Hybrid cloud

On-premise data centers account for 40% of global compute capacity, only slightly more than the 37% owned by hyperscaler cloud providers, according to a Synergy Research Group report. The remaining 23% of capacity rests offsite in colocation facilities and leased data centers, the report said.

The total capacity of all data centers is expected to rise steadily over the next five years, driven primarily by a doubling in hyperscaler infrastructure, according to the firm's analysis of 19 major cloud and internet service firms, including the largest operators in SaaS, IaaS, PaaS, search, social networking, e-commerce and gaming.

While on-premise capacity is expected to hold steady in the near term, its share of overall compute will decline, as new workloads migrate steadily to cloud. “On-premise data centers will not disappear any time soon, but their scale is being increasingly dwarfed by hyperscale and colocation companies,” the report said.

Global computing is moving toward more servers with more capacity run by giant CSPs and smaller third-party vendors, with enterprises continuing to increase investments in cloud infrastructure and other related services.

Annual global spending on cloud reached $227 billion last year, growing at an average rate of 42% per year, the report said. That represents a complete reversal from just a decade ago, when on-prem IT hardware and software consumed over $80 billion annually and cloud spend stood at $10 billion.

While investment in on-prem data center equipment and software hasn’t ground to a halt, it’s grown at a paltry rate of just 2% per year, as an expanding proportion of infrastructure spending has been pushed off-site to colocation facilities, the report found.

Generative AI technologies are poised to further skew the balance toward cloud by inflating the cost of maintaining on-prem compute.

As large training models come online, hyperscaler such as AWS, Microsoft and Google Cloud are retooling their data centers, upgrading servers with GPUs and other high-capacity chips designed to handle massive workloads more efficiently.

“The chips are getting more powerful and more expensive, which then percolates up through the chain [to] more expensive servers, more expensive populated equipment racks and more expensive data centers,” John Dinsdale, chief analyst at Synergy Research Group, said in an email.

“The more powerful chips also consume more energy, so energy costs are rising,” said Dinsdale. 

The writing is on the data center walls. Five years ago, nearly 60% of compute capacity lived on-prem, the report found. By 2028, the research firm expects more than half of computing will take place in the cloud as on-prem’s share of capacity drops below 30%.

IT asset managers are shifting their attention from data center and desktop software to cloud-based SaaS solutions, according to Flexera’s State of ITAM report.

Nearly three-quarters of IT professionals responsible for enterprise software use and compliance expect increased scrutiny of SaaS solutions in the next three years, the software company’s survey of 500 IT asset managers found. More than two-thirds are eying public cloud as a source of software spending waste, the report found.

As companies push to optimize IT investments, curbing waste remains a problem. Roughly one-third of enterprise spend across desktop, data center, SaaS and “as a Service” infrastructure is wasted, respondents estimated.

Unnecessary, redundant and uncatalogued tech assets are the bane of enterprise budget hawks. As organizations migrate workloads out of on-prem data centers, tracking down sources of overspending is leading IT asset managers to cloud.

Identifying overlapping software and finding ways to squeeze more out of license use rights were priorities for 2 in 5 respondents.

While tracking on-prem software usage remained the most common responsibility of asset management teams, cited by 7 in 10 respondents, the proliferation of cloud services is driving a realignment in priorities.

Teams are moving rapidly to reign in cloud-based software bloat. Nearly half of respondents expressed concerns about containerized applications deployed in hybrid ecosystems, up from just 28% in last year’s survey. The number of respondents focused on cloud-based software grew by 10 percentage points year over year, to 52%.

The move is a practical and predictable response to an industrywide shift to SaaS and a broad drive to optimize cloud spend, a trend mirrored by changes in organizational accountability structures.

Most of the organizations surveyed — nearly 3 in 5 — have established a central cloud management team. Including an asset management professional on the cloud team has become the norm, according to Flexera.

As cloud cost control strategies are standardized under the banner of FinOps, asset managers are taking note. One-quarter of asset management teams already report interacting heavily with FinOps teams, a category that was new to this year’s survey.

Cloud arrived with promises. The technology could liberate enterprises from the rusty chains of on-prem data centers, freeing engineers from the grind of servicing technical debt and unleashing innovation.

Cloud also loosened the CIO grip on IT spend, as access to on-demand storage and compute spread across business units.

But variable pricing goes both ways — up and down. In the rush to enable cloud, many companies neglected to put spending guardrails in place, according to a KPMG report.

CIOs overcame security concerns and sold cloud to their boards as an efficiency upgrade over on-prem, but a lot of these cloud initiatives are coming back with operating costs that are almost two times as originally projected, Will DeMille, CIO advisory managing director at KPMG, said in an interview with CIO Dive.

As economic forecasts sour, CIOs have had to rethink cloud strategy, scrutinize cost and develop new strategies that align governance structures with enterprise demand for storage and compute.

“There are consequences if you have no controls in place,” DeMille said. “You don’t want to stifle innovation, but CIOs are waking up to the economic realities of decentralized decision-making.”

Shadow IT emerges in the gaps between oversight. Complex billing structures are compounded as companies contract with multiple providers for the sake of hybrid cloud deployments. Finance teams may not understand the technical specifications, and technical teams can delay financial considerations until the bills pile up.

“It's such a shift in governance that companies just aren't used to it,” Len Epelbaum, CIO advisory director at KPMG, said. “They're just so used to paying the bill and forgetting about it. That doesn’t work very well with cloud.”

Tying cost to value

FinOps, a useful term associated with cloud cost control protocols, can obscure the inner workings of a form of governance that requires enterprisewide commitment and participation across business functions.

Nearly three-quarters of companies had a central cloud governance structure in 2022, according to Flexera’s recent State of Cloud report, up from two-thirds in 2019. 

Governance can be managed through a cloud business office or a cloud center of excellence. It can also be initiated more informally, said DeMille.

“Given the economic times, some organizations are starting small,” DeMille said. “If you don’t have a formal team just yet, but you’ve got people in finance and IT, maybe some cloud engineers, and they're starting to look at usage on a biweekly basis — you can use that without creating a large, formal structure.”

Visibility into cloud usage, clear lines of reporting and optimizing are core tenets of FinOps.

“You have to create cost transparency that you probably didn’t have before,” Epelbaum said. “Once you can see and measure it, then you can decide on the incentives you want to provide and the behaviors you want to drive. But until you know the cost and can compare that with what you used to pay, it’s hard to connect the dots between value and costs or make good decisions about optimization.”

Transparency can be boiled down to measuring consumption and cost. The next step is to communicate that data in business terms and then construct a plan that ties cost to value.

Without the relevant data, it’s difficult to craft a sensible business plan.

"You have to measure and report first, and then you can get into a continuous cycle of realistically planning what your spend should be, how you should move to the cloud, if you should move to the cloud and what your cloud costs should be,” DeMille said. “That's your nirvana.”

IBM introduced watsonx, a platform that incorporates generative AI, in an announcement. In addition to trainable foundation models, the suite will include AI-optimized data storage capabilities and a governance toolkit.

Watsonx.ai, an enterprise studio available in July, will give customers access to open-source libraries, models and datasets created by Hugging Face, the same machine learning and natural language processing company AWS partnered with in February.

Watson’s latest upgrade will feature models trained to generate code for developers through a natural language interface, industry-specific LLMs customizable with user data and a geospatial model built on climate and remote sensing data, according to IBM.

The new AI capabilities are part of a broader hybrid cloud strategy, which aims to help organizations integrate multicloud and on-prem ecosystems. The company remains committed to enterprise hybrid cloud solutions as its pathway to relevance in a market dominated by hyperscalers AWS, Microsoft and Google Cloud.

IBM's share of the global cloud market is just 3%, according to Synergy Research Group’s April analysis of enterprise spending on infrastructure services. The hyperscalers command nearly two-thirds of the market. 

The 100-year-old tech company built its reputation on mainframe systems and pioneered natural language processing with Watson. The computer triumphed on the game show “Jeopardy!” in 2011.

Watsonx’s new capabilities will deploy before the end of the year, the announcement said.

The governance toolkit within watsonx will include mechanisms to ensure customer privacy and detect model bias, according to the company. 

To support the updated capabilities, the company will install new graphics processing units in its cloud servers, optimizing its infrastructure for model training. The larger CSPs have made similar adjustments to accommodate AI workloads. 

In addition, IBM will introduce an AI-informed cloud carbon calculator, designed to monitor emissions across hybrid multicloud architectures to support enterprise sustainability initiatives. 

Strategic investments in cloud migration, cloud-native projects and related cyber and machine learning services deliver outsized impact on market valuation and shareholder returns, according to a Deloitte report.

The consulting firm analyzed the financial statements and technology spending of more than 4,500 companies over a 10-year period.

Spending on cloud acts as a force multiplier, the report found, adding long-term value to investments in automation, cyber, IoT and other individual technologies. Cloud investments yielded roughly three-times the market value compared to cyber investments alone, the analysis found.

Cloud is a handy valuation metric, according to David Linthicum, Deloitte’s chief cloud strategy officer. Companies adopting cloud are likely to be engaged in broader digital transformation, systems modernizations and innovation, signaling healthy growth potential to investors, Linthicum said.

As CIOs reach for levers to encourage boardroom buy-in on cloud investments, the markets can be a strong ally.

Investors react positively to cloud adoption, the research found. Platforms enabling enterprisewide information flow have the strongest positive correlation with market cap, compared to other tech categories, and investors consistently reward companies for cloud adoption.

“We’re almost 15 years into the cloud and people are now understanding that investment in that technology is going to breed huge ROI over time,” Linthicum said.

Quarter-to-quarter earnings remain an important benchmark, but investors are looking beyond immediate returns and eyeing the transformative power of technology. Cloud is the foundation on which successful businesses build out other technological capabilities, creating a virtuous circle of innovation.

“It’s table stakes over everything you do,” Linthicum said. “If you’re going to digitally transform, whether it's with AI, deep analytics or the integration of various systems, 98 times out of 100 it’s going to occur in the cloud.”

Deloitte also analyzed the impact of blockchain and IoT, capabilities that add value but are rooted in, and enabled by, cloud compute.

Spending on technology alone wasn’t a differentiator, according to the report. Strategic investments were the catalyst driving investor enthusiasm.

Comparable companies of roughly the same size, with similar revenue, had significantly different market valuations depending on how they invested in technology, Deloitte found in a January report.

“The leaders in the market were spending about the same amount of money on technology as the non-leaders,” Linthicum said.

Success was marked by three characteristics, the report found:

• Maturity, or the extent to which an enterprise has modernized away from legacy technologies.
• Integration, or the extent to which the organization has brought together a class of related, functional technologies.
• Innovation, or the extent to which a company has mastered specific transformative technologies, such as cloud, AI and cyber.

Another factor to consider, according to Linthicum, is the shift toward a cloud-centered organizational culture.

“I always tell my clients that I can solve anything with technology,” Linthicum said. “That’s easy to do. People, processes and culture are the tough part. That's the real battleground.”

Major League Baseball moved cautiously to modernize this year, implementing a timesaving, in-game pitch clock to improve the fan experience. But the Boston Red Sox went a few steps further, embarking on a digital transformation journey aimed at overhauling its cloud and data strategy.

As the season got underway in late March, the Red Sox technology team realigned the franchise’s hybrid cloud strategy, leveraging a partnership between IBM and cloud storage vendor Wasabi Technologies to enhance its growing tech ecosystem.

IBM’s hybrid cloud and Cloud Satellite edge computing architectures will provide the hardware integrations to stand up a dispersed, yet integrated, solution compatible with Google Cloud, which expanded its MLB strategic alliance in October. Wasabi partnered with IBM to handle offsite cloud data storage.

The edge computing component is similar to private cloud, Brian Shield, Boston Red Sox SVP and CTO, told CIO Dive. “We manage some data on-prem and we also have edge computing closer to the action.”

The solution keeps player analytics, video and data within easy reach of coaches and managers who need quick access to insights. Those assets are stored on the edge before they migrate to cloud, said Shield. 

Some of the same analytics can be directed to fans via Wasabi and integrated with other data sources, which was a big selling point for Shield.

“You have to find partners who can scale but also provide connectivity to other products,” he said. “Our ability to connect other technologies means we don't have to understand 14 different data sources at an intimate level. That would start to exceed our ability to effectively resource it.”

The Wasabi-IBM partnership is designed to be a multivendor solution, David Boland, Wasabi’s VP of cloud strategy, said in an interview with CIO Dive. 

The onsite IBM Cloud Satellite can run Red Hat OpenShift, IBM’s Edge Application Manager and similar tools and then offload data to Wasabi for storage and retrieval.

Edge compute capabilities extend to data sources, reducing the latency of public cloud without saddling the customer with servicing responsibilities, Briana Frank, VP of product and design for IBM Cloud, told CIO Dive. 

“It's about bringing the cloud to where the data resides,” Frank said.

From baseball to business

Baseball may be notoriously idiosyncratic, with its mythic history, fan rituals, player superstitions and shifting team rivalries. But from an IT standpoint, running a franchise isn’t all that different from managing a commercial airline, financial company, hospitality chain or any number of other enterprises with a broad geographical footprint, big data needs, competing stakeholder demands and an appetite for flexible and resilient cloud capabilities.

“Like most major businesses, the cloud for sports franchises is the air we breathe,” Shield said. “It's everything to us in terms of how we operate, especially the many things that we do that are at scale.”

Shields points to the transformation of Fenway Park, the Red Sox’s 111-year-old facility, from a baseball field into a multi-venue destination.

“It's no longer just about going to a baseball game,” said Shield. “We’re now operating a very large-scale media environment.” 

Fenway Sports Group, the team’s parent company, opened the 5,000-person MGM Music Hall at Fenway last year and is now developing two million square feet of commercial, residential and retail space on land surrounding the park, the company announced in March.

Shield’s job extends beyond the data needs of the team to the broader technology demands of running a nearly $10 billion entertainment and hospitality hub.

Tech upgrades are Shield’s most immediate concern. The cloud, edge computing and data storage enhancements target three primary pillars of the team’s IT estate: 

• There are traditional business components, including front-office IT and ERP systems;
• Customer-facing assets that guide the fan experience;
• And baseball operations technologies that handle analytics and track team performance across several different ballparks.

“The team takes technology on the road with them, as well as accessing it through the cloud,” Shield said. “It’s a complex model when you add in more than 130 scouts around the globe trying to help us find the best prospects. There are a lot of moving parts and massive amounts of data.”

Controlling cost and access in a dynamic environment without creating silos and limiting insights is a common big data challenge. Most tech leaders struggle to establish observability and security across multicloud ecosystems, according to a Coleman Parks survey of CIOs commissioned by Dynatrace.

For the Red Sox, time pressure exacerbated an already difficult problem. As data storage ballooned, an on-prem storage model became unworkable, according to Shields, who has been with the team for just over a decade.

“There wasn’t a big enough window of time for us to process data coming in from more than 50 cameras pointing at players generating up to 1,000 frames a second,” Shield said. “We didn’t have enough time in the day to get everything done in order to support decision-making.”

From moneyball analytics to big data

Baseball was early to analytics but, like a lot of legacy enterprises, slow to cloud.

The stats-driven sport gravitated toward a data-centric player assessment approach dubbed sabermetrics by Bill James in the 1980s and adopted by the Oakland Athletics during a successful 2002 regular season run, as chronicled by Michael Lewis in his 2003 book “Moneyball.” 

The approach spread around the league and to the Red Sox, who hired James in 2003.

Tradition-bound MLB franchises were not so quick to adopt cloud.

“I think sports in general was a little bit slow to fully migrate to the cloud,” said Shield, who encountered a mostly on-prem environment when he joined the team in 2013.

“Virtually 100% was on prem,” Shield said. “We explored a lot of data, we captured a lot of content, but it wasn't at the volume that we have today. It wasn’t big data.”

With the next evolution of the franchise’s transformation, Shield has to keep his head in the game while also looking beyond it. Like so many CTOs and CIOs, his role has expanded to touch nearly all facets of the business, from core IT to digital user experience.

“We're thinking about how we can better support the fan before the game, at the game, as well as leaving the game and getting home,” said Shield. “In time, we hope all the data we collect will allow us to not only understand fan behavior, but to create a better fan experience while helping to grow the business and drive a successful team.”

Doing all of that without the benefit of cloud, Shield said, would be virtually impossible.

Companies may be speeding down the modernization highway at full throttle, but somewhere under the enterprise hood there’s almost always a trusty mainframe, powering backend applications, lending on-prem power to digital transformation.

Tech executives expect half of legacy applications to be modernized in the next two years, according to an Infosys survey of 1,500 senior tech leaders.

The survey found 88% of systems are legacy and 45% reside on legacy mainframes.

There’s no question that cloud is on the rise. It’s got a lot of growing room in the IT ecosphere. But mainframes are standing firm.

“The on-prem world isn’t going away — it’s not even getting smaller,” said John Lovelock, distinguished VP analyst at Gartner. “There’s still enough money going into non-cloud software and on-prem systems networking equipment to keep this up and growing.”

Conventional wisdom depicts cloud as the engine of innovation, eroding mainframe’s workhorse reputation with promises of agility, optimization, AI and DevOps. Despite the associated challenges in procuring talent or modernizing, the mainframe remains a stubborn — and critical — component of enterprise IT.

Mainframe modernization

Mainframe computing hasn’t just been running in place — it, too, has been modernizing.

Nearly two-thirds of organizations report the combined use of AIOps in their mainframe and distributed environments, according to a report by BMC. 

Seven in 10 use DevOps within their mainframe environments, based on the software company’s annual report, which surveyed more than 1,000 executives and technical professionals.

Almost all respondents said they have a positive perception of the mainframe and consider it a “long-term platform that is growing and adding new workloads.”

“Whether you're in IT business or outside of the actual business, you don't think about the mainframe, and that's because it’s part of the infrastructure fabric that helps us live every day,” John McKenny, SVP and general manager of intelligent Z optimization and transformation at BMC, said in an interview with CIO Dive.

“Some people in the mainframe space won't like hearing me say this, but it's a little bit like plumbing or your water and power — when it's working, you take it for granted, you just don't think about it,” McKenny said. “As one customer told me, if the backend sneezes, everything else catches the flu."

Finding a good plumber can be difficult. Recruiting technologists may be even harder in the current tech labor market, even in the wake of tech sector layoffs and hiring freezes.

Mainframe talent may be even harder to find. 

Concern over access to the right talent to properly maintain legacy systems was listed as a major concern by three-quarters of more than 400 companies surveyed for an October report by IT services provider Advanced. Nearly half said their pool of mainframe-capable talent is decreasing.

“This is a platform where a large number of the employees were getting close to or [were] at retirement age several years ago,” McKenny said.

New sources of talent are emerging, according to McKenny, and workforce demographics are shifting too. The percentage of workers between the ages of 18 and 29 has increased, while those over 50 have a smaller share of the pie, according to BMC’s survey.

Women now make up 30% of mainframe workers, a 7% increase year over year.

“There's been a significant increase in the number of earlier career people that have 10 years or less experience,” McKenny said. “And we've seen the number of women in the workforce increase as well, which is positive for the platform.”

The hybrid way

Framed as a straightforward tale of two systems, the Great Cloud Migration is really a Goldilocks story, with companies choosing a best-of-both-worlds integration of cloud and mainframe.

“Most of the deployments that you see out there are hybrid deployments,” Harish Grama, global cloud practice leader at cloud integration software company Kyndryl, told CIO Dive. “Companies have public cloud in the mix, along with an on-prem footprint.”

MSPs like Kyndryl, which cemented a partnership with Microsoft’s cloud division in October, and its former parent company IBM are banking on a hybrid future, according to Steven Dickens, senior analyst at Futurum Research.

Security is one reason enterprises favor on-prem for sensitive workloads, McKenny said. Two-thirds of mainframe organizations listed security and compliance as top priorities, according to BMC’s survey.

Yet, a large part of on-prem’s persistence can be attributed to simple staying power. Large companies that weren’t born in the cloud have relied on mainframe infrastructure for years.

For companies in banking and finance, insurance, manufacturing and retail, running workloads on prem — especially backend applications — remains central to IT operations.

Liberty Mutual’s modernization journey is a case in point.

The sixth largest casualty and property insurer in the U.S. has moved nearly three-quarters of its workloads to the cloud in the last decade and closed one of its data centers. But the company expects to maintain on-prem for the foreseeable future, according to Angela “AJ” Wasserman, product owner of cloud financial operations at Liberty Mutual.

“On-prem is still part of our technology infrastructure,” Wasserman told CIO Dive. “We are looking to close additional data centers, but we’ll always have certain workloads on physical servers. It’s always going to be a part of what we do.”