You Guessed It: AI Will Drive Cloud Adoption

July 31, 2023 Timothy Prickett Morgan

What do you think will be the quickest way to try out AI extensions to applications? Will it be trying to get your hand on models, tweaking them with your data, and then integrating the AI extensions with your own applications? Or will it be trying out a SaaS-style AI tool where all of the work is done? Or better still, moving to a SaaS application that has AI in it from the get-go?

It will be no doubt the latter two options. And this, as much as any other force, is going to hasten the shift for certain workloads to be in the clouds rather than on premises.

That is our prognostication – and it is not a terribly deft or creative one, mind you – as we contemplate some new cloud infrastructure market research coming out of IDC. It takes a long time to case cloud spending (meaning end user spending on cloud services as opposed to infrastructure spending by cloud builders), and IDC has just put the finishing touches on the 2022 market and how it compares to the 2021 market. Take a gander:

Total cloud spending across all layers of the cloud rose by 22.9 percent to $545.8 billion last year. Of this, $246.3 billion in spending was for applications running in the cloud SaaS-style, an increase of 18.4 percent. When you do the math on the table above, $300 billion was spent on so-called foundational cloud services, which is infrastructure as a service (IaaS), platform as a service (PaaS), and systems software as a service (a subset of SaaS) all added together. These areas grew by 26.8 percent from 2021 to 2022.

For some reason, IDC carved out a chunk of this and said only $169.1 billion of this was for foundational services, but we have no idea where that number comes from. We do find the market share figures in the chart below interesting and figure that the relative revenue share of non-SaaS cloud spending is about the same for the larger $300 billion as whatever IDC says it is for the $169.1 billion. (Go figure.)

The interesting bit is how Amazon Web Services and Microsoft dominate the foundational cloud services space, with nearly two-thirds of the market, and how much smaller the other players are at this lower level of the cloud. But look at the SaaS vendor market share on the right. Microsoft, which is a huge application software supplier in its own right, is still dwarfed by the many thousands of application providers that are selling their wares on the cloud. This is a vibrant and growing part of the market, as it has always been when software was sold shrink wrapped and run on platforms in the corporate datacenters of the world.

Notice how AWS, which sells quite a bit of application software, doesn’t even show up in the top five? Watch this space. That will start happening more and more, and we think you can expect some acquisitions here eventually. Microsoft eventually competed against its own application partners on the Windows Server platform, and as AWS has to climb the value chain in pursuit of new revenues and profits, it will have no choice but to do the same.

The non-IaaS parts of the market – which are all software related – grew by 22 percent between 2021 and 2022, according to IDC, and in its statement it said that this “cloud software” market would reach more than $547 billion in 2023. Which would represent an acceleration of growth and a rise of 27.1 percent between 2022 and 2023. That is the only forecast that IDC gave out in its cloud revenue report. But it is reasonable to assume that IaaS spending might be curtailed a bit because companies can cut back here if they are feeling the pinch and the economy uncertainty. This is precisely why clouds are good – you can dial it down, and you can dial it back up again, and that is why you pay a premium for any given unit of capacity. The idea is to use only what you need and have no spare capacity inherent in the systems, and to save money over the long haul.

Heaven only knows if anyone can actually do that, of course.

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