Canalys: Global Cloud Services Market Forecasts Downturn Despite Q1 Growth

Worldwide cloud infrastructure services spending increased 19% to $66.4 billion in Q1, but customer investments continue to slow in the face of persistent macroeconomic uncertainties, with recent growth falling below 20% for the first time. Enterprises are reducing cloud spend as part of overall cuts to IT budgets, with a clear emphasis on optimizing cloud costs, and improving the efficiency of cloud deployments.

All the cloud hyperscalers were adversely affected, with their growth falling by four percentage points from the previous quarter. Canalys expects global cloud services spending to continue to be slow through the second half of 2023.

According to the market research organization, a customer focus on cloud optimization is fueling interest in observability technologies, FinOps solutions and AI. The purpose is to improve the visibility of usage, drive better utilization and strengthen cloud management. It is also encouraging more businesses to repatriate certain cloud workloads for cost benefits and greater control.

“Enterprises are benefiting from the hybrid cloud model, but moving workloads between on-premises and cloud platforms can be costly for them,” said Canalys VP Alex Smith. “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, according to the report.

Channel Impact^®
The emphasis on cloud optimization 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.