Cloud Services Vs Data Centers: Future Outlook

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Cloud Services Vs Data Centers: Future Outlook (Part 1)

Cloud services and data centers are two distinct ways of managing companies' data storage requirements. Some research suggests that cloud services will overtake data centers soon and that the use of traditional data centers will become obsolete. Other research suggests the nature of certain companies is such that traditional data centers will always be a necessity. The number and size of some data centers currently being developed globally certainly supports this view.


  • Research from Cisco suggests the move toward cloud services will continue in the coming years. The rate at which cloud services are growing will see the development of "hyper-scale" cloud data centers in the imminent future.
  • Cisco has said, "Cloud data centers offer increased performance, higher capacity, and greater ease of management compared with traditional data centers. Virtualization serves as a catalyst for hardware and software consolidation, greater automation, and an integrated security approach."
  • This is the predominant reason given for the shift away from traditional data centers.
  • The argument in support of this prediction is the proliferation of the Internet of Things, SaaS technologies, and edge services. These developments mean there is little advantage to an organization in continuing to use a traditional data center.
  • This means the role of the traditional data center is changing. It is being downgraded to that of a legacy holding area. They will remain because some services cannot be hosted anywhere else.
  • The general manager of Deep Learning and AI at Amazon Web Services has supported this view, arguing expensive infrastructure will always become obsolete. It is important to operate in a flexible environment that allows the company and the resources to evolve.
  • Cloud services provide this flexibility.


  • The death of traditional data centers is not supported by all. Some analysts argue that the capacity required cannot be developed within the estimated time frames.
  • They further argue that not all resources are meant for a public cloud or shared resources. It is strategically valuable for some organizations to own and manage certain investments in computer hardware.
  • This means traditional data centers will always be a necessity.


  • The size of data centers varies considerably from micro centers to mega centers.
  • Mega data centers may have high initial costs in relation to building, but long-term the cost per square foot is better than smaller centers. There is currently a trend toward these mega data centers.
  • Switch Communications is currently building one of the largest data centers globally. When completed, it will cover 17.4 million square feet.
  • These mega data centers service tens of thousands of businesses in one location, allowing for better economies of scale.
  • Switch Communications also has mega data centers in Grand Rapids covering 1.8 million square feet, Las Vegas covering 3.5 million square feet and Atlanta covering 1 million square feet.
  • Facebook has tripled the size of its planned mega data center in Texas to 2.5 million square feet.
  • Mega data centers have also become the norm in China with China Telecom developing a 10.7 million square feet center, China Mobile a 7.8 million square feet center, and China Unicom a 6.4 million square feet center.
  • Currently 16% of companies have data centers between 100,000 and 500,000 square feet. This is expected to increase over the coming years.
  • 48% of companies have data centers between 5,000 and 50,000 square feet. Half of these companies expect their centers to remain this way in the coming years.
  • TEC reports the typical data center in the US to be 165,141 square feet of rentable space. There are more than 3 million data centers scattered across the US.


  • A report from Cisco estimates that by 2021, cloud data center traffic will represent 95% of total data traffic. This is compared to 88% in 2016.
  • Cloud data center data was 6.0ZB per year in 2016. By 2021, cloud data center data will be 19.5ZB per year.
  • The growth of the Internet of Things will contribute to this growth, with an estimated 13.7 billion connections. In 2016, there were 5.8 billion connections.
  • SaaS will remain the most popular cloud service model, accounting for 75% of the cloud workload. IaaS will account for 16% of the cloud workload and PaaS 9%.
  • IDC has predicted a growth in revenue of $97 billion in global public cloud revenue between 2018 and 2021.
  • Forrester has predicted a growth revenue of $145 billion in global public cloud revenue between 2018 and 2021, and Gartner has predicted $102 billion over the same period.
  • In 2021, there will be an estimated 628 "hyper-scale" cloud data centers globally. This is compared to 338 in 2016.
  • Cisco estimates that by 2021, only 6% of workload and computer instances will be processed by traditional data centers.
  • Gartner analyst Dave Cappuccio predicts that 80% of organizations will shut down their traditional data center operations by 2025. This is in comparison to 10% of organizations in 2018.


  • There is no clear answer whether cloud services will become a substitute for data centers or will complement them in the future. Two distinct schools to thought have developed.
  • Research completed by IEEE suggests that the "no data center solution" works and is a future possibility. The results of this research, where data centers cease to exist, has been considered "highly promising".
  • Cisco's research supports this view, suggesting that data centers will become almost obsolete soon. They will be substituted for cloud services.
  • Cloud services have been seen as a cost-effective alternative to establishing and running a data center, but each has a place in the future depending on the nature and goals of a business.
  • Some companies will always need to control, not only data but computer hardware. Organizations that have complex workloads and the necessity to run multiple apps are more likely to benefit from a data center arrangement.
  • The AFFCO report discussed in previous research supports this view.
  • The disadvantage is the limited capacity of data centers. For organizations that are likely to need to expand either the workload or the capacity of the data center, cloud services may be considered a better option.


We extensively searched a range of industry publications, articles, and research to determine whether there is likely to be a shift towards cloud services in the coming years. We were able to find two research studies that supported this view. These studies also provided valuable metrics regarding the future usage of cloud services versus traditional data services. The main research which counteracts this line of thinking is the AFFCO report, which we have mentioned only in reference as it has been discussed in depth in previous research.

After determining if there was a likely shift to cloud services and the estimated usage rates, we considered the current environment regarding data centers. A range of reports and industry publications were considered to determine the average current size of traditional data centers. This research also provided some valuable insights into the current trend, both in the US and on a global scale, toward mega centers. We have included this information for completeness.

Finally, we considered whether these technologies complement each other or whether cloud services will ultimately become a substitute for traditional data centers. To obtain this information, we considered a range of industry publications, expert opinions, media reports, and research around current trends. We were unable to provide a definitive answer to this question, as there are two distinct schools of thought. We have provided summaries of these alternative views.
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Cloud Services Vs Data Centers: Future Outlook (Part 2)

A survey conducted by Kaspersky Lab, a Russian software company, revealed that 49% of global SMEs and 66% of large global companies are looking to adopt hybrid cloud systems in the future. Forbes listed the obvious impact of cloud services on SMEs who seek to adopt it as better affordability, security, and efficiency, among others. The average revenue received by telecommunication companies from the data center equipment market is $6.89 billion.

Future Impact on SMEs

  • According to Job Wizard, many SMEs still depend solely on their own servers without any cloud services, while a few others outsource all data-related matters to a cloud-based service provider.
  • One new trend in the sector are hybrid solutions which combine the benefits of both cloud and data-centered services to provide the best data storage, backup solution, team cooperation, and data security.
  • This hybrid and multi-cloud service trend is confirmed by Packt and is expected to become dominant for business models in the future.
  • A 2018 survey by Kaspersky Lab, a Russian software company, revealed that 49% of global SMEs are looking to adopt hybrid cloud systems.
  • IDC reports that 20% of the global cloud service spending by 2021 will come from SMEs.
  • About 80% of the United States' SMEs are expected to adopt cloud services by 2020 which is more than twice the 2017 projection (which was 37%).
  • According to Forbes, obvious reasons why SMEs are adopting cloud services include affordability, security, improved efficiency, customized service, elimination of data loss, immediate upgrade capacity, available updates to newer technology and versions, and global data communion.
  • Capterra opines that cloud services will expose small business sectors to better opportunities by providing the capacity for large information processing tasks.
  • Cloud service is termed as "unavoidable" for SMEs that hopes to strengthen their IT infrastructure for the future.

Future Impact on Large Companies

  • According to an IDC survey, over half of the total public cloud spending by 2021 will come from large companies with 1,000+ employees. As per the report, the US will cover a 60% share of the global cloud service revenue by 2021 with an estimated $163 billion in spending. This revenue will be from the banking, professional services, and discrete manufacturing industries while retail, media, and telecom industries are expected to experience rapid growth in cloud spending.
  • The Kaspersky Lab survey suggests that 66% of large global companies are looking to adopt hybrid cloud systems.
  • Globally, data storage in cloud-based data centers is expected to quintuple by 2021, reaching 1.3 zettabytes, which is a 4.6-fold increase and a CAGR of 36% from the 2016 value of 286 exabytes.
  • Gartner has predicted that "the data center is dead" and that 80% of corporate data centers will be shut down by 2025 while AFCOM has a different outlook on the future of data centers.
  • Cloud technologies are expected to be incorporated into an enterprise in the form of private clouds (57%) vs public cloud (46%) or hybrid cloud models (35%).
  • On average, 10.3 data centers are expected to be built over the next three years. During the same time frame, 12.8 data centers per organization are expected to be renovated.
  • A survey by Data Center Knowledge revealed that by 2021, 26% of large companies are expecting their data centers to increase to between 100,000-500,000 sq. ft. from 5,000-50,000 sq. ft.

Data Center Equipment (Revenue/Profit)

  • The average revenue received by telecommunication companies from the data center equipment market is $6.89 billion. (see referenced triangulation)
  • According to Transparency Market Research, the global data center equipment market is projected to hit $72 billion by 2020. This increase is at a CAGR of 12.90% from 2014 to 2020.
  • North America and Europe collectively held 49.3% of the 2013 global data center equipment market.

Research Strategy:

The research team searched through reliable media sources, market surveys and analyses, publications, and reports on the future impact and changes expected in SMEs and large companies as a result of the mix of data centers and cloud-based services. We were able to find the information precompiled. Next, we searched for the revenue/profit received by telecom companies through data center equipment. After an exhaustive search, we were unable to find any report on the global revenue/profit size generated by telecom companies through data center equipment. Most of the information available on this was behind paywalls. However, through our search, we identified a Transparency Market Research report that detailed the forecast of the data center equipment market and also named the key industry players. We then looked for the data center equipment revenue generated by the telecom companies listed in the research and were only able to find two of the telecom companies, Cisco and Intel, that publicly published their 2017 data center equipment revenue.

Cisco data center equipment revenue for 2017 = $790 million
Intel Data Center equipment revenue = $6.1 billion
Average value of the data center equipment revenue = ($790 million + $6.1 billion) / 2 = $6.89 billion.

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