More Enterprises Want Hybrid Cloud, Not Public

U.S. organizations appear to be considering more private and hybrid cloud environments, especially as generative AI capabilities grow more applicable to their business models. But implementing those models can come with challenges, namely in the form of higher costs.

That’s according to a new report from technology research firm Information Services Group, which found that enterprises remain leery of overspending in the current economy — concerns only heightened by the fact that 2024 marks an election year. 

This year, too, hesitation to spend reflects the slowed outlay of 2023, a pullback intended to counteract pandemic-fueled over-deployments. Indeed, channel partners will recall that customers struggled mightily during COVID-19 to control their cloud costs. Those end users turned to managed service providers and other experts as they sought to rein in wasted money.

Now, though, after a slower 12 months, the cloud market is experiencing significant demand for hybrid cloud initiatives, per ISG. Organizations want the control, scalability and performance associated with these environments, particularly as they experiment with generative AI. But, Gen AI, after all, can sap wallets quickly due to the large amount of resources it requires. So businesses are proceeding with caution, which points to their need for enhanced guidance from the likes of MSPs, consultancies and other partners specializing in cloud and gen AI.

ISG's Anay Nawathe

“Maximizing the return on IT investments is top of mind for U.S. enterprises this year,” said Anay Nawathe, ISG cloud delivery lead for the Americas. “This is shaping their private and hybrid cloud strategies, including exploring how GenAI may improve operations.”

Why Private and Hybrid Cloud Are Standing Out

Along those lines, ISG’s report, “2024 ISG Provider Lens Private/Hybrid Cloud — Data Center Services,” discovered that many organizations are eyeing hybrid cloud over public cloud. IT departments are facing tight budgets as C-suite executives keep an eye on the economy, and private and hybrid options deliver the scalability and agility they’re looking for along with greater cost controls, ISG said.

In some parts of the U.S. cloud services market, analysts noted, enterprises are signing more provider contracts but with smaller average value. That suggests a continued cautious approach to outsourcing, per the report. As such, many companies continue to shift to private and hybrid clouds. They cite concerns around security, performance, compliance, data residency and control over IT resources.

At the same time, ISG found that many enterprises are closely studying potential investments in generative AI for cloud management. They are weighing the costs and benefits of the technology with an eye toward insights, predictive analytics and more intelligent automation that could enable new revenue models. However, this requires measuring the distance between current high expectations for generative AI and future tangible outcomes, ISG said.

Meanwhile, private and hybrid cloud service providers are adopting AI and machine-learning features at a rapid pace. ISG said their clients are “seizing” upon those services, with AI-based cognitive capabilities and ML tools standing out. Those speed up service delivery, improve IT efficiency and improve the user experience, ISG said. Also, because they gather data from various sources to predict downtime and initiate self-healing measures, AI and ML can minimize the impacts of system failures. IT experts must take such factors into account when calculating cloud costs, because running cloud infrastructure is not just about the hard-dollar impacts.

Finally, many enterprises seeking to shrink the footprints of their own data centers are turning to colocation providers, ISG said. Colo companies are expanding their facilities, especially in tech-centric areas such as Seattle and Dallas, ISG says. Demand is rising for high-density computing at nearby sites for low-latency applications.

“Colocation facilities play a growing role in enterprise computing capabilities,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. “Companies need reliable, secure, and scalable infrastructure to meet changing IT needs.”