Index Insider: Cloud Growth Stalls as Enterprises Focus on Cost Optimization

Hi, this is Stanton Jones and Alex Bakker with your weekly briefing of what’s important in IT and business services.
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Cloud growth is stalling as enterprises focus on cost optimization. For the first time ever, bookings for the big three hyperscalers have declined year-over-year. And while much of this slowdown is related to general concerns about the economy, there is a related reason: enterprises are increasingly focused on optimizing their cloud costs.


Big Growth & Big Commitments

Starting in mid-2021, a huge wave of cloud adoption kicked off as companies recognized the massive changes they needed to make to their technology estates to stay competitive.
This led to a lot of big bets – and big financial commitments – to the three big hyperscalers. These agreements represented an enterprise commitment to a certain level of spending with the hyperscaler over a fixed period of time.
And for the hyperscaler, that revenue can only be realized if the services are consumed – which means applications must get moved, created and scaled fast enough to match up with the timeline of the commitment.
However, as we’ve shown over the past year or so, a significant percentage of enterprises have preferred to lift and shift applications rather than rearchitecting them to take advantage of cloud’s unique architecture. This enables enterprises to move apps faster (good if you’re trying to meet a spend commitment), but it can also lead to – no surprise – challenges around scalability, performance and security.

The Cloud ROI Question
Which leads us to today’s Data Watch. As you can see, nearly half of enterprises that indicate scalability is an inhibitor also indicate that their applications cost too much to run on cloud. In many cases, this is a direct result of using the lift-and-shift approach.
This big cloud ROI question is hitting right when enterprises are looking to optimize costs. This is why we are seeing a big push across just about every industry to use and optimize committed capacity rather than prepaying for more.
And, as we discussed on the last Index call, we do believe this is a “cloud pause” and not a “cloud retreat.” But it also means we’re going to see more careful decision-making around where, how and when to deploy cloud services.
Join Us in Person
If you’re interested in going deeper on all things cloud, we encourage you to join us at our Secure, Intelligent, Connected Enterprise (SICE) Summit in Washington D.C. on June 15 and 16.
Our colleagues Bernie Hoecker and Anay Nawathe are co-hosting this one-of-a-kind event that combines practitioner insights on intelligent cloudnetwork and security.
We hope you can join us.


About the authors

Stanton Jones

Stanton Jones

Stanton leads ISG's Index research, helping providers, investors and ISG clients make sense of the global IT services sector. Stanton’s weekly newsletter, the Index Insider, is read by thousands of market stakeholders each week. An ISG Digital Fellow, Stanton has been quoted in Fast Company, Forbes and, and has appeared on national cable news.

Alex Bakker

Alex Bakker

Alex leads the Primary Research Team where he focuses on study design, panel research, and interview based research for ISG. In addition to leading the Primary Research practice at ISG, Alex also serves as the lead analyst on provider pursuit effectiveness, and helps IT service providers understand how they can improve performance in the competitive process. 
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