Inflation will help push cloud spend upward in 2023, according to a Gartner report released on Monday.
Spending on public cloud is expected to hit $591 billion next year, up 20.7% from this year’s $490 billion, Gartner forecasted.
The drive to save through cloud efficiency is running up against the drag of rising costs, creating a push-and-pull dynamic. “Organizations want the benefit of cloud, but they can only spend what they have,” said Sid Nag, VP analyst at Gartner.
Higher energy costs, a tight labor market and global supply chain disruptions are three big budgetary bugaboos driving inflation and pushing companies to trim budgets.
At the center of the macroeconomic storm, cloud looms large as both an area for increased savings and spending, according to Nag.
The 20.7% increase in cloud spend forecast by Gartner, an uptick of almost two percentage points over 2022's growth rate of 18.8%, reflects inflation’s push-and-pull impact.
Software, infrastructure lead forecast cloud spending increases
Companies have learned that cloud, when strategically deployed, can be a cost saver. But even cloud is susceptible to inflation.
On one side of the equation, the cost of cloud services and tech talent have gone up, Nag said. On the other, the inflation rate, which Gartner forecasts to be 6.5% heading into next year, has outpaced the 5.1% rate at which IT budgets are expected to grow.
The net result is less buying power, or more dollars spent for each cloud service — not all of which are created equally.
Cloud infrastructure services, or IaaS, will experience the highest end-user spending increase, according to the report, achieving a growth rate of 30%.
In contrast, cloud application infrastructure services, or PaaS, and software services will experience more modest growth of 23.3% and 16.8% respectively.
There’s push-and-pull between SaaS and PaaS as well, Nag said. Software services require companies to have skilled technicians on staff, while PaaS includes automation technologies that can reduce staffing needs.
The big cloud companies have already signaled their intention to reduce customer costs, despite declining revenue growth.
AWS is “working with customers to lower their bills,” Brian Olsavsky, Amazon’s CFO, said during the company’s Thursday earnings call. Microsoft CEO Satya Nadella said Azure is helping customers “do more with less” during a Tuesday earnings call. And Sundar Pichai, Alphabet’s CEO, touted Google Cloud’s cost-saving advantages during a Tuesday earnings call.
Companies that have adopted cloud are not likely to leave cloud, Nag said. Instead, they will be able to take advantage of the cloud consumption model, lowering CapEx while extending operation expenses through “as a Service” subscriptions.