Oasis Networks - Industry & TAM Research (Revision)
- The BFSI sector is the next high-growth segment after Telecommunications and IT, with banks and financial institutions leading the purchase of IT infrastructure.
- Server acquisition and maintenance costs vary from company to company and are mainly determined by the level of customization required vis-à-vis a company’s needs.
- A feature of on-premise infrastructure that makes them easily compliant with security and compliance requirements is the ease of customizability.
- Edge computing is growing, and so are the investments companies are making in edge computing.
We have identified industry verticals investing in or have purchased on-premise physical servers to boost their operations. The report focused on the following industries — BFSI (financial services), media and entertainment, healthcare/pharma, and energy/utilities. According to instructions, we ignore data on companies operating in the following industries — telecommunications, hosting services, eCommerce, and real estate as these are already known.
What types of companies (classified by industry) invest in large numbers of servers every year?
- According to a recent Server Market Share report, the BFSI (Banking, Financial Services, and Insurance) sector is expected to be the next high-growth segment after IT and Telecom. The increased demand for servers in this sector is attributed to the need to make transactional processes faster and more reliable. Further, the demand for HPC servers has also increased significantly in the BFSI sector over the last few years due to the rising usage of high-performance applications to handle large data volumes. Finally, the increase in digitized transactions, especially during the COVID-19 pandemic, is also expected to drive growth in the BFSI segment, fueling further server demand.
- The high rate of adoption of cloud services by players in the BFSI sector is another growth factor as far as demand for servers goes. Organizations in the BFSI vertical can reduce huge capital costs of running and maintaining complex on-site IT facilities that require teams of highly qualified personnel to be present on a round-the-clock basis. It is understood that the significant upfront costs of procuring hardware are also eliminated due to cloud adoption. The emergence of 5G networks is also expected to drive growth.
- The healthcare and Energy sectors are also huge purchasers of servers.
- The figure below illustrates the global server market share by vertical.
- While data on what companies in the BFSI sector spend on servers is not public data, a 2020 market research report reveals that banks and financial institutions lead in terms of capital investments in IT infrastructure. These players are increasingly moving their core operations and applications to the Cloud due to growing requirements for personalized banking experiences, demand to mitigate risks associated with legacy technologies, growing requirement for real-time analysis of huge volumes of data, increased focus on reducing capital expenditure, and Cloud abilities to offer better operational control of the platforms.
- Analysts at Kotak Institutional Equities contend that the pace of investments in digital capabilities by financial services companies will likely increase beyond the short term. Spending is anticipated to be higher across mid-sized and large banks in the U.S. and Europe.
- Overall, the global IT spending by players in the BFSI sector is estimated to reach US$152.45 billion by 2026, growing at a CAGR of 12.2% from 2020 to 2026. Banks and other financial institutions are expected to lead in spending. According to a Kaspersky report, financial institutions spend up to three times more on IT security owing to the high-risk nature of their operations. For example, in 2019, U.S. banks spent roughly US$67 billion on IT infrastructure. With the North American region leading other markets in terms of IT infrastructure spend (40%), such insight is relevant for estimating how much banks spend on servers.
What is the typical spend to acquire and maintain servers every year?
- Server acquisition and maintenance costs can vary due to several factors such as the type of server, size, capacity, and etcetera. Nonetheless, a recent article by ZDNet estimates that in the U.S., it costs roughly US$731.94 per year to run an average server. This means a company with many on-premises servers will incur larger expenses.
- Other factors that come into play include refresh rate, that is, the duration after which a company refreshes its server infrastructure. An organization that replaces its servers after, say, every five years will incur higher costs than one that replaces after, say, three years.
- Assuming company A replaces its servers after every 5 years. In the first and fifth years, expenses will include server installation, configuration, initial maintenance and support. Company B, on the other hand, uses cloud-based servers. Obviously, company B will incur substantially fewer costs (90% less) than company A. Between years 2-4, only maintenance and support charges will be incurred for both cloud and on-premise servers. However, further costs may be incurred by company A for HVAC. In the long-term, the scenario for companies A and B can look like shown below.
- In general, the numbers as relates to server acquisition and maintenance are very fluid. This is because different variables come into play and affect costs variably during servers’ life cycle. In addition, indirect costs (system administrator’s salary, workload variations) vary across companies. Nonetheless, using a freely accessible cost ownership tool, we established that it would cost roughly $1,476.31 a month for on-premises configuration and $313.90 for cloud servers with similar configurations. This translates into monthly savings of 79% in favor of cloud servers.
How long does it take to add or “spin up” a physical server?
- Various sources provide different answers on this. However, depending on the degree to which the server is managed by a host, the answer is a few minutes to several days. It all depends on the requirements a company needs and the level of customization that has to be done.
What security and compliance requirements are more readily served by on-premise infrastructure than the cloud equivalent, and why?
- Historically, cloud security controls have been regarded as less robust than on-premise ones, at least when cloud computing was still a new technology. An organization running its own on-premises server retains complete control over security. It is responsible for setting appropriate user access policies, installing antivirus software and firewalls, ensuring security patches are installed promptly, and guarding against cyberattacks. For companies with adequate IT support, on-premises solutions give them confidence that their servers are locked down—they do not need another company to safeguard their private data. However, this degree of control can be a double-edged sword. On the one hand, if mismanaged, on-premises servers can leave an organization susceptible to security threats.
- Cloud security protocols are particularly risky for highly regulated sectors. For example, Healthcare companies are required to comply with the Health Insurance Portability and Accountability Act (HIPAA), organizations dealing with credit card payments must abide by the Payment Card Industry Data Security Standard (PCI DSS), and educational institutions are subject to the Family Educational Rights and Privacy Act (FERPA). Unfortunately, these compliance requirements are harder to meet when using cloud servers over on-premise servers. This largely owes to the fact that on-premises solutions are infinitely customizable, and for large organizations with complex IT requirements, this feature makes on-premises infrastructure more appealing.
- However, industry experts now argue that there are minimal differences between on-premises and cloud-based infrastructure as far as security is concerned. Barring external interference, cloud-based infrastructure can be more or less secure as on-premise infrastructure. It all comes down to the practices and measures an organization employs to secure such infrastructure.
Who is the buyer (job title) for servers?
- The task of buying servers for a company falls in the Purchases or Procurement docket. The buyer could be the Director of Procurement Services, the Purchasing Officer, the Procurement Officer, and so on.
- The point of note is that the office holder — Purchases or Procurement —is generally responsible for purchasing materials, supplies, services and equipment for the company.
EDGE COMPUTING + KUBERNETES
What types of companies (industry, avg. Size) invest in edge computing?
- Edge computing finds application across many industries today. Analysts estimate the market’s value to be US$ 4.68 billion in 2020. This market is projected to grow at a CAGR of 38.4% from 2021 through 2028. It is expected to hit the US$10.9 billion mark by 2026. Such statistics clearly indicate that investment in edge computing is growing.
- According to a market report, the Energy and Utilities segment accounted for a revenue share of 17% in 2020. Smart grids are the main drivers of growth in this segment. Further, environmental sustainability initiatives are also driving the demand for edge computing services as efforts to improve efficiency in electrical utility services and adopt renewable energy sources rise.
- The healthcare segment also contributed a significant share to 2020 revenue. Growing digitization and the increasing adoption of digital health strategies are the main growth drivers in this segment. The consensus is that edge applications and IoT will witness robust growth in healthcare from 2021 through 2028.
- The BFSI sector is also a crucial end-user segment in adopting edge computing solutions. The banking and financial industry is expected to lead the transition to edge computing due to the increased adoption of mobile and digital banking initiatives. Further, the increasing adoption of blockchain technology and mobile payments are other notable factors fueling the demand for edge computing in the BFSI sector.
- The graphic below illustrates the U.S. market size by component.
- This one illustrates the global edge computing market share by industry vertical.
How much money are companies investing in edge computing?
- Global spending on edge computing is projected to reach US$250.6 billion by 2024, growing at a CAGR of 12.5% from 2019 through 2024. The number of companies present and investing in edge computing is growing daily. For example, Hewlett Packard Enterprise (HPE) invested US$4 billion in its edge network in 2020. Other leading players in the market are following suit with high-value investments.
- For example, Dell EMC just created an IoT division to integrate services and products across the company. In line with this initiative, the company announced its plan to invest US$1 billion in R&D over the next three years.
How much money are companies investing in Kubernetes for edge computing?
- This information is unavailable in the public domain.
Buyers of edge computing and Kubernetes for edge computing
- Top companies such as Siemens, General Electric and Robert Bosch are among the leading enterprise users of edge computing.
- Kubernetes for edge computing is also rapidly gaining traction. Already, 59% of data centers use Kubernetes to improve resource utilization and enhance agility in software development. Microsoft, Linux, Amazon Web Services (AWS), Azure, and IBM are among the leading users of integrated Kubernetes platforms.
For every data point not available in the public domain, we provided high-level information with practical relevance. For example, while data on what companies are investing in servers was not available, we provided data showing the industry verticals leading in the adoption of servers on a global scale. The logic behind providing global perspectives is that the U.S. and North America dominate the server market as well as the edge computing market. We relied on the most recent data and attempted to provide as much relevant information as possible on the subject matter. However, we were not able to obtain relevant information on the investments companies are making in Kubernetes for edge computing. Further research revealed that Kubernetes is still a relatively young technological development.