Source: The data center/S&P Global/S&P Global Media Portal.
Most organizations say public cloud storage use is cutting into on-premises storage budgets, making cost reduction more important than ever. Organizations expect average annual data growth of more than 30%, and data management across cloud environments has become increasingly challenging. Additionally, data sovereignty requirements are driving organizations to increase spending for both on-premises storage assets and public cloud storage services, according to a study conducted by 451 Research from S&P Global Energy Horizons.
The Take
Organizations are bracing for a significant surge in data under management, with average expected growth of 31% for the next 12 months — up from 29% a year ago and markedly higher than the 23% anticipated in 2024. Rising operational costs, challenges in managing data stored with third parties, and steep capital expenditures associated with on-premises storage are compelling organizations to adopt automation and optimization strategies such as tiering to curb waste. While on-premises budgets are projected to expand by an average of 28% in 2026, increased public cloud use is beginning to cut into this spending: 62% of respondents say cloud storage service costs are encroaching on their on-premises allocations. Additionally, data sovereignty concerns are driving investment in both on-site and cloud storage, with enhanced encryption and security protocols emerging as key mechanisms.
Summary of findings
Rapid data growth remains organizations’ top storage issue, cited by 48% of respondents. In our Storage, Budgets & Optimization 2026 study, respondents on average project 31% growth in their data under management over the next 12 months. This marks a slight increase from 29% in the 2025 survey and a significant rise from 23% in 2024. High operational costs (31%), managing data stored with third parties or in cloud environments (30%) and high cost of storage on a capex basis (30%) are also top pain points.
Budgets for on-premises storage continue to increase, but optimized spending remains essential. Expected budget growth for 2026 averages 28%, in line with projections for 2025 and higher than the 24% expected in 2024. Nevertheless, organizations cannot afford waste in the current financial environment; increased use of automation and optimization, such as tiering, will be required to keep storage spending under control.
Increased public cloud usage is driving a reduction in on-premises storage spending. Nearly two-thirds (62%) of respondents say public cloud storage costs are cutting into on-premises spending, up from around 40% in previous years’ studies. Cloud-based data protection, used in hybrid or cloud-only deployments, has been favored over on-premises-only deployments for several years, driving the trend toward cloud storage spending.
Cost concerns and organizational resistance are top barriers to StaaS adoption. Though 57% of respondents say they have deployed storage as a service (StaaS), a few challenges are preventing wider adoption. Nearly two-thirds (61%) of respondents who are not planning to deploy StaaS say their internal staff can manage storage at lower costs than vendor-provided services, while an additional 44% say there is organizational resistance to change. A third of respondents who are not deploying StaaS say their organization prefers using capex to acquire storage systems, while an additional 7% say their procurement processes do not allow StaaS purchases. A further 16% of those not adopting StaaS express doubts about the speed of capacity expansion.
Data sovereignty is an important objective for most organizations, driving increased spending for both on-premises and cloud storage. Nearly all respondents say data sovereignty is either “critically important” (32%) or “very important” (60%) to their organization’s overall data management and compliance strategies. A large share of respondents say data sovereignty efforts have led to significant increases in storage spending, both on-site (29%) and in public cloud (35%). A quarter of respondents expect data sovereignty requirements to drive a substantial increase in data storage spending in the next 24 months. Two-thirds of respondents (65%) say they are using or considering enhanced data encryption and security protocols to meet data sovereignty requirements.
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