Reviewing 2021 IT Cost Trends

IT Cost Management is one of the core practices at Amalgam Insights. This practice focuses on tracking both vendors and product offerings that help enterprises fight off the IT Rule of 30, Amalgam Insights’ observation that every unmanaged IT category averages 30% in bloat and waste and that this can be even greater for emerging technology areas such as cloud computing.

From our perspective, the demand for a more holistic technology expense capability has been in demand at the enterprise level since the mid-2010s and companies narrowly focused on managing telecom, mobility, software, and cloud computing as four separate IT silos will miss out on a variety of opportunities to optimize and rationalize costs.

In this practice, we tactically look at technology expense management vendors, including specialists in telecom expense, managed mobility services, cloud cost management, cloud FinOps (Financial Operations), Software as a Service management, IT finance solutions, hybrid cloud subscriptions and financing, and other new IT strategies that can lead to a minimum of 20-30% cost reduction in one or more key IT areas. In each of these IT areas, Amalgam Insights maintains a list of recommended vendors that have proven their ability to deliver on both identifying and fixing the issues associated with the IT Rule of 30, which are provided both in our published research as well as in our end-user inquiries with enterprise clients.

With that out of the way, 2021 was a heck of a year from an IT management perspective. Although a lot of pundits predicted that IT spend would go down in a year where COVID-driven uncertainty was rampant, these cost control concerns ended up being less relevant than the need to continue getting work done and the resilience of a global workforce ready and willing to get things done. In doing so, 2021 saw the true birth of the hybrid worker, one who is just as comfortable working in the office or at home as long as they have the right tools in hand. In the face of this work environment, we saw the following things happen.

The Rise of the Remote Employee – Amalgam Insights estimates that 30% of employees will never be full-time in-office employees again, as they have either moved home full-time or plan to only come into the office one or two times per week as necessary to attend meetings and meet with new colleagues and partners. Although many of us may take this for granted, one of the issues we still face is that in 2019, only 5% of employees worked remotely and many of our offices, technology investments, and management strategies reflect the assumption that employees will be centrally located. And, of course, COVID-19 has proven to be both a highly mutating virus and a disease fraught with controversies regarding treatment and prevention strategies and policies, which only adds to the uncertainty and volatility of in-office work environments.

Legacy networking and computing approaches fall flat – On-premise solutions showed their age as VPNs and the on-site management of servers became passe. At a time when a pandemic was running rampant, people found that VPNs did not provide the protection that was assumed as ransomware attacks more than doubled in the United States and more than tripled in the United Kingdom from 2020 to 2021. It turns out that the lack of server updates and insecure ports on-premises ended up being more dangerous for companies to consider. We also saw the Death of Copper, as copper wired telecom services were finally cut off by multiple telecom vendors, leaving branch offices and the “Things” associated with operational technology rudely left to quickly move to fiber or wireless connections.  Blackberry finally decided to discontinue to support of Blackberry OS as well, forcing the last of the original Blackberry users to finally migrate off of that sweet, sweet keyboard and join the touch screen auto-correct world of smartphone typers. It was a tough year for legacy tech.

Core Mobility Grew Rapidly in 2021 – Core spend was up 8% due to device purchases and increased data use. In particular, device revenue was up nearly 30% over last year with some of the major carriers, such as AT&T, Verizon, and T-Mobile (now the largest carrier in the United States). However, spend for customized and innovative projects disappeared both as 5G buildouts happened more slowly than initially expected and 5G projects froze due to the inability to fulfill complex mesh computing and bandwidth backfill projects. This led to an interesting top-level result of overall enterprise mobility spend being fairly steady although the shape of the spend was quite different from the year before.

Cloud Failures Demonstrated need for Hybrid and Multi-Cloud Management – Although legacy computing had its issues, cloud computing had its black eyes as well. 8760 hours per year means that each hour down gets you from 100% to 99.99% (4 9’s). Recent Amazon failures in November and December of 2021 demonstrated the challenges of depending on overstressed resources, especially US-1-East. This is not meant to put all the blame on Amazon, as Microsoft Azure is known for its challenges in maintaining service uptime as well and Google Cloud still has a reputation for deprecating services. No one cloud vendor has been dependable at the “5 9’s” level of uptime (5 minutes per year of downtime) that used to define high-end IT quality. Cloud has changed the fundamental nature of IT from “rock-solid technology” to a new mode of experimental “good enough IT” where the quality and value of new technology can excuse some small uptime failures. But cloud failures by giants including Akamai, Amazon, AT&T, Comcast, Fastly, and every other cloud leader show the importance of having failover and continuity capabilities that are at least multi-region in nature for mission-critical technologies.

Multi-cloud Emergence – One of the interesting trends that Amalgam Insights noticed in our inquiries was that Google Cloud replaced Microsoft Azure as the #2 cloud for new projects behind the market leader Amazon. In general, there was interest in using the right cloud for the job. Also, the cloud failures of leading vendors allowed Oracle Cloud to start establishing a toehold as its networking and bare-metal support provided a ramp for mature enterprises seeking a path to the cloud. As I’ve been saying for a decade now, the cloud service provider market is going the way of the telcos, both in terms of the number of vendors and the size of the market. Public cloud is now is $350 billion global market, based on Amalgam Insights’ current estimates, which measures to less than 7% of the total global technology market. As we’ll cover in our predictions, there is massive room for growth in this market over the next decade.

SD-WAN continues to be a massive growth market – From a connectivity perspective, Software Defined Wide Area Networks (SD-WAN) continue to grow due to their combination of performance and cost-cutting. This market saw 40% growth in 2021 and now uses security as a differentiator to get past what people already know. From an IT cost management perspective, this means that there continues to be a need for holistic project management including financial and resource management for these network transformation projects. Without support from technology expense management solutions with strong network inventory capabilities, this won’t happen.

As we can see, there were a variety of key IT trends that affected technology expenses and sourcing in 2021. In our next blog on this topic, we’ll cover some of our expectations for 2022 based on these trends. If you’d like a sneak peek of our 2022 predictions, just email us at info@amalgaminsights.com