Dive Brief:
- Growing enterprise demand for cloud will push worldwide end-user spending to $597.3 billion by the end of the year, up 21.7% over last year's spending of $491 billion, according to a Wednesday report from analyst firm Gartner.
- Gartner expects cloud application services to constitute the largest share of the market, with spending on SaaS reaching nearly $200 billion in 2023.
- The expanding use of generative AI and other emerging technologies is expected to drive growth in the SaaS segment, according to the report. “Organizations today view cloud as a highly strategic platform for digital transformation, which is requiring cloud providers to offer more sophisticated capabilities as the competition for digital services heats up,” said Sid Nag, Gartner VP analyst.
Dive Insight:
The quest for scalable, enterprise-grade generative AI is just one force driving growth in cloud spending. Demand for Web3 and immersive capabilities are also on the enterprise agenda, according to Nag.
“Providers are facing demands to redesign SaaS offerings for increased productivity, leveraging cloud-native capabilities, embedded AI and composability,” Nag said.
But emerging technologies are only a small piece of the broader SaaS segment, which in total accounts for roughly one-third of all cloud spending.
Infrastructure services, or IaaS, are expected to experience the highest growth rate, at 31% year-over-year, reaching more than $150 billion by the end of the year. Platform as a Service, or cloud application infrastructure services, are forecast to hit nearly $140 billion this year, a year-over-year bump of 24%.
The big three hyperscalers — AWS, Microsoft and Google Cloud — are the largest beneficiaries of cloud market expansion. Together, they control roughly two-thirds of the global market for cloud, according to Synergy Research Group’s most recent analysis.
Competition among the hyperscalers, coupled with enterprise appetite for optimization through migration, encourages increases in consumption.
“Hyperscale cloud providers are driving the cloud agenda,” Nag said. “Organizations today view cloud as a highly strategic platform for digital transformation, which is requiring cloud providers to offer more sophisticated capabilities as the competition for digital services heats up.”
Wednesday’s report is slightly more bullish than Gartner’s October cloud market analysis, which projected only a growth rate of just 20.7% this year. Under pressure from persistent inflation and general economic uncertainty, total end-user cloud spending had been forecast to reach $591.8 billion.
A somewhat sunnier economic outlook and the push for innovation means more spending on more cloud.
“The next phase of IaaS growth will be driven by customer experience, digital and business outcomes and the virtual-first world,” said Nag. “Emerging technologies that help businesses interact more closely and in real time with their customers, such as chatbots and digital twins, are reliant upon cloud infrastructure and platform services to meet growing demands for compute and storage power.”
Earlier this month, Gartner revised its forecast for overall IT spend in 2023, adjusting it upward to 5.5%, from the previous estimate of 2.4%. Gartner attributed this bump to currency fluctuations.
