Accelerating digitalisation – still on the highway to cloud heaven?

In our Q-Series report "How will the COVID-19 disruption shape enterprise usage of software & services?", we observed that accelerated digitalisation would be the key outcome of the pandemic-led disruption. We identified 4 key themes due to accelerated digitalisation - cloud adoption, remote working, DevOps, and insourcing. This report discusses results of the sixth annual digital survey of 220+ IT users by UBS Evidence Lab. Based on the survey data, software & service provider commentary and various channel checks by our technology analysts globally, we believe there is a greater likelihood of our "cloud heaven" scenario playing out in the next few years. We forecast an upside scenario for public cloud of US$730bn by 2024, a 20%CAGR from 2019, versus our base case growth of US$610bn December, and roughly 40% of tech workers (24m) working remotely by that time. DevOps-driven contracts should touch US$70bn in annual value by 2024, while insourcing spends record a relatively healthy 3.8% CAGR in 2019-24 to US$720bn.

The survey data showed that digital migration trends were indeed accelerating - the proportion of respondents either in early stage or system-wide implementation of digital initiatives rose to 76% from 63% in the 2019 survey, suggesting accelerating digital adoption in 2020. However, we did see some pressure on digital spends overall due to the sharp macroeconomic dislocations, with impact more pronounced in the retail and manufacturing spends while banking was relatively stable. Overall, the survey data points to improved digital momentum ahead, though the pace/ timing of the recovery might depend on the extent of budget revival in 2021 and beyond. The intent to migrate to public cloud was strong, and 43% of respondents saw no change to their cloud migration plans in 2020. However, the remaining responses were evenly divided between those who saw delays in cloud migration and those who saw their organisations accelerate spends on cloud. This is consistent with the channel checks conducted by our software analysts, who believe material acceleration in cloud spends could still be a few quarters away. Still, for those already migrating to cloud in their organisations, we noted a 4-6 month step up in migration pace between 2019 and 2020 responses.

Of the four key trends we have identified, we expect cloud migration to lead in terms of adoption timelines, based on our research, as well as the survey responses. We expect DevOps and insourcing to pick up more gradually; we have had greater pushback on our view that increased insourcing would be a longer-term trend that picks up in the post COVID-19 world. In-house customer spends in India, which we view as a good proxy for insourcing trends, have remained largely stable in the past few iterations of the survey as well as in 2020. A larger proportion of respondents (46%) continue to see plenty of scope for their in-house capabilities in India to expand, which signals a greater propensity for insourcing trends, in our view.

We see a good chance of our "cloud heaven" scenario playing out in the next few years, although it might take a few more quarters as spends overall need to pick up for cloud adoption to accelerate.