Cloud computing’s growth was strong and steady for so long that some observers may have assumed it had evolved from a megatrend to a natural law and that stratospheric growth rates would continue indefinitely. On the other hand, massive public cloud providers like AWS, Azure and Google were never the only game in town - some businesses choose other providers, private clouds or opt for a hybrid approach, and many maintain on-premises systems to handle workloads.
But did anyone expect a significant reverse-migration from public clouds to on-premises infrastructure in 2023? A recent report from Device42, conducted globally between December 2022 and January 2023, suggests that this might be in the cards for many businesses in the year ahead, while some, such as Basecamp and Hey, have moved off of public cloud already. Here’s a closer look at some of the Device42’s key findings and what they may mean for the cloud industry and business infrastructure in the year ahead.
Cloudy outlook for the tech sector? It’s complicated
Despite persistent economic uncertainty, the U.S. remains at near-full employment status, and the competition for workers is still fierce across most sectors. Lately, one notable exception has been technology, which shows signs of softening. For example, Microsoft recently announced its intent to lay off 10,000 workers by the end of March, citing declining cloud revenue as a factor in the decision.
Cloud usage shot up during the height of the pandemic, causing tech companies to add staff at a rapid clip, so 2020-2021 employment levels in the tech sector may not be sustainable over the long-term. That said, according to the Device42 report, public cloud demand is likely to remain robust - 85% of survey respondents said they either have or are planning to deploy more workloads in the public cloud, and 60% believe their cloud consumption will grow over the next three to five years.
Those who haven’t adopted the cloud yet cite ‘business fit’ as the top reason in the report. Among those who are in the cloud, respondents were about evenly split in citing AWS or Azure as the best choice for cloud resources. Those who say they have migrated workloads to the cloud report that they chose that option primarily so they can scale and achieve greater IT resource efficiency to support the business.
Challenges to public clouds’ marketplace dominance
That last point is both a strength and weakness for public cloud providers. AWS, Azure and Google enjoyed growth rates in the 30% range and higher for so long that last year’s 24% growth rate - which would be enviable in most sectors - is considered disappointing, suggesting that a lot of that growth was predicated on perceptions that using the public cloud increased efficiency.
But the report also found that only 13% of businesses believe the cloud has lived up to promised cost savings and technology delivery goals. Even more alarming from the perspective of public cloud growth prospects, 80% of survey respondents said they believe the cloud is expensive or getting more expensive, and 20% said they had either already or planned to roll workloads back from the cloud onto traditional on-premises infrastructure.
One in five respondents indicating an intent to reverse their cloud migration is significant in an industry that is projected to reach almost $600 billion in 2023. The survey highlighted other potential challenges for the cloud industry, including the fact that 50% say they don’t have the same visibility into cloud resources that they do for on-premises infrastructure and half reporting that they don’t know exactly what type of infrastructure they have in the cloud.
An economic perfect storm
The cloud market is strong, but it’s not invincible, and an economic perfect storm could undermine it. The heavy layoffs the industry has experienced over the past several months are a sign of the sector’s vulnerability. A loss of confidence in the cloud’s ability to help enterprises operate more efficiently, combined with increasing hosting costs, could inspire more businesses to roll workloads onto on-premises infrastructure.
The Device42 report also suggests businesses need better insight into their IT resources, including cloud technologies. Whatever changes they are contemplating, IT organizations need a way to map dependencies and understand the relationships between infrastructure resources and applications, business units and processes. They also need accurate cost analyses to make the right decisions.
That’s especially true if economic uncertainty continues or a full-blown recession materializes in 2023. If that happens, companies will scrutinize spending even more closely and look for places to make cuts. The best way to do that is to compare costs across multiple cloud providers and other options and select the least expensive alternatives that offer the services the organization needs. Some may decide to go back to the future and handle more workloads on-premises, but even companies that remain 100% committed to operating in the cloud still lack the insight and visibility to avoid overprovisioning.
