Enterprise IT spending on public cloud computing will surpass spending on traditional IT in 2025, according to researchers at Gartner.

Gartner’s research consists of four enterprise IT categories that can transition to cloud. These include the application software, infrastructure software, business process services and system infrastructure markets.

By 2025, more than half (51%) of IT spending in these categories will have shifted from traditional solutions to the public cloud. This compares to 41% in 2022. Almost two-thirds (66%) of spending on application software will go toward cloud technologies in 2025. This is up from a little less than 58% in 2022.

Failing to Adapt

Gartner’s Michael Warrilow

Michael Warrilow is research vice president at Gartner.

“The shift to the cloud has only accelerated over the past two years due to COVID-19, as organizations responded to a new business and social dynamic,” Warrilow said. “Technology and service providers that fail to adapt to the pace of cloud shift face increasing risk of becoming obsolete or, at best, being relegated to low-growth markets.”

In 2022, traditional offerings will constitute approximately 59% of the addressable revenue. However, growth in traditional markets will be much slower than cloud. Demand for integration capabilities, agile work processes and composable architecture will drive continued shift to the cloud. This is as long-term digital transformation and modernization initiatives are come to the fore in 2022. Technology product managers should use the cloud shift as measure of market opportunity.

Enterprise IT Spending

In 2022, more than $1.3 trillion in enterprise IT spending is at stake from the shift to cloud, growing to almost $1.8 trillion in 2025, according to Gartner. Cloud’s ongoing disruption to IT markets will be amplified by the introduction of new technologies, including distributed cloud. Many will further blur the lines between traditional and cloud offerings. Enterprise adoption of distributed cloud has the potential to further accelerate cloud shift. It brings public cloud services into domains that have primarily been non-cloud, expanding the addressable market. Organizations are evaluating it because of its ability to meet location-specific requirements, such as data sovereignty, low-latency and network bandwidth.

To capitalize on the shift to cloud, Gartner recommends technology and service providers target segments where the shift is occurring most aggressively. This is in addition to seeking new high-growth cloud opportunities. For example, infrastructure-related segments have a lower level of cloud penetration and should grow faster than segments such as enterprise applications that are already highly penetrated. Providers should also target specific personas, adoption profiles and use cases with go-to-market initiatives.