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Is cloud spending set for a fall?

Fri 24 Jun 2022

The news that spending on leading cloud platforms, namely Amazon Web Services (AWS), Microsoft Azure and Google Cloud, fell this April compared with Q1 has led to concerns that this may be the beginning of a sustained period of instability.

According to an Insider report, AWS saw its market share decline by around 4%, Microsoft fell by 2% and Google dropped by 8%.

Retail analysts at Morgan Stanley also said that there could potentially be a slow down in cloud-computing spending, as reported by Barron’s. With the wider global economic environment showing signs of turbulence, and businesses looking to reduce costs, some believe that cloud spending will be one of the first areas to see cost cutting measures.

Costly commitment

Major companies can spend upwards of a million pounds a month on cloud-computing costs, with this figure only set to grow as firms such as Google have announced price increases. Increasing costs can be expected to cause some firms to rethink their cloud requirements and may even lead to some turning to on-site infrastructure.

According to Flexera’s most recent State of the Cloud survey, a great deal of cloud computing goes to waste. Only 68% of respondents said that their cloud expenditure was being used efficiently, leaving 32% of cloud spending being wasted. If businesses made it a priority to find cloud spending inefficiencies and remove them, it is clear that cloud providers could see an acute fall in revenue.

the increasing popularity of AI, machine learning and the metaverse will see more and more enterprises shift spending to cloud providers

The same Flexera report also found that the top cloud initiative across all organisations this year is to optimise existing usage of cloud to result in cost savings, with 59% of respondents saying they would be pursuing this goal.

In the short term, businesses are facing pressures in an increasingly volatile global economic system and may forgo embarking on cloud migration plans that would be beneficial in the long term, but expensive in the near future.

As organisations are forced to make tough choices around where to cut costs and where to maintain investment it is not impossible to see some businesses make the decision to either delay or eliminate cloud computing spending to balance budgets.

Solid fundamentals

There is no question that if the operating environment for businesses gets worse in the near future that many solutions and services, including cloud computing, will face a revenue hit. However, computing needs are rapidly growing across the world, which can only bolster the position of cloud providers. In addition, the increasing popularity of AI, machine learning and the metaverse will see more and more enterprises shift spending to cloud providers.

A recent report also found that cloud spending is forecast to continue to enjoy strong growth until at least 2026. IDC expects spending on compute and storage cloud infrastructure to grow at 12.6% per year until 2026 to reach revenue of $133.7 billion in 2026.

As companies that have made the shift to cloud computing continue to communicate to other businesses the benefits they have enjoyed thanks to embracing cloud computing, it is difficult to see firms that have not made this shift fail to make this transition themselves.

The benefits cloud computing can bring enterprises have been proven time and time again, especially in the Covid-19 era

Workers have experienced flexibility in work practices since the beginning of the Covid pandemic with collaboration efficiency and ease of working from anywhere being two of the key goals for many businesses during this shift.

Due to the ability of cloud computing to facilitate the use of powerful technologies and innovations for the workforce, even a relatively high cost cloud computing agreement may pay dividends in the form of motivated staff who are able to collaborate well with colleagues.

Unique period

One of the potential reasons for the dip in cloud spending at some leading cloud platforms is simply that many organisations over invested in cloud services during the pandemic and a correction is now taking place. In the initial months of the Covid pandemic, businesses of all kinds quickly had to shift their staff management online, from the physical office.

This almost overnight transition saw cloud computing platforms explode in popularity due to their ability to offer clients almost zero downtime or unexpected interruptions to operations. Now that employees are returning to the physical office, some of the cloud budgets may be being reassessed as companies seek to only pay for the cloud computing that they use.

Despite the many challenges that cloud computing needs to contend with in the coming years, including uneasy economic conditions and the drive to cut costs, the fundamentals of cloud computing remain very strong. The benefits cloud computing can bring enterprises have been proven time and time again, especially in the Covid-19 era.

While some changes may occur in the market place, with multi-cloud approaches becoming more common due to pricing advantages, it is likely that cloud spending will remain on the up and up for the foreseeable future.

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Cloud spending
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