Cloud Service Spending Expected to Grow by 23 Percent in 2023

Worldwide cloud infrastructure services expenditure grew 23% year on year in the fourth quarter of 2022 to reach $65.8 billion, an increase of $12.3 billion, according to Canalys. For the full-year 2022, total cloud infrastructure services spending grew 29% to $247.1 billion, up from $191.7 billion in 2021.

The quarterly growth rate slowed, down over 10 percentage points from 1Q22 (34% in 1Q22 against 23% in 4Q22). Rising public cloud costs, fueled by inflation, are forcing enterprise customers to optimize public cloud spend after constant IT investment over the past three years in digital transformation. Macroeconomic uncertainties are contributing to a more conservative approach to IT budgets.

A growing number of customers are adjusting cloud strategies for greater efficiency and control. That includes assessing the repatriation of certain cloud workloads to private or co-location data centers to reduce costs and drive greater adoption of hybrid and multi-cloud strategies.

While enterprise demand for cloud services persists, the growth rate for cloud infrastructure services will continue to slow for the next few quarters. In 2023, Canalys expects global cloud infrastructure services spending to increase by 23% for the full year, compared with 29% in 2022.

The realities of worsening macroeconomic conditions and the looming recession prompted a slowdown in the volume and pace of migration to the cloud in Q4, especially by enterprise customers, which typically have larger workloads. The hyperscalers were inevitably affected, with their growth falling by about 5 percentage points from the previous quarter. The top three in 4Q22, AWS, Microsoft Azure, and Google Cloud, collectively grew 26%, to account for a combined 65% share of customer spending.

“Enterprise customers are responding to higher cloud prices and higher-than-expected operating costs under the tough macroeconomic conditions,“ said Canalys Research Analyst Yi Zhang. “Customers that are currently on pay-per-use billing models will optimize cloud activities to reduce cloud consumption and save costs. There will also be a considerable slowdown in the take-up of cloud contracts, which will also result in a decrease in associated cloud revenue.“

“Customers are rethinking how they use the cloud in their business operations,“ said Canalys VP Alex Smith. “In some cases, there is a natural slowdown in computing demand as core operations see less activity. In addition, conservative budgeting among businesses will lead to less experimentation during the next 12 months.“

AWS led the cloud infrastructure services market in 4Q22, accounting for 32% of total spending. It grew 20% on an annual basis, an all-time low growth rate for AWS, according to Canalys estimates. Microsoft Azure held 23% of the global cloud infrastructure services market and remained the second-largest provider after growing 31% year on year. Google Cloud was the third largest cloud service provider and outpaced both AWS and Azure with a growth of 36% year on year to account for 10% of the market.