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Reports States: For Every Dollar Spent on AWS, at Least $3-4 are not Spent on Traditional IT.

According to a report by Baird Equity Research Technology entitled: AWS and the Case of Evaporating Legacy IT Budgets, “Cloud services will drive a shrinking I/T spending pie. As companies increasingly replace server and networking infrastructure with cloud services, we see a meaningful direct impact on existing hardware and software vendors. We estimate that for every dollar spent on AWS, there is at least $3-4 NOT spent on traditional I/T, although this ratio will likely expand further with greater scale. In other words, AWS reaching $10 billion in revenues by 2016 translates into at least $30-40 billion lost from the traditional I/T market.”

While these number seem a bit aggressive, the reality is that the rise of public cloud computing is indeed having a direct affect on the hardware and software market.  Those in enterprise IT are freezing the market to some extent as they take a wait-and-see position, and avoid the purchase of hardware and software products.

We are seeing the sea change begin now.  By 2015, hardware and software providers will either figure a way into the emerging cloud computing market.  Or, they will be on their way out.

It will be interesting to see how the larger players adapt, or not.  Oracle, IBM, and HP, for instance, might find their way into the cloud computing market, but they will have much lower margins and revenue, considering that IT will be able to do much more with much less.  That is, if you believe this report.