There are two diverging narratives taking shape in the cloud ecosphere.
An economic downturn, interest rate hikes and high levels of inflation led to market conditions that favor spending cutbacks and workforce reductions.
At the same time, companies remain committed to moving forward with digital transformation, a strategy that requires more resource investment and capital in order to gain or retain a competitive edge.
While these goals may be in tension, they are not mutually exclusive. Opinions differ on how enterprises can gain the most value from tech spend, but most companies view dollars spent on cloud as a net benefit — a path toward efficiency and revenue growth.
“If you do things right, you are going to get more bang for the buck in the cloud, more innovation more rapidly,” said Harish Grama, global cloud practice leader at the IT infrastructure service provider Kyndryl.
Here are three trends that will impact cloud strategies in 2023.
CIOs guided businesses through the last crisis in 2020, John-David Lovelock, distinguished VP analyst at Gartner, told CIO Dive. Organizations are once again loosening the purse strings, turning to their CIOs, giving them more resources to “help other departments save money,” Lovelock said.
More than three-quarters of senior finance leaders plan to increase or maintain investments in digital technologies this year, according to Gartner.
CFOs are urging internal stakeholders to double down on the move to cloud because they see it as a competitive advantage, a way to get a leg up given current macroeconomic conditions, Sid Nag, VP analyst at Gartner, told CIO Dive.
Overall IT spending is projected to grow 5.1% globally in 2023, with a bulk of new investments going into cloud technologies, according to Gartner.
Worldwide spending on public cloud alone is expected to reach $591 billion this year, a 20.7% uptick from 2022’s $490 billion, Gartner forecasted.
As IT budgets increase, so will cloud spending. Even if budgets decrease, cloud has earned immunity.
“Companies do want to consolidate spending,” Lee Sustar, principal analyst at Forrester, said. “They may wind down on-prem or cut back on some investments, but so long as cloud is synonymous with modernization, they will continue to spend on cloud.”
FinOps finds its footing
The proliferation of “as a Service” capabilities and features has made cloud convenient and, when not carefully managed, expensive.
FinOps, a data-driven approach to cloud cost management, encompasses strategies and technologies that allow companies to track and optimize spend in complex hybrid multicloud ecosystems.
As hyperscalers compete for market share, they’re offering customers a growing menu of features.
“Buyers are very confused,” Nag said. “It’s cloud one day, edge computing the next day, and then it’s 5G, it’s AI and ML, it’s IoT, it’s analytics. This is endemic across the industry.”
Simply managing data costs has become a pain point for many companies, according to a September Coleman Parkes survey commissioned by Dynatrace, which found three-quarters of senior IT leaders struggle with data oversight across cloud-native and multicloud environments.
Drawing on concepts central to DevOps — agility, continuous integration and shorter deployment cycles — FinOps aligns financial governance with on-demand nature of public cloud.
Liberty Mutual saved an estimated 20% on cloud expenditures last year by deploying FinOps strategies and set a goal to reduce annual IT spend by one-quarter by 2024, according to Angela “AJ” Wasserman, product owner of cloud financial operations at the insurance company.
“Three-quarters of the clients we're talking to right now have some type of cost management FinOps or cost monetization initiative underway,” Paul Sussex, Americas digital and financial services cloud leader at consulting firm EY, told CIO Dive. “Businesses have come a long way in a short amount of time because costs were getting astronomical.”
Industry verticals gain ground
Hybrid and multicloud are the new normal. Even the big three hyperscalers — AWS, Google Cloud and Microsoft Azure — have acknowledged multicloud through partnerships designed to facilitate hybrid environments.
As the hyperscalers continue to consolidate market share, industry verticals represent a new frontier for growth. AWS signaled its commitment to industry cloud in November with the release of a new cloud training game aimed at financial services.
IBM, the mainstay of the mainframe, is leaning into industry verticals to stay competitive in the cloud market. Banking and insurance — industries the tech company has traditionally served through its on-prem business — have been at the forefront in the IBM strategy, Brent Ellis, senior analyst at Forrester, told CIO Dive.
Financial services companies are prime candidates for industry cloud solutions both because of the size of the sector and the security and compliance requirements of companies operating in that space.
Other sectors are on the industry cloud radar, including healthcare, telecom and manufacturing, according to Nag.
There are two approaches to building industry-specific cloud products, Ragu Rajaram, global cloud consulting leader at EY, told CIO Dive. One is built on top of hyperscaler infrastructure, the other is a platform built within a private data center.
“With the industry cloud that Microsoft or AWS offers, you're bound to using its features and functions, and it gets you to market really fast,” Rajaram said. “But others are looking at industry cloud that is agnostic of the underlying cloud service provider.”
Both approaches are being adopted as companies continue to invest in cloud. Gartner predicts that by 2027 more than half of enterprises will use industry cloud platforms to accelerate business initiatives.