Companies are increasingly recognizing cloud computing’s ability to help businesses overcome macroeconomic pressures. As pressures rise, however, it is those with existing, broad cloud deployments that are benefiting the most. Companies only just now moving to cloud will still realize benefits from cloud but will face funding hurdles as business finance teams become increasingly involved in purchasing decisions, according to results from IDC’s Q4 2022 Cloud Pulse Survey.
The Q4 study, which surveyed 1,350 cloud users from North America, Western Europe and Asia Pacific, found a significant number – 40% – of organizations relate their adoption of, or increased take-up, of cloud to the COVID-19 pandemic. Inflationary pressures have further led to increased adoption of cloud services, with cloud now making up on average 32% of IT budgets.
Inflationary pressures currently impact 45% of organizations directly. These organizations say they have seen increased pricing for cloud services (for public cloud and internal operations for private cloud such as skills and increased data center costs). Despite cost pressures, 57% of companies say they require a ‘very high’ to ‘extremely high’ level of IT transformation to support their current business strategies – this is compared to just 48% in Q4 2021.
Increasing costs are having an impact, however, on the value businesses believe they receive from their cloud services, with 55% of cloud buyers surveyed saying inflationary pressures had negatively impacted return on investment (ROI). Around a quarter of companies currently measure their cloud ROI on overall IT performance, and almost the same number again – 21% – integrate cloud ROI with wider company performance.
Cloud is seen to deliver better ROI where it can help improve business processes, increase company revenue and reduce IT administrative costs. The challenge is that many of the wraparound services required to deliver cloud are leading to increased costs. These include the cost of professional service, network costs, managed services, applications and software and, of course, the cost of the internal skills required to deliver cloud. This means that any increases seen in cloud budgets can easily be absorbed by increases in cost.
This means cloud vendors are coming under much more scrutiny as cloud contracts reach end of life or as buyers seek new cloud options. Of those companies that changed cloud provider in the last year, 53% did so because of cost.
Many vendors are providing solutions to inflationary pressures. Around a third of organizations say they have seen their cloud provider react to market requirements for more flexible contracts and pricing and billing options.
Almost a quarter of companies are also looking internally at where they can make cloud cost reductions. Increasing cost of, and complexity of, cloud has led many companies to overspend on cloud services in the last year. Downtime from hardware, security and software failures also accounts for around 5-9% of overall cloud spend.
And while the IT department is still accountable for cloud budget, late adopters of cloud – those just starting out – are seeing an increasing role is being played by the company’s finance department which is now the second most involved company department in signing off on early cloud deployments.
The contrast is that those with broader cloud environments, from earlier deployments, are placing more emphasis on R&D and marketing involvement in cloud. These companies can commit more time to innovating and driving services that can make the company more agile and provide innovative services that can deliver cost savings across the business or innovative go-to-market solutions that can make the difference during tough economic times.
Across the board, the focus for cloud spend still rested heavily upon the need for organizations to digitally transform their business, however, cost and savings are now the second-highest area of concern for organizations dealing with increasing macroeconomic pressures.