Cloud spending defies tough times in technology

A funny thing happened on the way to the recession at the start of this year. Companies spent more on cloud computing.

Infosys surveyed 2,500 executives in April 2023, when economic forecasters and business commentators repeatedly asserted that a global recession was imminent. Economic signals and tech company layoffs gave good reason to anticipate this.

And yet two-thirds of companies increased cloud spending in that time. What’s more, four out of five said they would further increase cloud spending in the year ahead.

What did these companies know that economists and tech bosses didn’t?

First, cloud works well for big business, and business leaders want more. Nearly three-quarters of respondents (73%) said their cloud migrations have been very effective or extremely effective.

Second, cloud is working well in new ways. Cloud allows companies to dynamically add new capabilities, which stokes further new demand. It still is used to replace outdated systems, but companies said they were just as likely to use cloud to pursue new revenue streams, access new technology or integrate subsidiaries/new acquisitions, Cloud Radar 2023 found.

This held true across industries and across regions. Of the seven industries surveyed, healthcare, banking and high tech firms were slightly more likely to have increased spending last year. In terms of spending next year, four out of five companies increasing spending held for all industries, except telecom, where it stood at three out of four.

Overall 57% of survey respondents who answered both questions increased spending in the past year and intend to do so next year. Only telecom and automotive/manufacturing firms landed slightly below that proportion, with 54% of firms in those two industries increasing spend over both terms.

European companies were more resilient with their cloud spending than the rest of the world, particularly in Germany and the Nordic region, including Norway, Sweden, Finland, Denmark and Iceland. Some 64% of European companies increased cloud spending in the last year and intend to do so in the year ahead, compared with 49% of companies based in the rest of the regions surveyed.

British companies were the least likely European group to spend more in cloud, with 54% of those surveyed intending to spend more in both periods. British businesses in the survey averaged $28 million a year in cloud spending, lower than the survey average of $33 million, and trailing, leaders in the US ($43 million a year) & France ($41 million a year).

Complexities could develop into downside
Cloud works well, companies want more, and cloud enables growth. But there is possibly an emerging dual downside.

Executives surveyed for Cloud Radar expressed relatively lower confidence in their ability to monitor, predict, and optimise future cloud costs. This is rooted in the dynamic nature of modern cloud.

Companies have a more nuanced view of the performance and capabilities different cloud providers can deliver. For example, certain cloud providers have a reputation for handling large quantities of data more efficiently, and others excel at interoperating with standard business applications. That influences cloud choice decisions & leads most companies to a complex hybrid multi-cloud architecture.

When Infosys conducted its first in-depth study of cloud in 2021, multi-billion-dollar enterprises typically used two or three cloud providers. This year, 65% of companies use three or four cloud providers. That’s up from 37% in 2021. What if a company wants to keep it simple? Use a single cloud provider for all its needs? That’s grown more difficult. Only 7% of respondents claimed to rely on a single cloud.

In the UK, 75% of companies responding use three or four providers, and only 3% claim to use a single cloud.

This vendor complexity makes for a more complicated cloud bill.

And while companies express low confidence in predicting spending, they also struggle to use the cloud they’ve already committed to.

Major cloud providers also reflect this gap between cloud commitment & migration in their financial reporting in the form of revenue backlogs or unearned revenue. When we account for the 12 cloud providers and cloud service providers in our survey, we identified $321.4 billion in unused cloud commitments. While this does not indicate a near-term problem, companies that fail to meet their cloud contracts stand to face higher costs as cloud providers renegotiate contracts.

Cloud is delivering for growth and innovation. The challenge facing business and tech leaders now is optimising usage of cloud committed to & establishing controls to predict and manage spending.

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Umashankar Lakshmipathy, EVP and Co-Head of Cloud and Infrastructure Services (CIS) at Infosys, is a Global Executive with 28 years of IT experience driving significant growth across global markets for a variety of industry segments in IT outsourcing. In the last 17 years, he has been based in London and has had the opportunity to successfully build a European business footprint for two of the top five Indian System integrators. He has been a performance-driven leader, building strong teams across North America, EMEA and APAC and working with a wide variety of individuals both within his organisation and across partner ecosystems. He has always believed in strong client focus and delivering their outcomes, and this has helped him set up large global client relationships.

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