Gloomy Skies for Cloud Investment in 2023
What’s on the card for cloud investments?
Taking stock of the last several years, Mark Angle, chief cloud operations officer at OneStream Software, discusses how rising inflation and changes in technology adoption are slowing cloud investments in 2023.
The work-from-anywhere economy proved it is here to stay in 2022 as employees unanimously supported more flexibility across industries. In fact, a recent report found that when offered, 87% of workers take the chance to work remotely, regardless of their industry. The last few years introduced a new level of workplace flexibility with the onset of the pandemic, and that massive shift to remote and hybrid work marked a new need for cloud technology.
Many organizations recognized cloud infrastructure was no longer a convenience but a necessity for business viability. So, they invested in the technologies required to keep up with mounting and dynamic business demands.
While cloud-native technology continues to connect teammates and clients all over the world, the broader economic landscape in 2023 will prompt the slowing of cloud investments in the short term. Virtually every leader in the world is navigating cost-cutting conversations in the face of 40-year-high inflation. Thus, all cloud markets will experience slower growth while companies try to figure out how they will make it through the uncertainty of next year.
As I see it, cloud investment will slow this year for two distinct reasons. For one, many organizations already invested in the infrastructure at the onset of the pandemic and two, the impact of the economy on short-term budgets will prevent further investments. Ultimately, the cloud market will see a plateau.
Existing Infrastructure
The pandemic demanded business leaders to reassess the way work was conducted and spawned immediate investment in cloud infrastructure to support remote work environments. In fact, according to our bi-annual CFO Survey, 63% of finance leaders in October 2021 reported increasing investments in cloud-based solutions compared to pre-pandemic efforts. This signaled a need for continued agility and flexibility to operate business as return-to-office plans were pushed farther back. More recently, in October 2022, 90% of finance leaders noted they regularly use cloud-based planning and reporting solutions. Meaning adoption has ramped up over the last two years and will continue to do so into 2023. Investment will slow down for net-new cloud infrastructure as teams continue leveraging the solutions they already have in place.
Another factor to consider is that on-premise data centers and legacy systems may be on three-to-ten-year lifecycles. Many organizations may not feel prepared or equipped to nix their existing solutions before they have maximized their investment. They might want to squeeze more life out of the on-premise solution before that three- or ten-year window is up.
To add, not only have financial resources gone into securing these legacy systems, but time and money have also gone into setting up a suitable facility and training teammates to use them. It takes time to retrain a workforce to use and trust new systems of doing things, and additional costs are incurred when transitioning to off-premise solutions.
Shifting Tech Investments
Cloud investments will not completely drop off, but they will be smaller compared to 2022 as an anticipated recession takes hold. More leaders are under pressure to show rapid ROI and make cuts around objectives that do not show a return immediately. In addition, the cost of capital is currently high, so there is a shift toward investing in operating expenses to keep business continuity and efficiency in prime shape. Interestingly, this phenomenon tends to favor the cloud and SaaS landscape.
Frankly, it is easier to get those initiatives approved by Finance because they are directly linked to core business viability and have a fixed or expected cost every month. Cloud-based solutions require less up-front capital to launch because there is typically a subscription-based model of payment, and it is much easier to see clear signs of efficiency and productivity within months of launch. In fact, reports have found that companies that have adopted cloud-native solutions have seen improvements in financial close and consolidation (46%), financial reporting (69%), and planning and budgeting (42%). The ROI is evident.
Technology is the means to efficiency, and business leaders are aware. However, current economic conditions are hindering the level of investment companies can make. In 2023, organizations will continue backing new technologies to the extent that they are capable of, but it will be marginal compared to 2022 investments.
Weary of New Horizons
Another factor prohibiting continued cloud investment is that it’s not suitable for every organization on the block. With the cloud being a public commodity, there are a few instances where it makes sense for organizations to stay away from the general shift toward cloud-based solutions. Ultra-secure government projects are one example because they need to utilize privatized infrastructure to maintain control over access and privacy. Some companies are running specialized programs that require super-fast processors or a configuration of services that are not available within the current cloud ecosystem.
Additionally, some markets and industries have strict compliance and data privacy regulations which force cloud service companies to weigh the pros and cons of entering new or other markets. While these regulations are set up to protect users, companies have to be very cautious about where they are planning to store data and where it is transmitted because regulations vary across geographic locations. As a result, organizations may be more conservative in approaching new markets in 2023 as they shy away from the cost of establishing compliant systems, which may not produce a consequential return in the short term.
Looking Ahead
The current economic outlook is gloomy, and it is forcing company leaders to balance both short-term and long-term objectives with shrinking resources. As with many current initiatives, the cloud will be an area that’s looked at critically. Despite this, the new year will still mark growing cloud adoption, even with fewer immediate investments in cloud-native technologies.
For the most part, many companies already invested in cloud systems at the beginning of the pandemic, and this has enabled them to be more strategic and less reactive moving forward, so there’s no immediate need to invest further. The primary focus next year will be on ROI and how organizations can create agility and flexibility with the infrastructure they currently have in place – at least until the storm weathers.
How are you planning your cloud investments for the year to come? Share with us on Facebook, Twitter, and LinkedIn.
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