6 cloud market forces impacting IT strategies today

The cloud services landscape is in constant flux. With the cloud being an inevitable part of enterprise digital transformation journeys, IT leaders must keep on top of the latest developments in the cloud market to better predict downstream impacts on their roadmaps.

Here is a closer look at recent and forecasted developments in the cloud market that CIOs should be aware of.

2023: Greater flexibility, challenging decisions

In 2023, the cloud services space — including hosting and managed and migration services — continued to experience impressive growth, eclipsing $564B in total spend. Amid that growth, a few key trends surfaced to impact CIOs’ cloud strategies, continuing to today:

More flexible consumption models

To increase spend within their ecosystems, hyperscalers marketed more flexible consumption programs to enable customers to increase their commitments, while mitigating consumption risk.

For Microsoft Azure, this took the form of increased use of Workload Commitments, rather than the traditional Spend Based Commitments. Workload Commitments allow customers to make a “soft commitment” to keeping a certain type of workload on the Azure platform, without committing to a specific monetary consumption amount. While these Workload Commitments do not always garner the highest tier of credits/incentives, it provides customers with a simpler consumption approach that avoids much of the risk of underutilization.

In addition, Azure, Google Cloud Platform, and AWS all encouraged their midtier Commitment plans — Azure Savings Plan, AWS Compute Savings Plan, and GCP Flexible CUDs. These plans are designed to lock customers into an instance/compute family for a period of one to three years while providing flexibility within that family to enable movement as business needs change.

Niche players in migration and managed services on the rise

In the cloud migration and managed services space, 2023 was a year of growth for smaller and more boutique providers as they successfully differentiated themselves from the traditional large managed service providers.

This differentiation came from technology, such as migration tools and ongoing platform management tools, and service flexibility. While resource depth and reach are an ongoing concern with these niche providers, the intellectual property they can bring to bear has helped counterbalance these concerns and create growth opportunities in 2023.

Unmanaged growth spurring rethink

While the utilization of hyperscalers has afforded organizations scale and flexibility for their critical workloads, many customers are facing runaway spend and cloud growth because of the ease of deployment. Unlike on-premises data centers, where procuring and deploying servers is a longer and more thought-out process, hyperscalers provide near-instant deployment options, giving IT organizations the ability to spin up workloads at any time as needed.

The result is that many customers are seeing unoptimized cloud environments, with spend that often eclipses their legacy on-premises environment. Companies such as X (formerly Twitter) are taking drastic steps to reduce their runaway cloud spend, including migrating workloads out of the cloud and onto on-prem data centers.

2024: AI in force, strategies evolve

2024 will continue to see accelerated growth for the cloud services market, with spend predicted to reach $679B this year. Several key trends will drive this increased growth for 2024, including the following:

Generative AI everywhere

As generative AI continues to mold and transform IT, cloud hosting providers will continue to infuse these new capabilities into their service offerings. The growth of AI-as-a-service will be dependent on the underlying infrastructure and flexibility of the hyperscalers, as these capabilities will need to be hosted and managed in a robust cloud environment.

Hybrid and multicloud on the rise

As enterprises continue to deepen their reliance on cloud hosting providers, we expect to see more organizations leaning on hybrid (mix of on-premises and cloud infrastructure) and multicloud (cloud infrastructure from more than one hyperscaler) models. While this creates greater redundancy and avoids lock-in risk with a single platform, internal resource and capability constraints may prove to be a challenge as these models grow.

Cloud storage strategies under scrutiny

As the data footprint of customers’ ERP platforms continues to grow, organizations will need to develop a clear cloud storage strategy, which will ensure that older data is archived, yet still available to meet business demand. This is especially critical for ERP platforms that are storage-intensive, such as SAP S/4 HANA, as unmanaged storage growth will create rapidly increasing costs on licensing and underlying infrastructure.

2023 was a year of growth and service diversification for the cloud services space, and we expect to see that continue throughout 2024. As organizations continue their cloud journeys, either by moving their platforms to the cloud or deepening those capabilities, we look forward to supporting clients to help make that journey a success.