Cloud spending to grow despite faltering economy

Even as enterprises attempt to tackle economic headwinds with budget cutbacks, a research report from market research firm Gartner showed that end-user public cloud spending is expected to grow in 2023.

The report, which covers categories such as infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and software-as-a-service (SaaS) among other cloud services, showed that public cloud spending is slated to reach a total of US$591.80 billion in 2023, a 20.7 per cent increase from $490.30 billion in 2022.

The 20.7 per cent growth in spending is higher than the 18.8 per cent growth recorded in 2022.

“Current inflationary pressures and macroeconomic conditions are having a push and pull effect on cloud spending," said Sid Nag, a vice president and analyst at Gartner. "Cloud computing will continue to be a bastion of safety and innovation, supporting growth during uncertain times due to its agile, elastic and scalable nature."

IaaS to outpace other services in growth

Out of all the public cloud services, IaaS is expected to see the highest growth in 2023 with spending expected to reach $150.25 billion, an increase of 29.8 per cent from $115.74 billion in 2022.

The reason for the growth, according to Gartner, is continued migration of enterprises to the cloud.

“IaaS will naturally continue to grow as businesses accelerate IT modernisation initiatives to minimise risk and optimise costs,” Nag said, adding that moving operations to the cloud also reduces capital expenditures by extending cash outlays over a subscription term.

This benefit will play a vital role during times of economic uncertainty as cash will be critical to maintaining operations for an enterprise, the analyst said.

PaaS and SaaS to grow despite challenges

SaaS is expected to grow but might see the most impact from an economic downturn due to staffing challenges and enterprises’ focus on margin protection because of inflation, according to Gartner.

“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,” said Nag.

SaaS spending is expected to reach $195.20 billion in 2023, an increase of 16.8 per cent from $167.10 billion in 2022. SaaS spending in 2021 was estimated at $146.32 billion.

Explaining the continued growth in SaaS services, Nag said that cloud spending will grow due to its “perpetual” usage.

“Once applications and workloads move to the cloud they generally stay there, and subscription models ensure that spending will continue through the term of the contract and most likely well beyond,” Nag said.

PaaS spending is expected to grow by 23.2 per cent to reach $136.40 billion in 2023 compared to $110.67 billion in 2022. The growth in PaaS services can be attributed to its ability to facilitate more efficient and automated code generation for SaaS applications, according to the market research firm.

However, despite the generally upbeat outlook, Gartner cautioned that if enterprises end up deciding to make large budget cuts, cloud spending could be affected since it forms the biggest chunk of any IT budget.

“Cloud spending could decrease if overall IT budgets shrink, given that cloud continues to be the largest chunk of IT spend and proportionate budget growth,” said Nag.

Other public cloud services such as security capabilities, business process services (BPaaS), and desktop-as-a-service (DaaS) are all expected to grow in 2023, the report showed.