5 cloud market trends and how they will impact IT

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AI is shaking up business as usual in the cloud, with new alternatives, increased data center commitments, and cost management taking center stage.

 

Remember all that chatter about companies becoming disillusioned with the cost and complexity of running workloads in a multicloud environment, and moving resources back to the on-premises data center, a trend dubbed cloud repatriation?


Well, the cloud is alive, well, and riding high on the AI wave.

Worldwide spending on public cloud services is forecast to reach $805 billion in 2024 and double in size by 2028, according to IDC, with a five-year compound annual growth rate of 19.4%.

 Andrea Minonne, research manager for data and analytics at IDC, says, “The rapid advancements in artificial intelligence are significantly driving the surge in cloud spending. With organizations increasingly building, testing, and deploying AI platforms, the growing interdependence between AI innovation and cloud infrastructure is positioning cloud services as the backbone of AI development and deployment.”
 
Gartner’s numbers may differ slightly, but the takeaway is the same. Worldwide end-user spending on public cloud services is forecast to grow 20.4% to $675.4 billion in 2024, up from $561 billion in 2023, according to Gartner.
 

“The continued growth we expect to see in public cloud spending can be largely attributed to gen AI due to the continued creation of general-purpose foundation models and the ramp up to delivering gen AI–enabled applications at scale,” says Gartner analyst Sid Nag. “Because of this continued growth, we expect public cloud end-user spending to eclipse the $1 trillion mark before the end of this decade.” 

 Here’s a look at how enterprise IT can reap the benefits of key market trends unfolding in the cloud.
 

AI-centric alternatives emerge in the cloud

Public cloud market share remains relatively unchanged, with AWS the undisputed leader (32%), Microsoft Azure solidly in second (23%), and Google Cloud Platform a distant third (12%).

Combined, the Big 3 account for 67% of the total market, with smaller players, including Alibaba, IBM, and Salesforce, each in the 2-4% range.

 The only cloud service provider making a significant move is Oracle, which has now passed IBM and is tied with Salesforce, according to the latest market numbers. Still, Oracle sits at only 3% market share.
 

Despite this near constancy, the emergence of generative AI has provided a market opportunity for upstarts. While the Big 3 scramble to add AI capacity to their legacy data centers, startups are building GPU-based, high-performance data centers from the ground up, offering developers the opportunity to launch and scale GPU clusters for AI training and inferencing.

This means IT organizations can avoid vendor lock-in, maintain strategic relationships with their hyperscalers of choice, but also branch out with targeted AI projects from startups who claim their purpose-built platforms are significantly faster and less expensive than incumbents.

AI drives data center spending spree

The number of large data centers operated by hyperscalers passed the 1,000 mark in early 2024, twice the number from just four years ago. Synergy Research Group forecasts that total hyperscale data center capacity will double again in the next four years.

“Capacity growth will be driven increasingly by the even larger scale of those newly opened data centers, with generative AI technology being a prime reason for that increased scale,” Synergy Research writes.

Not surprisingly, the companies with the broadest data center footprint are Amazon, Microsoft, and Google, which account for 60% of all hyperscale data center capacity. And the announcements from the Big 3 are coming fast and furious.
 
Microsoft reportedly plans to double its data center capacity over the next couple of years, including recent announcements of a $2.9 billion investment in data center infrastructure in Japan; $3.16 billion in the UK; plus a $1 billion data center in Indiana, and a $3.3 billion investment in Wisconsin.
 

In the first half of 2024 alone, AWS has announced $50 billion in data center investments, including $35 billion at multiple sites in Virginia, $11 billion in Indiana, and $10 billion in Mississippi.

 And Google has announced plans to build new data centers in Kansas City; Cedar Rapids, Iowa; and Northern Virginia; as well as Mexico, Greece, Malaysia, New Zealand, Norway, Austria, and Sweden.

And that’s not to mention recent announcements that see the Big 3 interested in going nuclear to help fuel AI data center demand.

The benefit for enterprise IT is that as AI projects move from the planning to the implementation phase, hyperscalers will have the capacity to handle the huge data sets associated with large language model (LLM) workloads. On top of that, new public cloud data centers mean more availability zones, and fewer latency and performance issues associated with users not being physically close to the source of cloud-based applications and data.

Industry clouds continue to rise

Industry clouds are specialized cloud environments tailored to meet the unique requirements of specific sectors, offering pre-configured solutions.

 “In effect, industry cloud platforms turn a cloud platform into a business platform, enabling an existing technology innovation tool to also serve as a business innovation tool,” says Gartner analyst Gregor Petri. “They do so not as predefined, one-off, vertical SaaS solutions, but rather as modular, composable platforms supported by a catalog of industry-specific packaged business capabilities.”
 

In a recent Gartner survey, close to 39% of respondents said they had started the adoption of industry cloud platforms, with another 14% in pilots. Overall, a majority of respondents familiar with the concept identified themselves as adopters or potential considerers of industry-specific clouds.

 And Gartner expects that by 2027, more than 70% of enterprises will use industry clouds to accelerate their business initiatives, up from less than 15% in 2023.
 

A variety of players offer industry clouds. For example, AWS and Azure offer healthcare clouds, Salesforce has a financial services cloud, Oracle has a retail cloud, Siemens has a manufacturing cloud, and Google has an education cloud. Most hyperscalers offer multiple vertical clouds, with numerous niche players involved in the market as well.

As cloud costs increase, so does the market for cost control solutions

When evaluating cloud costs, there are two aspects to consider: actual cost and anticipated cost. Many organizations who moved apps to the cloud because they thought it would be cheaper were shocked when the bills started arriving. In fact, cloud analyst David Linthicum estimates that cloud costs are coming in at 2.5 times what organizations anticipated.

 There are many reasons for cloud bills increasing, beyond simple price hikes. Linthicum says organizations that simply “lifted and shifted” legacy applications to the public cloud, rather than refactoring or rewriting them for cloud optimization, ended up with higher costs. Many organizations overprovisioned and neglected to track cloud resource utilization.
 

On top of that, organizations are constantly expanding their cloud footprint.Mayank Bhargava, vice president and cloud modernization practice leader at CGI, a business and IT consulting firm, says, “As organizations continue their digital transformation journeys, they are migrating more critical workloads and data to the cloud, which naturally leads to higher costs.”

But there are things that organizations can do to get a handle on cloud costs. According to Forrester Research, the cloud cost management and optimization (CCMO) market is experiencing “meteoric growth.” These tools provide visibility into all cloud costs across hybrid and multicloud environments, identify opportunities to optimize cloud spend, and automate some actions.

 In Forrester’s most recent evaluation, IBM (Cloudability and Turbonomic), Broadcom (CloudHealth), and Flexera emerged as the three leaders. Strong performers include Harness, Morpheus Data, CloudBolt, and CloudZero. But the field of cloud cost management tools is broad.
 

CCMO can be viewed as a stepping stone to a more comprehensive and cross-departmental approach known as FinOps, which ties in finance and business units. FinOps teams work to optimize cloud costs, but also to perform budgeting, forecasting, and reporting that links cloud spend with business outcomes. Some vendors offering FinOps include Apptio, Lucidity, Densify, and Finout.

Getting a handle on cloud spend ties back to AI, says Linthicum, because if cloud costs are running wild, organizations simply won’t have the financial resources needed to launch massive AI projects.
 

Hyperscalers step up to meet sustainability challenges

Enterprise IT is under pressure to reduce data center carbon emissions. Shifting resources to the cloud doesn’t get you off the hook; enterprises must track and report sustainability efforts across multicloud environments.

AI throws an unwelcome wrinkle in sustainability efforts because GPU chips run significantly hotter that traditional CPUs and therefore require more cooling, which spells more demand for electricity.

But hyperscalers are taking a leadership role, leveraging their advantages over enterprise IT. After all, data centersare their business, so they have the motivation, C-suite support, technical expertise, and financial resources. Unlike most businesses tethered to a specific physical location, hyperscalers can also scour the globe for sites that offer sustainably sourced energy.

 The large cloud vendors have all set ambitious sustainability goals for themselves. Microsoft has been carbon neutral since 2012 and expects to be carbon negative by 2030. In 2023, AWS achieved its goal to match 100% of the electricity consumed with renewable energy, and AWS is committed to achieving net-zero carbon by 2040.
 
Source: Weinberg, Neal. ''5 cloud market trends and how they will impact IT'' 05/11/2024. Cio.com. (https://www.cio.com/article/655693/7-cloud-market-trends-and-how-they-will-impact-it.html). 
 

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