Businesses have been working to better manage their cloud budgets. Generative AI, which runs on the cloud, is making that much harder.
This article was originally written and published by The Wall Street Journal.
Business technology leaders are expecting their cloud spending to grow in 2024, an increase linked in part to the growth of new generative artificial intelligence services.
“Our cloud usage is up, for example, driven by our use of generative AI in drug discovery,” said Diogo Rau, executive vice president, chief information and digital officer of pharmaceutical company Eli Lilly. “The cloud is important for generative AI because it makes it possible to set up projects quickly and enables large, parallel computations to increase speed.”
Market research and information technology consulting firm Gartner said on Monday that the global cloud market will reach $678.8 billion in 2024, a 20.4% increase from $563.6 billion this year. Cloud infrastructure, or the underlying platform that powers AI, software and applications, is the segment expected to grow the most, at a rate of 26.6% next year, Gartner said.
“Innovation in cloud services has a trickle-down effect on AI solutions and it gives organizations reasons to invest further,” said Bryan Wise, chief information officer of San Francisco-based sales and marketing software firm 6sense. “The advantages they will have access to in terms of fueling business growth through data analytics, or tools like integration platforms, is enough for any leader to want to put their focus there.”
For CIOs, that has meant greater pressure to experiment with and show business results from generative AI services. And, it usually means more spending on the cloud, a crucial technology that enables AI.
“At an enterprise level, embracing AI requires significant and relevant computing power,” said Sathish Muthukrishnan, Ally Financial’s chief information, data and digital officer. The digital-bank operator is planning to use generative AI for summarizing customer service calls on a combination of private and public clouds, and will increase its cloud spending as it continues to modernize its entire tech ecosystem, Muthukrishnan said.
Amazon.com, Microsoft and Alphabet’s Google have looked to generative AI to reinvigorate their cloud businesses even as business leaders pulled back on software spending and sought to control cloud costs. Tech vendors, for the most part, have struggled to turn the AI hype into profits as many CIOs and consumers are still figuring out what they will use AI for, and how much they are willing to pay.
Plus, many CIOs haven’t lost the mindset they gained in the earlier half of the year. Controlling cloud costs remains a key focus, they said, even as generative AI inevitably pushes spending higher.
“AI and the cloud have a mutually beneficial relationship and organizations often quickly see the impact of both through one,” Wise said. “The only place to go for cloud spending is up.”
While AI is a driver of cloud spending, some CIOs say it can also help them keep those costs in check and avoid “cloud sprawl.” For instance, AI can help analyze complex cloud setups and makes it easy to compare cloud infrastructure options and pinpoint pricing plans that save the most money, said Mark Troller, CIO of IT expense management firm Tangoe.
Some say the AI trend was another impetus to make sure they were properly managing budgets. “Generative AI was a factor that led us to take a fresh look at how we structured our internal cloud infrastructure,” said Rajendra Prasad, Accenture’s chief information and asset engineering officer. “We looked at how much computing power we needed, when we needed it and most importantly, when we didn’t need it.”
Others, like Samir Shah, CIO of Fortune Brands Innovations, say they don’t expect to increase their use of cloud while AI is still maturing. “We are working on a few more proofs-of-concept that may change that growth in 2024,” Shah said.
And some say generative AI still represents only a small portion of their overall cloud use. David Vidoni, vice president of information technology at Pegasystems, said the company has a number of generative AI use cases, but “relative to other cloud spends, it’s not a significant cost for us.”
“It will be important to continue to evaluate each generative AI use case and closely manage that because the cost could add up quickly. But if it brings real value to our staff, then we don’t see it as expensive at all,” Vidoni said.