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Cloud Investments Slow Despite Q1 Growth

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Worldwide cloud infrastructure services spending increased 19% to US$66.4 billion in Q1 2023, according to analyst firm Canalys, but despite that growth, overall investment in the market slowed by 20%.

All the cloud hyperscalers were adversely affected, with their growth falling by four percentage points from the previous quarter, Canalys said. The top three hyperscalers, AWS, Microsoft Azure and Google Cloud, collectively grew 22% (compared to 26% in Q4 2022) to account for a 64% share of customer spending in Q1 2023. In response to slowing growth, they announced staff layoffs and other internal cost cuts in their cloud divisions.

Economic Trends Forcing Cloud Spending Cuts

This slowdown is driven by enterprise reductions in cloud spending as part of overall cuts to IT budgets, with a clear emphasis on optimizing cloud costs, gaining control over cloud waste, and improving the efficiency of cloud deployments. This is driving interest in observability, FinOps and AI to help address these issues, improve visibility, drive better cloud utilization and enhance cloud management. Canalys said it expects global cloud services spending to continue to be slow through the second half of 2023.

Opportunities for the Channel

These macroeconomic and industry trends are encouraging more businesses to repatriate certain cloud workloads for cost benefits and greater control, Canalys said. This brings opportunities for channel partners to provide professional and managed services in these segments, as customers seek to build, secure and manage complex hybrid cloud environments.

“Enterprises are benefiting from the hybrid cloud model, but moving workloads between on-premises and cloud platforms can be costly for them,” said Alex Smith, VP at Canalys. “Increased reliance on complex cloud environments may result in challenges when it comes to managing them, but there are supporting technologies that can play a big role in identifying efficiencies and streamlining processes, especially in automating routine tasks and analytics.”

“Cloud service providers are finding ways to add value to their customers by introducing AI components,” said Yi Zhang, Research Analyst at Canalys. “This trend is expected to grow where AI can streamline and enhance workflows within enterprises.” At the same time, the rapid adoption of new, compute-intensive applications like generative AI is set to create massive global demand for public cloud capacity, which will help the hyperscalers to offset some of the weakness experienced in enterprise spend over the next few quarters.