IT Spending Drops as Business Shift from Traditional Infrastructure to Mobile and Cloud Computing

JP Morgan has cut the IT spending budget of businesses for the remainder of 2013.  The two main reasons are a drop in the number PC being bought and a shift in spending away from traditional IT infrastructure to the Mobile and the Cloud.  JP Morgan had expected a decline in PC sales for their 2013 forecast at the beginning of the year, but mid-year they are revising their forecast for PC spending to drop 8.3 percent this year, compared to the original estimate of a 1.8 percent drop — that’s a fairly huge revision.

The one area where the JP Morgan report was bullish though was on Amazon AWS.  Amazon’s expected sales in 2013 for AWS are about $3.8 billion.  JP Morgan is predicting that Amazon is on the way to grow their size substantially, becoming as large as $24 billion by 2022.  They’ll be able to do that because of their ever-growing size and their ability to offer low pricing because of their ability to apply economies of scale.

JP Morgan thinks that it’s inevitable for Amazon to move from their current focus on the consumer market to one that includes all the check boxes that bigger commercial businesses are looking for in an IT provider, and at a very attractive price.  Potentially AWS may begin to upset sales being made into vendors like HP, Dell, Oracle, SAP, Microsoft and IBM.

IT tasks that could start being routed to Amazon AWS include storage networking, traditional computing, and outsourcing.  As much as 3 to 17 percent of traditional IT might fall to AWS.

The JP Morgan report notes the appeal of AWS as follows: “The appeal of the service is multifold: “No Upfront Investment; Pay for Only What You Use; Price Transparency; Faster Time to Market; Shift Resources for Operations to Innovation; Near-infinite Scalability and Global Reach; Leveraging Scale – as AWS Grows Pricing Keeps Coming Down.”

Many think that Amazon won’t be the only cloud vendor recipient of increased revenues.  But David Lithicum cautions that the success that some Amazon AWS competitors are seeing.  Lithicum says that “the larger issue is that innovation in cloud computing, however, seems to be on the decline. This is largely due to the number of innovative and successful cloud computing startups that have been acquired by much larger and less innovative players.”  That implies that traditional vendors may actually be assisting Amazon by removing smaller cloud vendors that have shown some amount of spunk and  innovation, and an ability to compete against Amazon — no longer on their own, Amazon-external innovation may shrivel.