Revenue for public cloud services for companies such as Microsoft, AWS, and Google increased 19% year over year in the first half of 2023 on the back of the increased adoption of AI and organizations’ persistent interest in moving more and more resources to the cloud, according to tech market research and advisory company IDC.
Worldwide revenue for the public cloud services market reached $315.5 billion in the first half of 2023, according to new data compiled by IDC’s Worldwide Semiannual Public Cloud Services Tracker. Last year revenue for the same period was $264.8 billion, while the market is expected to surpass $1 trillion by the end of 2027.
Though the growth on the surface appears significant, it was lower than what IDC analysts expected, said Dave McCarthy, research vice president, Cloud and Edge Infrastructure Services at IDC. Still, “spending in public cloud services remains resilient” despite a slowdown that IDC attributes to macroeconomic pressures and an increased focus on cloud cost optimization, he said.
Of all cloud services, software as a service (SaaS) — the first of cloud-based technology offerings to gain traction more than a decade ago — accounted for the lion’s share of the revenue in the first half of 2023, or nearly 45% of the half-year total with revenue of $141.2 billion. SaaS was followed by infrastructure as a service (IaaS), with 20.4% of the total revenue, amounting to  $64.4 billion.
Though platform as a service (PaaS) and software as a service-system infrastructure software (SaaS-SIS) represented the smallest share of overall revenue in the market — 18% and 16.9% of overall revenue, respectively — these categories experienced the fastest year-over-year growth, according to IDC.
Spotlight on AI
Indeed, AI, especially generative AI, will be a driving force in the cloud market, McCathy said. IDC predicts that by 2025, 70% of enterprises will form strategic ties to cloud providers for generative AI platforms, developer tools, and infrastructure. This make sense because of the rapid evolution of the technology, he said.
“It is risky to invest directly in the hardware itself given the potential for it to become quickly outdated,” McCarthy said. “By using cloud for AI, customers can be confident that the latest technologies will be available to them.”
Companies interested in modernization of their technology platforms — including the move to intelligent applications — are rapidly adopting the cloud, noted Lara Greden, research director, Platform as a Service, at IDC. She cited as evidence the strong growth in PaaS, which comes not from just a top few players but “a large ecosystem of PaaS vendors that are meeting customer needs in the cloud.”
“The fundamentals of cloud technologies and public cloud PaaS providers as strategic partners to enterprises and companies of all sizes are evident as AI pervasiveness strengthens,” Greden noted in a press statement.
Microsoft at the Top
Meanwhile, the public cloud services market remained the domain of a few big-name providers, including Microsoft, AWS, Salesforce, Google and Oracle, which commanded 41% of market share — a scenario that remained relatively unchanged year over year, according to IDG.
With offerings in all four cloud-service deployment categories, Microsoft remained in the top position in the overall public cloud services market with 17.1% share in the first half of the year, followed by AWS with 12.6% share.
Looking ahead, IDC forecasts that worldwide public cloud services revenue will reach $663 billion by the end of 2023, which will represent an increase of 20.0% over 2022. Moreover, a similar increase is expected next year, and analysts foresee the worldwide revenue for the market reaching $1.34 trillion in 2027.
“Organizations recognize the importance of staying at the forefront of technological advancements, like generative AI or real-time analytics, to enhance their business operations and gain a competitive edge,” noted Dave McCarthy, research vice president, Cloud and Edge Infrastructure Services, at IDC. “The cloud’s dynamic nature and the continuous evolution of cloud services make it an ideal platform for organizations to adopt new technologies.”
Interest in AI, especially generative AI, is going to be an uplifting force in the cloud market. IDC predicts that by 2025, 70% of enterprises will form strategic ties to cloud providers for generative AI platforms, developer tools, and infrastructure. In a rapidly evolving technology area like generative AI, it is risky to invest directly in the hardware itself given the potential for it to become quickly outdated. By using cloud for AI, customers can be confident that the latest technologies will be available to them.
In the past, organizations would cite concerns around performance, security, and reliability as reasons not to move to cloud. But with cloud providers now offering solutions that can be deployed on-premises and at the edge, these concerns have mostly been addressed. The industry have moved from thinking of cloud as a location to looking it at an operating model that can deployed anywhere.
However, there is still a significant amount of applications and infrastructure that are not based on cloud and those will continue to exist for some time. In some cases, the level of effort to move legacy systems into a cloud environment isn’t cost effective. These are situations where the hybrid model of integrating traditional IT with cloud will remain.
(This story has been updated with additional comment from IDC.)
Copyright © 2023 IDG Communications, Inc.
This story originally appeared on Computerworld
