Converged Infrastructure And The $299 Billion Data Centre Market

Data Centre Spending Highlights Q2 2012

• Total spending was $299 billion in year to June
• Internal staffing cost $141 billion – 47.4% of the total
• Servers cost $40 billion (13.5%) – IBM led with 24.9%
• Networking cost $30 billion (9.9%)– Cisco dominated with a 55.3% share
• Storage systems accounted for $30 billion (9.9%) – EMC led with a 19.8% share
• Infrastructure software was 6.0% of spending and growing
• Other spending includes Telecom and IT services, Power and cooling
• Vendors are grouping for converged infrastructure business

We have been talking to a number of vendors about converged infrastructure over the last few weeks and realised that we’ve never even seen a sizing of the world’s data centre spending – therefore we thought we get the ball rolling by proposing something.
It’s certainly a non-trivial task, involving cutting data sets in numerous ways. This is what we did:

• Our base research was our sizing of server, external storage, enterprise networking (routers, switches, etc.), and software markets
• We constantly update our estimates for all offerings by business type and size – for this exercise we selected sales to medium and large companies (those with more than 100 employees)
• We excluded sales of networking to service providers and disk drives, leaving us with an estimate of sales to enterprises
• We estimated the spending on power and cooling, IT services (implementation, planning and support) and telco services (ISDN, broadband, MPLS, etc.)

We concentrated on the amount data centres (locations with raised floors and locked doors) spent – excluding equipment used in less formal ROBO or office locations. We present our indings for the first time here and would welcome any feedback you have on how accurate you think we have been. It is our intention to refine the model going forward and, as with our other areas of research, forecast speding in this area in time.

Data Centres Spend Half Their Money On Internal Staff

The largest amount spent by data centre users is on internal staff (see Figure 1), which we estimate as 47.4% of total spending in the year to the end of June 2012. Suppliers address these high ongoing costs by offering automation, such as virtualisation and system management software to be shared by infrastructure managers and server, networking and storage specialists. They also propose converged infrastructure (either from their own resources, or in partnership with other vendors), giving users ‘one throat to choke’ in managing their vendor relationships.
The changing spending is shown in Figure 2 (where we’ve excluded internal staff costs). Overtime the unbundling of servers from the mainframe and Unix systems typically being used at the beginning of the review period has resulted in increasing spending on storage, networking and infrastructure software. This dis-aggregartion is now being addressed by converged infrastructure selling.

Cisco Is Top Vendor For Data Centre Hardware And Software

We have built our view of spending from numerous estimates of vendor revenues, enabling us to look at market shares (see Figure 1). Adding all IT hardware and infrastructure software together we can reveal that Cisco is currently the top vendor (Figure 3), largely due to its dominant position in enterprise networking. HP and IBM have strong shares, although they were badly affected by the shift away from server-centric spending at the beginning of the review period. EMC, VMware and Cisco combine together as VCE of course, however that spending is only a small part of their parent data centre revenues.

Some Conclusions – Groupings For Converged Infrastructure Business

This is a massive market offering significant opportunities to vendors who can help users re-aggregate their spending. We believe that the current phase of our industry can be described as ‘matrix integration’ – vendors are moving away from horizontal strategies towards integrated systems based on standards to help reduce the complexity of component choice and supplier management.
We view converged infrastructure as both a technical and business subject, with data centres stitching components together using reference architectures, fabric computing and virtualisation on one hand and looking for suppliers who can handle the majority of their needs. In addition to VCE, HP has built a full set of component businesses through the acquisition of 3Par, 3Com and others, while IBM has made up for its relative lack of networking through acquiring Blade Networks and retaining reseller and OEM contracts with Cisco, Juniper and Brocade. Dell is also going through a period of acquisition, setting up storage systems, software and networking businesses.
Akin to converged infrastructure strategies Telcos and enterprise networking suppliers are also grouping to take a large slice of the pie, through offering Cloud and other services to be integrated with traditional data centres.
The data centre market has been growing due to the centralisation of ITC due to better data communications. We believe the next phase of development will be standardisation, simplification and automation: unfortunately the biggest savings for users will come from the replacement of specialised internal staff. This may have a positive effect for those who can make the move from the back office –  pushing buttons – to the front – building applications – to improve the business. Centralisation will also keep employment levels up, with proportionately fewer technical staff managing increasing pools of equipment.
Please let us know if you’d like our help in making plans to address this market by contacting us using the details to the top left of this page.