The cloud is a cornerstone of the digital age. In fact, a recent IDC report forecasts that worldwide spending on public cloud services will reach a $805 billion by the end of 2024.
But that’s just a taste of what’s to come. By 2028, experts predict this figure will double.
And while we're on the topic of cloud spending increasing, a recent study by Vanson Bourne, commissioned by Tangoe, further showed that cloud expenditures have increased by an average of 30% due to AI-related technologies. This surge has caught many IT and financial leaders off guard, with 72% admitting that their cloud spending is becoming increasingly unmanageable.
The study, which surveyed IT and finance professionals across various industries, found that AI and generative AI are the primary drivers of cloud spending growth. These technologies are fueling innovation and efficiency but also introducing new complexities. On average, companies are spending $40 million on cloud services, with a relatively even distribution across SaaS, private cloud, IaaS and UCaaS.
While the benefits of cloud computing are undeniable, managing the associated costs is a growing challenge. The study highlights several key areas of concern:
- Hybrid Cloud Cost Management: Managing costs in hybrid cloud environments is proving particularly difficult. Despite the complexity, 95% of organizations plan to repatriate some of their resources from public to private clouds.
- Software Overspending: SaaS spending is often inflated by shadow IT, with 38% of SaaS expenditures attributed to unauthorized purchases. Additionally, many organizations are wasting money on productivity software licenses that are not fully utilized.
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- Cloud Cost Allocation: Sharing cloud expenses across an organization can be challenging. While 93% of respondents agree that costs should be allocated, 53% find chargebacks difficult and time-consuming.
"GenAI is creating a cloud boom that will take IT expenditures to new heights," said Chris Ortbals, Chief Product Officer at Tangoe. "With year-over-year cloud spending up 30%, we're seeing the financial fallout of AI demands. Left unmanaged, GenAI has the potential to make innovation financially unsustainable."
To address these challenges, organizations must adopt effective cloud cost management strategies:
One way is to expand FinOps coverage. FinOps, a framework for managing cloud costs, must evolve to include SaaS in addition to IaaS. Tangoe's FinOps solution has helped many companies reduce their cloud spending, including Microsoft 365 costs.
Another is to prioritize productivity and security. Effective cloud cost management can enhance productivity and security. By optimizing resource utilization and mitigating risks, organizations achieve benefits beyond cost savings.
Lastly, organizations should look to adopt specialized FinOps software. Manual processes and native cloud tools are often insufficient for managing cloud costs. Specialized FinOps software can provide the necessary visibility, automation and control.
“The cloud’s hidden costs and unpredictable invoices can become the silent killer of GenAI,” Ortbals added. “The more urgently companies adopt comprehensive cost management FinOps strategies, the easier it is for them to turn GenAI’s promise into lasting innovation instead of runaway expenses and technical debt.”
As AI continues to advance and cloud adoption grows, the challenges of cloud cost management will only intensify. Organizations that fail to address these challenges risk wasting valuable resources and hindering their ability to innovate.
Edited by
Alex Passett
