Save our servers: The next extinction begins

Everyone loves the cloud. You can’t go to a user convention like this week’s Oracle OpenWorld without being absolutely barraged with talks, pitches, demonstrations, and handouts aimed at convincing you that the entire future of IT is floating far above the skyline. One message, of course, is that a business can save big bucks by outsourcing its infrastructure to public clouds built and hosted by the likes of Oracle and Amazon.com, not to mention Hewlett-Packard, Rackspace, and many others.

What surprises me, though, is the failure of so many cloud mavens to ask a very simple question: What effect does the cloud have on server sales? I believe the answer to that question is one word: damage.

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IDC, for example, is forecasting flat server sales over the five-year period that began in 2011. Worldwide revenue will grow by just 1 percent a year as revenue goes from $56.6 billion in 2011 (and $55.6 billion in 2012) to $59.5 billion in 2016. Gartner’s figures are sobering as well. Cloud revenue is expected to rise 19 percent in 2012, becoming a $109 billion industry compared to a $91 billion market last year. But server revenue will increase by less than 1 percent, from $52.8 billion to $53.3 billion, while spending in the overall IT market will increase by just 3 percent.

Simply put, the cloud is drowning the commodity hardware makers, as tablets and PCs have already begun to do to PC makers. Traditional hardware makers are in trouble as the world changes around them.

Ultrabooks tanking, too It’s not just the cloud that’s keeping the CEOs of traditional hardware makers like Acer, Dell, and HP up at night. The rapid growth of increasingly powerful tablets and even smartphones is rapidly eating into sales of PCs — and their makers have yet to find an answer to that shift.

Ultrabook sales, seen as a remedy to eroding sales of traditional PCs, are bad and getting worse, an outcome that we at InfoWorld predicted from the beginning. IHS, which follows PC shipments, just cut its forecast for Ultrabook shipments in 2012. IHS (once known as iSuppli) said it expected that 10.3 million Ultrabooks would ship worldwide this year; that is less than half the 22 million units it had forecast earlier.

“There once was a time when everyone knew the ‘Dude, you’re getting a Dell’ slogan. Nowadays no one can remember a tag line for a new PC product, including for any single Ultrabook,” says Craig Stice, a senior principal analyst for compute platforms at IHS. “So far, the PC industry has failed to create the kind of buzz and excitement among consumers that is required to propel Ultrabooks into the mainstream. This is especially a problem amid all the hype surrounding media tablets and smartphones.”

Interestingly, the MacBook Air, the inspiration for the Ultrabook, continues to sell well for Apple.

As to Stice’s point about tablets and smartphones, consider this: On Monday, the Pew Center for Excellence in Journalism, in a report on online news consumption, said that half of American homes owned a smartphone or a tablet. “Over the last year, tablet ownership has steadily increased from 11 percent of U.S. adults in July of 2011 to 18 percent in January of 2012,” according to PEJ data. Currently, 22 percent own a tablet and another 3 percent regularly use a tablet owned by someone else in the home.

While most pundits obsess over the war between iOS and Android in the mobile market, it’s also important to consider who’s making those tablets, regardless of the operating system. It’s not the PC makers. The lion’s share of sales belongs to Apple, Samsung, and Amazon.com.

I suspect that the Pew study may exaggerate the number of people who own a tablet. I live in San Francisco, one of the most connected cities in the country, and I don’t see quite that many tablets in the hands of my fellow urbanites. But by any measure, tablet sales are exploding, and it’s no longer possible to believe the tablet is merely a companion to a PC.

A transition, not a cataclysm As worrisome as these numbers are for hardware makers, it would be wrong to predict an outright collapse in server sales, says Gartner analyst Ed Anderson. “Enterprise organizations will continue to need computing power. The only change here is that instead of purchasing their own systems, they will purchase computing capacity through cloud vendors,” he tells me.

However, cloud vendors will be much more efficient in their use of their server farms, because of the cloud attributes of multitenancy, server virtualization, provisioning, and orchestration capabilities, he adds. “The more efficient use of servers by cloud providers will mean that overall, utilization rates for servers will go up, which means that we won’t need as many of them to perform essentially the same work.”

There’s also a somewhat contradictory trend that my colleague David Linthicum pointed out this week: There’s simply not enough innovation by cloud providers, and that’s slowing adoption, he argues. He may well have a point, but how much that will slow cloud adoption is debatable. Anderson says growth in cloud infrastructure services (IaaS) “is impressive, ranging from 44 percent to 48 percent annual growth over the next couple years.”

That money is coming from some place, and companies that lay out so much cash for IaaS are not likely buying many servers of their own. To her credit, Meg Whitman, the CEO of struggling Hewlett-Packard, isn’t just whistling in the wind — she’s pushing hard to gain traction in cloud services and other areas, such as tablets, where HP is weak. But it’s getting very late for traditional hardware makers, and Whitman yesterday warned Wall Street that the company’s outlook is still rocky.

And as I saw at OpenWorld, Oracle’s cloud efforts are already in high gear. The database giant is creating a cloud service that lets companies rent processing power, storage, database software, and business applications and even run them from within their own firewall.

Traditional hardware makers are going to have run very fast to keep up.

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This article, “Save our servers: The next extinction begins,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.