Cloud service spending expected to rise sharply in 2023

Spending on cloud services is expected to rise by more than a fifth this year, according to a report released this week by industry analysts Canalys.

According to the report, global cloud infrastructure services expenditure increased by 23 per cent year-on-year during the previous year’s final quarter, amounting to $65.8 billion in total, marking an increase of $12.3 billion.

For the entirety of 2022, total cloud infrastructure services spending increased by 29 per cent, reaching $247.1 billion, up from $191.7 billion in 2021.

“Rising public cloud costs, fueled by inflation, are forcing enterprise customers to optimize public cloud spend after constant IT investment over the past three years in digital transformation,” the company said in its report.

“Macroeconomic uncertainties are contributing to a more conservative approach to IT budgets,” the report added, noting that “a growing number of customers are adjusting cloud strategies for greater efficiency and control”.

Regarding the way customers are altering and adapting their strategies to the new landscape, this includes assessing the repatriation of certain cloud workloads to private or co-location data centres to reduce costs.

In addition, they are also pushing for greater adoption of hybrid and multi-cloud strategies.

In 2023, the company explained, global cloud infrastructure services spending is expected to rise by 23 per cent for the entirety of the year, compared with 29 per cent in 2022.

“Enterprise customers are responding to higher cloud prices and higher-than-expected operating costs under the tough macroeconomic conditions,” Canalys Research Analyst Yi Zhang said.

“Customers that are currently on pay-per-use billing models will optimize cloud activities to reduce cloud consumption and save costs. There will also be a considerable slowdown in the take-up of cloud contracts, which will also result in a decrease in associated cloud revenue,” she added.

Meanwhile, Canalys VP Alex Smith stated that “customers are rethinking how they use the cloud in their business operations.”

“In some cases, there is a natural slowdown in computing demand as core operations see less activity, while conservative budgeting among businesses will also lead to less experimentation during the next 12 months,” Smith added.

In terms of the top cloud service providers, the three dominant players, AWS, Microsoft Azure and Google Cloud, accounted for a whopping 65 per cent of the total market.

AWS led the way with 32 per cent, followed by Microsoft Azure with 23 per cent, and Google Cloud with 10 per cent, while the remaining players in the market took the other 35 per cent.

“Azure continues to lead the hybrid computing market with Azure Arc as more customers move to hybrid cloud services. It announced that it has more than 12,000 Azure Arc customers, double the number a year ago, including companies such as Citrix, Northern Trust and PayPal,” the company explained.

“Microsoft is also placing a big bet on AI as a driver of Azure growth, following its announcement as the exclusive cloud provider for OpenAI to run its AI services including ChatGPT, and further integration with ChatGPT expected.”