Global public cloud spending to hit nearly $600bn by 2023 as demand continues to grow

Global end-user spending on public cloud services is projected to approach the $600 billion mark in 2023, but inflationary pressures would dictate how much growth the industry will be able to carve out, a study from Gartner showed.

The market, where demand grew as the consumption of data significantly increased during and after the Covid-19 pandemic, is expected to be valued at more than $490bn in 2022, and is forecast to jump almost 21 per cent to about $592bn next year, the US-based research firm said in a report on Wednesday.

But inflation, which has remained high globally, and its domino effects can potentially challenge the ability of organisations to invest in the cloud, Sid Nag, a vice president analyst at Gartner, wrote in the study.

“Current inflationary pressures and macroeconomic conditions are having a push and pull effect on cloud spending,” he said.

The adoption of cloud technology is growing because of the rise in data consumption and evolving economic and societal landscapes that have become increasingly digital.

The global cloud computing market was valued at $368.97bn in 2021 and is projected to grow at a compound annual rate of about 16 per cent from 2022 to 2030, with emerging technology such as artificial intelligence and machine learning among its primary drivers, according to Grand View Research.

Chief information officers, who are largely responsible for overseeing an enterprise's IT infrastructure and manpower, including access to services such as the cloud, also have the duty to factor in the potential effects of inflation.

Global inflation, which has spiked to four-decade highs this year, is expected to rise to 8.8 per cent in 2022 but is expected to fall slightly to 6.5 per cent next year, the International Monetary Fund said last month.

CIOs have three options on how to deal with it — spend the same and do less, spend more and do the same, or try and optimise resources in order to spend the same and do the same, Gartner said in a separate analysis.

To prepare for rising costs, "CIOs must first look at inflation through a business lens ... while the total impact of inflation is difficult to forecast, CIOs must begin planning for IT impacts", said Robert Naegle, a vice president analyst at Gartner.

"One of the most immediate effects of inflation felt by CIOs will be vendors implementing, or preparing for, price increases that will impact IT budgets ... CIOs should identify IT contracts that have high exposure to inflation."

The cloud application services vertical, or software-as-a-service (SaaS), is projected to take the biggest chunk of spending next year, expanding almost 17 per cent to $195.2 million in 2023 from $167.1m this year, the Gartner report showed.

SaaS and cloud application infrastructure services, or platform-as-a-service (PaaS), are seen to absorb the most significant impacts from inflation, primarily due to staffing challenges and the focus companies will put on protecting their margins, Gartner said.

But with PaaS working hand-in-hand with SaaS, the segment is still expected to post continued growth in 2023, with spending to rise more than 23 per cent to $136.4m from $110.7m this year, it said.

“Higher-wage and more skilled staff are required to develop modern SaaS applications, so organisations will be challenged as hiring is reduced to control costs,” Mr Nag said.

“But since PaaS can facilitate more efficient and automated code generation for SaaS applications, the rate of PaaS consumption will consequently increase.”

Percentage-wise, cloud infrastructure service systems, or infrastructure-as-a-service (IaaS), are seen to post the biggest gain next year, growing almost a third to $150.3m from $115.7m in 2022, it said.

“Cloud migration is not stopping. IaaS will naturally continue to grow as businesses accelerate IT modernisation initiatives to minimise risk and optimise costs," Mr Nag said.