video conferences, while simultaneously accelerating pre-existing trends like the replacement of self-managed application infrastructure with cloud services. As I detailed in a second column, these unplanned, quasi-Black Swan incidents catalyze change by cutting through bureaucracies, compressing timelines and instilling enough fear to make the risk of doing nothing higher than the threat of changes gone bad. 

By April, it already looked like the pandemic would be a major milestone in the history of enterprise cloud adoption and I detailed the first data showing an acceleration in cloud usage. Since then, we’ve seen a cavalcade of anecdotal stories, survey data and financial results showing a rush of enterprises to the cloud. Indeed, for retailers, cloud infrastructure has been invaluable for being able to instantly burst capacity to handle the explosion of online shoppers. For example, Etsy fortuitously completed a server migration to Google Cloud in February that allowed it to deliver a 136% increase in Q2 sales while doubling the amount of data it regularly processes. As the company’s CTO told the Wall Street Journal, “We couldn’t have predicted better timing.”

If 2020 is the year cloud services emerged as a core, and in some cases sole, pillar of IT infrastructure, it also marks the point where enterprise cloud usage is becoming more sophisticated, nuanced and thoughtful. One way to understand the future of enterprise cloud is by examining the priorities, concerns and investments of the cloud pioneers, those organizations for whom the cloud was a reactionary response to crisis. 

Committed cloud companies sharpening strategies

One way to predict the future of enterprise cloud usage is by examining the actions and plans of early adopters. 2nd Watch, a cloud consulting firm and service provider recently polled more than 100 “cloud-focused IT directors” at large firms with annual IT budgets of at least $50 million to assess the consequences of the pandemic on their cloud plans. The survey was designed to highlight changes from pre-pandemic plans and attitudes in the wake of six months of business disruption. The following data points illustrate a continued and increasingly strategic commitment to cloud computing.

  • More companies were accelerating the migration of applications and digital products to cloud infrastructure than were pulling back on previous plans. 
  • 43% reported increased cloud budgets versus 36% with decreased spending. Among those reporting significant budgetary changes, by a net of 10-points more planned to increase spending.
  • 60% are focused on costly, long-term projects with significant business ramifications. Almost half agree with the statement that, “Now is the time to position our company for the long haul.”
  • Among short-term, tactical cloud projects, the top five priorities are:
    1. Cloud security 
    2. DevOps, cloud-native design and culture 
    3. Collaboration and conferencing 
    4. Business analytics 
    5. Cost containment
  • A majority are diversifying from a single provider, but the three preferred platforms remain AWS, Azure and Google Cloud.
  • Asked to characterize changes in their views of cloud-related technologies versus their pre-crisis assessments, respondents cited the following five areas for increased emphasis:
    1. Multi-cloud management platforms (Anthos, Arc, Tanzu)
    2. Edge computing
    3. CDN
    4. Cloud databases, data warehouses and data lakes
    5. Cloud-native application development and container environments

The 2nd Watch results illustrate the reasons behind accelerating growth in cloud revenue despite, nay because of the economic crisis. Synergy Research estimates that total spending on IaaS, PaaS and hosted private cloud increased by $7.5 billion in Q2. Furthermore, the 20 largest cloud and Internet service providers have continued to invest in hyperscale facilities throughout the crisis, adding 26 massive data centers in the first half of 2020. According to Synergy Research’s chief analyst (emphasis added):

COVID-19 has caused some logistical issues but these are robust numbers, demonstrating the underlying strength of the services that are driving these investments. We have visibility of a further 176 data centers that are at various stages of planning or building, which is good news for data center hardware vendors and wholesale data center operators.


(Synergy Research; Quarterly Cloud Spending Blows Past $30B; Incremental Growth Continues to Rise)

My take

Reactions to any crisis can catalyze change by galvanizing people’s attention and exploiting fear of a common threat. As the most severe test to business and society since 9/11, the COVID crisis has been a powerful force for fundamental changes to business and society. While the pain of every crisis is unequally distributed, this one is most unusual in its great largess toward a few industries, cloud computing and online services being standout examples in the IT world.

Businesses forced to operate with remote workforces, close facilities, curtail travel and shift to virtual, online service and product delivery found a saviour in the cloud with its utility-like IT services being uniquely suited to a world that immediately pivoted from physical to virtual environments. The result has likely been a two- to three-year acceleration in enterprise cloud adoption and business process modernization. Indeed, a recent survey of UK business leaders showed that 45% felt that the crisis instigated “the most radical digital transformation” in their company’s history, with half saying the pandemic provided “the incentive needed to improve their digital infrastructure.”

The post-COVID world is also leading early cloud adopters to hedge their bets and bolster their systemic reliability by adding secondary and tertiary cloud providers, while also shifting IT spending priorities towards improving cloud security, cloud-native application development and multi-cloud management. Like Etsy, the organizations that successfully navigate business disruption by exploiting utility-like cloud services will find themselves with lasting advantages over competitors paralyzed by this year’s uncertainty.

Image credit – Pixabay

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