Economic uncertainty is driving a reduction in corporate spending, but the need for innovation and increased revenues remains high—and the cloud represents an engine of innovation. The Flexera 2023 State of the Cloud Report sheds light on the pressures facing IT professionals and the strategic initiatives they’re utilizing to remain competitive in today’s dynamic and evolving landscape.
Here’s a sample of key findings from this year’s report based on a survey of 750 cloud decision-makers and users from around the world. Scroll to find out more.
Seeking to control stubbornly high cloud costs, many organizations have or plan to create a cloud center of excellence (CCOE) and build mature FinOps practices. Nearly half of survey respondents indicated their organization plans to move from on-premises software to SaaS, and there’s a small but growing subset of businesses that have moved to just a single cloud provider. AWS and Azure continue to lead the pack of cloud providers, further widening the gap with competitors while maintaining a neck-and-neck competition as market leaders.
You can’t innovate in a digital world without the cloud. Although the threat of economic volatility hasn’t slowed cloud adoption or spending, respondents indicate an acute awareness of costs, as indicated by their prioritization of cost control efforts over security for the first time in a decade. Other means of innovation remain top of mind, with nearly half of respondents experimenting with or planning to use machine learning or artificial intelligence.
The survey tapped 750 IT professionals and executive leaders worldwide representing a broad cross-section of industries and context areas in the winter of 2022.
Flexera sources participants from an independent panel that is rigorously maintained and is comprised of vetted respondents with detailed profiles.
At numerous points throughout the report, we’ve provided our own interpretation of the data as Flexera Points of View.
SMBs: Businesses with fewer than 1,000 employees
Enterprises: Organizations with 1,000+ employees
Large enterprises: Organizations with 10,000+ employees
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This year’s survey leans toward larger enterprises, with 67% of respondents in organizations with more than 2,000 employees. Eleven percent have more than 100,000 employees, which is a new category this year.
Tech-related industries (32%) and financial services (20%) lead the pack, followed by healthcare.
Similar to last year, the majority (67%) of respondents are from the United States. Respondents from Europe made up 20% of the total, with the United Kingdom accounting for 13%, an increase from last year.
The following figures indicate the breakdown of respondents by business role, level and where they work within their organization. The majority (59%) are close to the cloud, either as IT/operations (44%) or cloud architects (15%). This is the first year we asked whether respondents were part of a FinOps team (9%) and if their organization has a FinOps team (72%).
Cloud adoption continues to become more mainstream. Heavy users now represent 65% of respondents, up from 63% last year.
The majority of respondents have a significant influence on both SaaS and IaaS/PaaS, especially regarding decision-making, usage and costs.
Respondents indicated a slight drift toward single public cloud usage, with multi-cloud decreasing from 89% last year to 87% this year. Single public cloud usage has increased to 11%, up from 9% last year.
Movement away from multi-cloud may be due to organizations consolidating on a single public cloud provider.
A decrease in hybrid cloud strategies also indicates organizations may be consolidating on a single cloud.
More than half of respondents use multiple public clouds; 16% have consolidated onto a single public cloud
Apps siloed on different clouds and DR/failover between clouds have remained the top two multi-cloud implementations. Intelligent workload placement is increasing the fastest (up 20 percent year over year).
The old “lift and shift” mentality is becoming more antiquated as organizations factor in cost and performance when finding the most appropriate place for workloads in the cloud.
Across the board for all organizations, multi-cloud security tools continue to lead, followed closely by multi-cloud cost optimization (FinOps) tools. However, large enterprises reverse the order, with 68% using multi-cloud FinOps tools and 63% using multi-cloud security tools.
Large enterprises are more likely to use multi-cloud FinOps tools than multi-cloud security tools
The increased usage of public cloud only is evidenced here as well, with an increase to 24% (up from 16% in 2022).
Nearly a quarter of respondents (24%) are currently spending more than $12 million per year in public cloud.
For all respondents, more than half of workloads and data are in public cloud today. Enterprises, which have more complex environments and tend to move more slowly, have 50% of workloads and 48% of data in public cloud.
By contrast, SMBs exceeded targets for workloads and data in public cloud year over year and now have more than two-thirds of their workloads and 63% of data in public cloud. This may be due to their tendency to use a single vendor, which offers less complexity.
45% of respondents said economic uncertainty would have very little impact on cloud usage and spend
More than half of respondents said they’ll consider moving at least some sensitive consumer data or corporate financial data to the cloud. Seventeen percent said all sensitive consumer data will move to cloud/SaaS (up from 13% year over year), and 18% said all corporate financial data will move to cloud/SaaS (up from 11% year over year).
A year-over-year analysis of corporate financial data shows a movement away from on-premises toward cloud and SaaS, indicating organizations are becoming more confident in the security controls that cloud provides.
Mapping all the relationships across apps, hardware and networking devices for each IT-delivered service is notoriously difficult to do. Similar to last year, 49% of respondents reported understanding app dependencies and 46% reported assessing technical feasibility as the top two cloud migration challenges.
This is the seventh year in a row that optimizing existing use of cloud (cost savings) is the top initiative (62%). Notably, progressing on a cloud-first strategy jumped to 55% this year from 40% in 2022.
There appear to be headwinds around migrating more workloads to cloud, as this dropped to 44% from 57% year over year. Moderate and light users remain focused on moving more workloads to the cloud.
Cost savings and cloud-first strategies are the top two initiatives across the board
71% of heavy cloud users will prioritize optimizing existing use of cloud (cost savings)
Cost efficiency/savings (60%) and delivery speed of new products/services (45%) continue to be the top two metrics for measuring progress in the cloud.
Most organizations have a CCOE (56%) or plan to within the next year (17%). Not surprisingly, enterprises (61%) are more likely than SMBs (28%) to have a CCOE.
Manage/optimize costs of cloud services was the third priority for central IT teams in the 2022 report, and this year it jumped to the top spot (64%).
Manage/optimize costs of cloud services was the biggest change this year as cloud usage and the associated costs continue to rise and gain visibility.
The majority of organizations (56%) have a FinOps team, and others (14%) plan to create one in the coming year.
As usual, infrastructure and ops team and cloud team or CCOE lead the charge. Govern IaaS/PaaS usage/costs dropped to 41% from 53% year over year, while FinOps teams increased that responsibility to 35% from 24%.
Year over year, finance/accounting and vendor management teams have less responsibility over cloud costs; responsibilities are shifting to FinOps teams as they emerge and mature.
More than half (54%) of all organizations outsource at least some public cloud work, including 27% that use cloud managed service providers (MSPs) for most public cloud usage.
Enterprises are more inclined to utilize MSPs than SMBs (60% vs. 26%). This is expected as enterprises tend to have larger cloud environments and are more likely to have preexisting MSP relationships. On the other hand, SMBs tend to have simpler cloud infrastructures, including those that only use one cloud provider.
It’s no surprise cloud spend is increasing and therefore no surprise that controlling this rapidly growing cost is a top priority. In fact, this year marks the first time in a decade that managing cloud spend has overtaken security as the top challenge facing organizations across the board. As in previous years, a lack of resources/expertise also continues to be a significant challenge.
For the first time in a decade, managing cloud spend (82%) surpasses security (79%) to become the number one challenge
The shift in challenges may be due to organizations becoming more comfortable with cloud security combined with greater spend due to increased use of cloud services.
Interestingly, all challenges for enterprises decreased year over year with the exception of managing multi-cloud, which increased from 72% to 80%. As organizations consume more services from multiple cloud vendors, managing these bespoke services becomes more complex. Additionally, the percentage of enterprises facing security challenges has dropped from 85% to 78%.
Managing cloud spend is a top challenge across usage levels. As organizations mature, certain functions mature as well. Respondents indicated governance, compliance and managing software licenses have become less of a challenge.
It’s easy to see why FinOps continues to evolve and grow as a cultural practice and financial management discipline. Public cloud spend was over budget by an average of 18%, up from 13% the previous year. Respondents remain bullish on cloud, as 30% expected spend to increase in next twelve months.
Respondents indicated a 39% increase YoY in the amount of cloud spend over budget
Respondents reported that public cloud waste is 28%, down slightly from 32% the previous year.
Cloud provider pricing structures are complex and difficult to decipher, but provider discounts can identify opportunities to reduce costs. About one-third of respondents took advantage of these savings opportunities. In many cases, organizations can easily take better advantage of these discounts.
Roughly two-thirds of organizations aren’t taking advantage of provider discounts to optimize cloud costs
Automated policies such as utilization monitoring (48%) and shutting down workloads after hours (45%) are the most common, whereas using the lowest cost regions and allowing instance sizes/types are the most common manual policies. Surprisingly, nearly three-quarters of respondents still don’t leverage automated or manual policies for requiring tags, a critical way to allocate and optimize costs.
Unit economics is a key metric leveraged in FinOps to gauge efficiency of cloud spend. However, it can be challenging to implement and therefore is not currently widely used.
Kubernetes use continues to dominate, whether self-implemented or via a cloud provider service. The respondents who currently use a managed Kubernetes service, such as AWS ECS/EKS (45%) or Azure Kubernetes Service (AKS) (38%), essentially remain unchanged from the previous year.
Current use of SUSE Rancher decreased from 13% to 8% year over year, while Red Hat OpenShift decreased from 21% last year to 17%.
Native tools such as AWS ECS and AWS EKS are the most used container tools for both enterprises (45%) and SMBs (42%). Organizations are planning to use provider-specific, purpose-built tools along with growing interest in Azure Kubernetes Service (AKS) and Google Kubernetes Engine (GKE).
Overall, organizations named lack of internal staff with expertise (36%), migrating traditional applications to containers (28%) and ensuring security (26%) as very much a challenge related to container use. More than half of respondents (54%) named optimizing costs of containers as somewhat of a challenge.
Organizations continue to struggle with costs and hiring, and migrating traditional applications to containers is more problematic, as traditional apps aren’t implemented via microservices, which are more aligned to containerized deployment models.
Native cloud tools—including AWS CloudFormation (51%), Azure Resource Manager templates (44%) and AWS Systems Manager (32%)—are most commonly used. This is the first year Azure Automation made the list, coming in at 31%, with the highest number of respondents (25%) planning to use. Cloud provider tools are well suited to their respective environments.
Similar to overall numbers, enterprises tend to use provider-specific templating tools. The use of cloud-agnostic tools such as Terraform, Puppet and Chef continues to decline as the provider tools increase in usage. SMBs are more likely to use Terraform than enterprises (35% vs. 29%).
Last year was the first year Azure surpassed AWS in adoption rates, but this year respondents indicated AWS is back on top, with 47% using the provider in significant workloads and 41% using Azure. Oracle, IBM and Alibaba cloud services remained relatively unchanged.
28% of organizations are experimenting with or plan to use Oracle Cloud Infrastructure or Google Cloud Platform
AWS and Azure remain the most widely adopted cloud providers, ahead of Google Cloud Platform, Oracle Cloud Infrastructure, IBM Cloud and Alibaba Cloud.
In last year’s report, enterprise adoption of Azure surpassed that of AWS for the first time, by a 3% margin. This year the two are tied at 75%.
SMBs continue to favor AWS over other cloud providers, with 71% using AWS and 51% using Azure. Usage of Google Cloud Platform has significantly decreased from 43% last year to 28% this year. IBM Cloud usage remains low, as it’s primarily adopted by larger organizations with existing contracts for various IT services.
Additionally, usage of all other cloud providers has significantly decreased among SMBs, indicating that they’re increasingly choosing to use either AWS or Azure.
SMB usage of Google Cloud Platform significantly decreased year over year
Public cloud provider adoption is influenced by the organization’s cloud usage level. As organizations mature, they tend to gravitate toward market leaders. As was the case last year, AWS is used more frequently by organizations that have been using the cloud over a longer period and are heavy cloud users.
Heavy cloud users are more likely to use AWS
With all respondents, AWS leads (or is tied) in most spending tiers with the exception of those spending $1 million - $2 million per month. Fourteen percent of AWS users spend more than $12 million a year, compared to 12% for Azure and 7% for Google Cloud Platform. IBM and Oracle Cloud Infrastructure are a distant fourth and fifth. Fifteen percent of AWS and Azure enterprise users each spend more than $12 million a year.
The number of virtual machines (VMs), or instances running in each cloud, provides additional insight into the size of an organization’s footprint within them. AWS and Microsoft Azure lead among the larger footprint sizes of 500+ instances. Microsoft Azure Stack has more large-footprint deployments than either AWS Outposts or Google Anthos.
Similar to last year, data warehouse is the most commonly used PaaS offering, followed by DBaaS (relational). Machine learning/artificial intelligence is being experimented with more than any other service and, not surprisingly, it’s the leading PaaS offering that is being planned to use.
The highest percentages of enterprises report experimenting with or planning to use machine learning/artificial intelligence, edge services and stream processing.
Organizations continue to increase their use of PaaS services as overall cloud usage rises. Data warehouse, DBaaS (relational) and container-as-a-service lead the pack with heavy users.
Most organizations are taking a multi-cloud, hybrid approach in which private cloud plays an essential role. Microsoft Azure Stack ranked first, with 41% currently running workloads, up from 37% last year. AWS Outposts switched places with VMware vSphere/vCenter for second place. Others remain relatively unchanged, with the exception of OpenStack, which continued its downward slide the last few years, dropping to 11% this year from 15% past year.
Microsoft Azure Stack continues to lead the way among enterprises, increasing from 38% to 46% in current use year over year. AWS Outposts ranks second, followed closely by VMware vSphere/vCenter and VMware System Center, which maintain results similar to last year.
Microsoft System Center and Microsoft Azure Stack remain in or near the lead for SMBs. Still, VMware vSphere/vCenter made slight gains this year to move into a tie for first. OpenStack and Google Anthos saw significant decreases this year.
European distribution is very similar to that of the global respondent pool, with 33% coming from organizations of 10,000+ (compared to 32% globally).
The industry breakdown for European respondents is similar to that of the global survey: heavily weighted toward financial services and technology. There were fewer respondents from healthcare organizations (6% compared to 11% globally) and more transportation organizations (12% compared to 5% globally).
As in years past, European respondents’ organizations are mostly headquartered in the United Kingdom (62% this year compared to 41% last year). Other Europe includes any country with less than 1% of respondents.
Global and European data is consistent across respondent pools.
European respondents have slightly fewer architects than the global pool (26% to 29%, respectively) and more director/managers (37% to 31%, respectively).
European respondents have similar numbers working in a CCOE, but very few working in FinOps teams (2% vs. 9% globally).
Sixty-two percent of European respondents are heavy users this year, compared to 65% globally and 58% of European heavy users last year.
Despite economic uncertainty, 91% of European respondents kept cloud spending at the same level or increased it.
Similar to global sentiments, economic uncertainty doesn’t seem to have a significant impact on cloud usage and spend for European respondents
The majority of European organizations have a CCOE (50%) or plan to within the next year (22%).
Understanding app dependencies is the top challenge in Europe (57% vs. 49% globally). Rightsizing/selecting best instance is slightly less of an obstacle (37% vs. 42% globally). Other categories remain relatively consistent regardless of geography.
The top initiative in Europe is optimizing existing use of cloud (cost savings). Migrating more workloads to cloud was more of a challenge for European respondents (62% vs. 44% globally), while progressing on a cloud-first strategy ranked lower than the global figure (44% vs. 55%, respectively).
European cloud usage is also similar to the global survey. One regional difference is in experimenting and plan to use. Globally, Oracle Cloud Infrastructure ranks highest, while in Europe, Google Cloud Platform is the highest.
Half of European organizations are likely to have a FinOps team, compared to 56% globally.
The world has experienced extraordinary disruption in the past few years, fueled by the global pandemic, the Great Resignation and economic uncertainty. And while organizations of all sizes are prioritizing every dollar of spend, the cloud and technology will weather economic storms. Those enterprises that remain focused on digital transformation, seizing new opportunities and evolving strategic initiatives through a cost-conscious lens will be better positioned for success than their competitors.
Flexera delivers SaaS-based IT management solutions that enable enterprises to accelerate digital transformation and multiply the value of their technology investments. We help organizations inform their IT with definitive visibility into complex hybrid IT ecosystems, providing unparalleled IT insights that allow them to seize technology opportunities. And we help them transform their IT with tools that deliver actionable intelligence across an ever-increasing range of dimensions to effectively manage, govern and optimize their hybrid IT estate.
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