The recent economic slowdown has CFOs, CTOs, and CEOs questioning if their cloud-deployment strategy is recession-proof or if they can adapt to the changing marketing requirements. Organizations are investigating how to cut costs without harming their growth and revenue.
Google Cloud, Microsoft Azure, and Amazon Web Services are three of the most prominent players in the cloud industry. AWS grew 33% YOY in 2020 and hit the $10 billion revenue mark for the first time. Azure grew 59%, and Google Cloud grew 52% in the same year. IBM’s Cloud & Data Platforms category grew 32%. Alibaba and Oracle reported an increase in revenue as well
Even though these companies have seen an increase, they will see some impact because of the economic slowdown. Every cloud service provider from AWS, Google Cloud Program, and Microsoft Azure has to plan for the worst as their clients across the globe are scrambling to scale down to manage the declining demands. In the first quarter of 2022, cloud providers have reported a slowdown in earnings. This trend is likely to continue through the rest of the year.
In this post, we will see the impact of economic uncertainty and recession on the cloud industry.
Impact of Economic Uncertainty on the Cloud industry
The current COVID-19 and Russia-Ukraine war-induced recession will be the first time that the cloud computing industry will be a meaningful participant in a large-scale economic downturn. At the same time, the stats show that the cloud industry is set to increase in the long-term.
The cloud gives organizations flexibility and scalability, allowing them to scale when necessary. When a company faces slowing demand from its customers, delaying or scaling back is an easy way to save. While businesses are happy to tell a “digital transformation” story when the economy is going well, keeping profits up and costs under control take precedence when the going gets tough.
Impact on Cloud
A massive impact on the cloud industry is that their customers will be scaling down infrastructure due to inflexibility. One of the foremost impacts recessions have on cloud vendors or businesses is the tightening of credit conditions. As interest rates may rise early in a recession, it dampens a company’s accounts receivable (AR), whereas the liquidity issues impact consumers and businesses across the supply chain. This happens because the customers start to make payments slower, or later. Because of this, big and small organizations tend to pull back on unnecessary tech spending during the recession. This is also because cloud expenses can start out small but quickly spiral out of control.
The Importance of Cloud Spend
During the last downturn of 2008, cloud computing was a new technology. In the current slow down, with almost every organization running workloads in the cloud in some form, cloud spend is a sizable expense for these organizations. From the cloud vendors’ perspective, this has become their main source of revenue.
Cloud transition has been accelerated by the COVID-19 crisis, where Cloud spending rose 37% to $29 billion during the first quarter of 2020. This growing trend is likely to persist as the world moves to virtual work. During COVID-19, the world saw an urgency for scalable, reliable, cost-effective, secure, and off-premises technology services. In fact, despite the inevitable recession in the wake of the pandemic, cloud spending is estimated to rise 19% for the full year, even as IT spending as a whole is forecast to fall 8%, according to industry analyst Gartner.
A recent PwC survey found that almost 75% of finance leaders said they were planning for a more agile business environment. Cloud’s flexible and scalable cost and service can be essential to this agility. In the future, government and business entities will likely need greater off-premise infrastructure capacity — storage, computing, and networking.
Cost Saving Trends in the Cloud
Trend 1: Growth in Multi and Hybrid Cloud Environments
Cloud data management isn’t about having a specific cloud infrastructure; it’s about choosing the right solution for the job at hand. Companies are set to embrace a multi or hybrid cloud service in 2022 to get the best out of each solution. Gartner estimates that by 2021, 75% of midsize and large organizations will have adopted a multi-cloud or a hybrid strategy.
Trend 2: Retaining Compliance
Visibility across businesses has become more critical than ever to ensure that organizations achieve the same level of insight across the board. Without observability, cyber-attackers can leverage these blind spots. Data privacy and security are one of the biggest roadblocks that enterprises face while cloud adoption and migration. The result is that organizations are investing in modern cloud-native security solutions rather than traditional hardware-based ones. (Tip: watch our rececnt interviews with Orca Security, JumpCloud, and more).
Trend 3: Cloud Savings will become a Priority
According to Gartner, the public cloud’s worldwide revenue will grow 17% this year to $266.4 billion. 60% of organizations will be using managed services from external cloud providers by 2022, doubling from 30% in 2018. Due to the decentralized model, businesses will have to start controlling the increasing cloud costs. As usage grows, they streamline expenditure and cut unnecessary spending. Also, as hybrid services have different pricing and billing models, businesses’ expenditures can vary monthly.
Conclusion
Diligent observers can pick up recession signals and how they’ll impact their business and industry. Even if companies have a framework to establish that cloud platforms are recession-proof, it’s hard to invest in them in a targeted way. Today the prominent cloud vendors are enormous tech conglomerates — Amazon, Microsoft, Google, and IBM all have a huge impact on the economy. How the entire cloud industry will fare during this current crisis is worth watching and learning from if only to prepare for a possible recession.
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