In March 2012, Gartner analyst Jim McGittigan argued that the financial side of moving to the public cloud held some unexpected roadblocks, and that the shift from capital to operating expenditure was not one of the real ones. The opex versus capex debate over public cloud and on-premises systems was already old by then. His concern was that finance-related obstacles could stop an enterprise making the right decision.
Why did finance get in the way of cloud decisions?
McGittigan’s starting point was that a public cloud is a service and generally needs no capital purchase. He noted that the yearly cost of a cloud environment was often equal to, or lower than, the yearly operating cost of a comparable on-premises setup. In that case, he said, financial barriers had to be dealt with deliberately, or the decision would not serve the business.
How big was the cloud market in 2011?
Gartner estimated the worldwide public cloud market at US$89 billion for 2011, with a five-year compound annual growth rate of 19%. Against a forecast of US$2.6 trillion for all IT markets that year, cloud was only 3.5% of the total. Gartner expected cloud services to reach 5.9% of the market in 2015.
| Gartner figure (2012 analysis) | Value |
|---|---|
| Public cloud market, 2011 forecast | US$89 billion |
| Five-year compound annual growth | 19% |
| Cloud share of IT market, 2011 | 3.5% |
| Forecast cloud share, 2015 | 5.9% |
Was cloud pushing IT spending towards opex?
Gartner’s IT Key Metrics Data showed operating expenditure rising across industries from 71% of total IT spending in 2007 to 74% in 2011. McGittigan said cloud adoption explained only part of that rise.
He pointed to other causes behind most of the increase:
- a clampdown on capital spending during the economic downturn;
- changes in company policy on capitalisation thresholds;
- wider and more effective use of operating leases.
He expected the opex share to keep climbing as cloud adoption continued. He also said the net effect of cloud on the opex and capex mix was hard to project. Some forces could push the other way. Cash accumulated over several years might be released to buy IT assets that were badly needed. A proposed U.S. accounting change also threatened to end off-balance-sheet operating leases.
Should the opex and capex mix have stopped migration?
McGittigan’s answer was no. He ran a deliberately extreme scenario in which all of the projected growth in cloud spending to 2015 was a dollar-for-dollar move from capex to opex. Even then, the opex share would rise only from 74% to 76%, assuming nothing else changed. That is less than two-thirds of the rise recorded over the previous four years, from 71% to 74%.
His conclusion was that worries about a material shift in the IT opex and capex mix were unwarranted. In his view the mix should not inhibit adoption of cloud-based services.
How did cloud spending develop afterwards?
The market grew far beyond the 2011 base. Gartner forecast worldwide end-user spending on public cloud services of US$723.4 billion in 2025, up 21.5% from US$595.7 billion in 2024. Its forecast for 2026 was about US$850 billion, growth of 21.3%. Gartner attributed the 2026 growth to demand for AI integration, and projected the market would reach US$1.48 trillion by 2029.
The 2026 figure is almost ten times the US$89 billion forecast for 2011. Gartner’s definitions have changed over the years, so the comparison is only a rough guide to scale.
The region now has its own forecasts. Gartner projected that end-user public cloud spending in India would grow 28.1% in 2026, to US$17.5 billion. The same research firm put Australian organisations’ public cloud spending at more than A$33 billion in 2026. Gartner also expected sovereign cloud IaaS spending to reach US$80 billion worldwide in 2026, with mature Asia/Pacific among the fastest-growing regions at 87%.