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Public cloud spending, competition to rise in 2023

In 2023, companies expect to increase spending on public cloud applications and infrastructure, and hyperscalers that have dominated the market will face new competition.

IT buyers will continue investing heavily in cloud products and services in 2023, but an ongoing increase in multi-cloud adoption means vendors must compete on price in a market with no brand loyalty.

Many enterprises consider cloud spending a foregone conclusion for day-to-day operations, but organizations should continue seeking better value from cloud purchases, according to analysts.

"It's like electricity now. [Cloud] runs the business," said Scott Sinclair, practice director at TechTarget's Enterprise Strategy Group (ESG). "The bulk of people are looking to spend more."

Even as cloud spending becomes a fixture in IT budgets, experts say the acceptance of public cloud spending shouldn't override usage policies and data management controls. The ubiquity of cloud services means IT buyers could benefit from a more competitive market, with many already gearing up to take advantage of this through multi-cloud adoption.

"We're always going to have data growth. We're always going to have workload growth," said Henry Baltazar, research director at 451 Research. "You need optimization in the cloud. You don't want to leave the water running."

Spending habits

In a recent survey from ESG, about 71% of 742 senior IT decision-makers from midmarket and enterprise companies expect to develop and deploy cloud-native applications in 2023 -- an increase of about 11% from 2022.

More than half of survey respondents, 59%, indicated spending on public cloud applications would increase in 2023, while 56% reported public cloud infrastructure services spending would go up this year. Only a small percentage of respondents expect public cloud spending on applications and infrastructure services to decrease -- 4% and 3%, respectively.

It's like electricity now. [Cloud] runs the business.
Scott SinclairPractice director, TechTarget's Enterprise Strategy Group

The expected uptick in public cloud spending was also reflected in data on turning to the public cloud first in 2023, with nearly 46% indicating they will use a "cloud-first" policy to deploy new apps using a public cloud service unless a compelling case is made. In 2018, only 29% of respondents used a cloud-first approach.

Companies won't be sticking to one public cloud provider either. Already, IT buyers are engaged in a multi-cloud approach, with 26% of survey takers reporting the use of two unique public clouds for workloads, 23% reporting the use of three public clouds, and 42% reporting the use of four or more public clouds.

"The bigger your budget is [and] the more transformed you are, the more you're spending," Sinclair said. "There's tremendous benefit to modernizing apps. What organizations should look at is what projects deliver the most value, and prioritize [accordingly]."

About 55% of respondents expect spending on cloud-native security to increase in 2023, with 52% expecting to make investments over the next year to protect applications and data on public cloud infrastructure.

Cybersecurity spending, however, could come without an increase in IT head count, as 33% of respondents expect a hiring freeze if their company does decide to cut IT spending in 2023. Around 30% percent of respondents also said they plan to turn to public cloud computing services to drive down IT costs as well.

"Arguably, the most expensive thing in technology is people," Sinclair said.

A graph that shows 52% of survey takers will increase IT budgets in 2023, while 18% will decrease spending, based on data from TechTarget's Enterprise Strategy Group.
Survey data from Enterprise Strategy Group on IT spending in 2023.

Along with the uptick in company spending, Forrester Research anticipates the public cloud market to be in flux heading into 2023, with increased price competition among network, compute and storage services. In a recent report, the consultancy said cloud companies such as Oracle Cloud Infrastructure and Akamai Technologies will provide competitive prices against hyperscaler AWS, which is expected to remain the dominant public cloud for the foreseeable future.

Multi-cloud adoption, spurred by offers of cheaper services, will require hyperscalers to tailor services to support technologies such as Kubernetes, according to Forrester. Hyperscalers will have the advantage of cheaper, more energy-efficient service instances for workloads such as AI as Arm microchips democratize chip development and supply chains.

Clouds keep rolling in for 2023

Other research firms and consultants echoed similar sentiments about the increase in customer spending on cloud infrastructure in the year ahead.

IT budgets might remain flat or trend lower in 2023, but IT will still be expected to meet current workload demands and even take on more, said Penny Madsen, senior research director at IDC and an author of IDC's Cloud Pulse research.

"There's been a steady decline in IT budget in proportion to revenue," Madsen said. "They're being left with smaller budgets overall."

A list of how IT departments might reduce costs in 2023 given the economic slowdown.
How companies might curtail IT spending in 2023 due to economic turbulence.

IT customers will continue investing in public clouds, even at higher costs compared with private clouds or remaining on premises, she said. Rather than shifting away from public clouds, customers will put pressure on vendor partnerships to complete stack needs.

Private clouds lack performance compared with public clouds, Madsen said, and public clouds tend to offer greater flexibility for hybrid cloud users due to pre-configured and pay-as-you-go services while also offering more data center locations for reduced latency. Customers are also seeking more managed services, moving some day-to-day upkeep challenges away from IT and avoiding the refresh costs associated with on-premises hardware.

Lee Sustar, analyst at Forrester, said enterprise customers will continue looking at ways to reduce cloud costs by turning to third-party or cost management tools, according to a 2023 predictions blog post.

They will also look to move on-premises applications to the cloud after years of the public clouds creating applications that, although built for generic consumption, can be tailored for specific workload needs, said Naveen Chhabra, analyst at Forrester.

Chris Evans, founder of analyst firm Architecting IT, said he expects partnerships and third-party tool availability on public clouds will continue to grow, given customer investment in multi-cloud and hybrid cloud adoption.

"Customers don't want to go with everything in one direction," Evans said. "It seems like [the hyperscalers] are going to have to partner with [other vendors] at certain touchpoints."

Modern finance software and updated policies to monitor spending can also better break down exact spending habits with the cloud vendors, he noted. Potential effects from global inflation will likely put more eyes on cloud spending as more applications and business workloads are conducted in the cloud.

"Nowadays, people are going through [IT budgets] with a fine-toothed comb," Evans said. "We're going to hit that now [with the cloud]."

As technology stacks solidify around a handful of applications and hardware, cloud customers should shop around, according to Marc Staimer, founder and president of Dragon Slayer Consulting. Less expensive third-party alternatives built off public cloud infrastructure exist and can provide comparable performance for specific parts of the infrastructure stack, such as databases and storage.

"Brand loyalty is not something I would do in the cloud," Staimer said. "I think the lock-in strategy is going to go away. Most of the cloud innovators and challengers are not charging egress fees for the data."

Tim McCarthy is a journalist living on the North Shore of Massachusetts. He covers cloud and data storage news.

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