Private cloud providers may be among the primary winners of today's generative AI gold rush, as CIOs are reconsidering private clouds, whether on-premises or hosted by a partner, after previously dismissing them in favour of public clouds.
At the heart of this trend is a growing recognition that in order to handle AI workloads while keeping costs under control, organisations will eventually rely on a hybrid mix of public and private cloud.
"With how fast things are changing in the data and cloud space, we believe in a hybrid model of cloud and data centre strategy," claims Jim Stathopoulos, SVP and CIO of Sun Country Airlines, who joined the regional airline from United Airlines in early 2023 and acquired a Microsoft Azure cloud infrastructure and Databricks AI platform, but is open to future IT decisions.
Controlling escalating cloud and AI expenses and minimising data leakage are the primary reasons why organisations are considering hybrid infrastructure as their AI solution. Most experts agree that most IT leaders will need to choose a hybrid approach that includes on-premises or co-located private clouds to provide cost control and data integrity in the face of AI's resource requirements and critical business concerns about its deployment.
According to IDC's top cloud analyst, Dave McCarthy, private cloud platforms such as Dell APEX and HPE GreenLake, which provide generative AI capabilities, as well as co-locating with partners such as Equinix to host workloads in private clouds, could provide a solution to enterprise customers.
“The excitement and related fears surrounding AI only reinforces the need for private clouds. Enterprises need to ensure that private corporate data does not find itself inside a public AI model,” McCarthy notes. “CIOs are working through how to leverage the most of what LLMs can provide in the public cloud while retaining sensitive data in private clouds that they control.”
Generative AI changes the cloud calculus
Somerset Capital Group is one company that has chosen to go private to run its ERP software and pave the path for generative AI. The Milford, Conn.-based financial services corporation moved data to the public cloud over a decade ago and will continue to add workloads, particularly for customer-centric apps. Somerset's EVP and CIO, Andrew Cotter, believes that the company's important data, as well as any future generative AI data, will most likely run on its new hosted private cloud.
"As we are testing and dipping our toes in the water with AI, we are choosing to keep that as private as possible," he says, noting that while the public cloud provides the horsepower needed for many LLMs today, his firm has the option of adding GPUs if needed via its privately owned Dell equipment. "You don't want to make a mistake and have it ingested or used in another model. We're maintaining tight control and storing it in the private cloud."
Todd Scott, senior vice president of Kyndryl US, recognises that AI and cost are important drivers driving organisations to private clouds.
Buying into the private cloud
Analysts believe that private cloud spending is on rise. According to Forrester's Infrastructure Cloud Survey in 2023, 79% of the almost 1,300 enterprise cloud decision-makers polled claimed their companies are developing internal private clouds that will include virtualization and private cloud management. Over a third (31%) of respondents are creating internal private clouds employing hybrid cloud management technologies such as software-defined storage and API-consistent hardware to make the private cloud more similar to the public cloud, Forrester added.
IDC predicts that global spending on private, dedicated cloud services, which comprise hosted private cloud and dedicated cloud infrastructure as a service, would reach $20.4 billion in 2024 and more than double by 2027. According to IDC, global spending on enterprise private cloud infrastructure, which includes hardware, software, and support services, will reach $51.8 billion in 2024 and $66.4 billion in 2027.
While those figures pale in comparison to the public cloud's projected $815.7 billion in 2024, IDC's McCarthy views hybrid cloud architecture as the future for most organisations in this space. According to McCarthy, the introduction of turnkey private cloud products from HPE and Dell provides customers with a private cloud that can be run on-premises or in a co-location facility that offers managed services. Private clouds may also help organisations better control their overall cloud costs, but he emphasises that both have benefits as well as drawbacks.
“Enterprises are in a bit of a pickle with this,” McCarthy added. “Security concerns are what is driving them to private cloud, but the specialised hardware required to do large-scale AI is expensive and requires extensive power and cooling. This is a problem that companies like Equinix believe they can help solve, by allowing enterprises to build a private cloud in Equinix datacenters that are already equipped to handle this type of infrastructure.”
