Ten trends redefining enterprise IT infrastructure

Here is a brief excerpt from an article written by Arul Elumalai, Kara Sprague, Sid Tandon, and Lareina Yee for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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The IT infrastructure landscape is evolving rapidly. What will it look like in 2020?

When people think of enterprise IT infrastructure, they often imagine racks of hardware locked away in data centers and basements. But it is actually a focal point of disruption and innovation in every area, from servers and storage to networking and software.

What are the trends that are giving rise to such disruption and innovation? And what are the implications for business-technology strategy? Both IT infrastructure providers and customers must answer these questions as they plan their futures. We have identified ten trends that are already having a major impact on IT infrastructure and will bring even more disruption over the coming years. Here is a look at what is changing and how companies can respond.

Familiar trends at a faster pace and greater scale

The following trends will not be news to anyone, but their recent acceleration and the scale of their impact might come as a surprise.

[Here are the first five.]

1. ‘As-a-service’ consumption for everything from software to hardware. Enterprise buyers increasingly prefer consumption-based pricing models—a phenomenon that started with software and has now moved into hardware. This shift from capital expenditures to operational expenditures helps reduce risk, frees up capital, and provides increased flexibility. From 2015 through 2016, revenues for infrastructure as a service (IaaS) and platform as a service (PaaS) rose by 53 percent, making them the highest-growth segments in cloud and infrastructure services.1 Considering that a unit of compute/storage in the cloud can be up to 40 to 50 percent cheaper in total cost of ownership than a unit on premises, the shift to as-a-service models is striking. In addition to moving from on premise to cloud, IT providers and customers are experimenting with annuity-based payments for traditional hardware.

2. The public cloud goes mainstream. While companies have been moving their workloads to the public cloud for years, there has recently been a sea change at large enterprises. Capital One, GE, Netflix, Time Inc., and many others have drastically reduced or even eliminated their private data centers, moving their operations to the cloud.2 In fact, cloud providers are expected to account for about 80 percent of shipped server and storage capacity by 2018.

Amazon is the leader in IaaS, with about 40 percent market share.3 Microsoft is a clear second, followed by Google and IBM. Together these players account for approximately 65 percent of the IaaS market today.4 With the decline of on-premises data centers, they could account for almost half of all IT infrastructure provisioning by 2020. If that is the case, only companies with significant capital-investment capabilities could compete with them. One potential candidate would be Alibaba, which has recently experienced triple-digit year-over-year cloud-related revenue growth, driven largely by cloud adoption in China. 5

3. Increased use of open-source offerings, up and down the stack. Approximately 65 percent of companies increased their use of open-source software from 2015 to 2016, according to the 2016 Future of Open Source Survey conducted by Black Duck and North Bridge. Major IT providers now rely on programs such as Apache Spark, Kubernetes, and OpenShift. Moreover, Airbnb, Airbus, eBay, Intel, and Qualcomm are among the many large companies using TensorFlow, Google’s open-source library of machine-learning code.6 Facebook’s Open Compute Project, which aims to make hardware more efficient, flexible, and scalable, has helped extend the open-source movement into the data centers of companies that are participating members, such as AT&T, Deutsche Telekom, and Goldman Sachs.7

4. Cybersecurity remains a major concern. Cybersecurity continues to be a top C-suite and board-level priority. Across all industries, attacks are growing in number and complexity, with 80 percent of technology executives reporting that their organizations are struggling to mount a solid defense. Many companies cannot recruit the internal talent needed because there is a shortage of cybersecurity experts, leading them to invest in managed security services. Cloud-based security offerings are also becoming more attractive to companies, with McKinsey estimating that they will comprise 60 percent of security products by 2020, up from 10 percent in 2015.

5. Mainstream comfort with ‘white box’ hardware. Traditionally, IT infrastructure providers have relied on assembling branded systems for their server, storage, and networking offerings. To do so, they outsourced hardware manufacturing to original-design manufacturers (ODMs). However, this model is becoming obsolete because customers are increasingly unwilling to pay for assembly. Instead, customers go directly to ODMs, using designs for servers obtained from sources such as Facebook’s Open Compute Project to customize their data-center configurations. Open Compute Project member companies that have taken this route include IBM, Fidelity Investments, and Verizon.8 As discussed later in this article, many of these ODMs are located in Asia, which is driving more hardware business to that region. By 2020, IDC estimates that “self-built” servers will comprise half the hyperscale-server market.

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Here is a direct link to the complete article.

Arul Elumalai and Sid Tandon are associate partners in McKinsey’s Silicon Valley office; Kara Sprague is an alumna of the San Francisco office, where Lareina Yee is a senior partner.

 

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