The key cloud trends in 2023 – and what they mean for 2024

Adrian Bradley looks at what’s been happening in the cloud over the past 12 months, and what tech leaders can expect in the year ahead.

As we head towards the end of the year, CIOs and heads of cloud are turning their thoughts to how cloud can drive value for their enterprise in 2024. Developments in the market suggest that the next 12 months will be a particularly interesting and dynamic time for the cloud.

Throughout the tech sector – including the cloud – 2023 has undoubtedly been the year of generative AI.

Gen AI has enormous potential to reduce costs and release value. AI can take out material amounts of cost – nearly a quarter in some functions. We’ve seen revenue increases of 6.3% attributable to AI, while it has driven a step change in the share price for some companies. 

Gen AI is more than a form of technology infrastructure. It’s part of a long-term trend of the cloud influencing the transformation of business functions.  Its impact has been felt particularly keenly among cloud service providers (CSPs) – not least because it uses vast amounts of cloud computing power.

But its effects go much further. It has subtly changed the balance of power between cloud and non-cloud infrastructure providers.

Plenty of undifferentiated workloads need commodity storage and compute, whether or not they’re on the cloud. But more and more organisations are now creating workloads that require cloud-based, gen-AI services – and therefore the public cloud.

However, this explosion in demand has come up against a bottleneck: a shortage of AI chips. The hyperscalers reacted well to these constraints, but prices rose as a result. Other providers had to ration graphics processing units.

AI capabilities command higher prices (and are more expensive to develop). These premium prices may prompt CSPs to increase margins on less lucrative, more commoditised compute and storage services: optimising margins where capacity is finite would be a rational economic response. As consumption increases, the hyperscalers in particular will seek profitability.

Gen AI has also forced CSPs to think more carefully about the ethics of their services. Offering insights and controls will be vital to encourage adoption. 

Given the continuing impact of generative AI, what can we expect from CSPs in 2024?

Firstly, the hyperscalers are already offering automated code generation to accelerate customers’ development cycles (such as the latest version of Open AI, launched in November 2023).

As a capability, that will be even more powerful than the content generation which large language models like ChatGPT introduced. The use cases are compelling: imagine a tool that can interpret a screen grab, then generate the code to visualise a dashboard. In 2024, we’ll see these tools increasingly used by engineering communities for scaled enterprise use cases.

Such applications come with risk, however. Cloud users will need to get better at managing the ethical implications of AI, and instilling the necessary controls. That will mean understanding the risk, regulatory and governance implications from the outset.

Beyond that, the direction of the cloud will depend largely on how companies settle into using AI services, which the hyperscalers are deploying at blistering pace. Most firms are still catching up with the fast-widening range of capabilities available to them.

But what’s certain is that the functional focus will remain – i.e. using cloud to save costs in the back office, and drive revenue and margin in the front office.

I’d anticipate competition in the cloud market becoming even more fierce next year, especially between the hyperscalers. Providers may act pre-emptively ahead of the Competition and Markets Authority’s investigation into cloud competitiveness, which will report in 2025. This could lead to easier interoperability, and simpler long-term commitment mechanisms.

But whatever the outcome, organisations will need to better understand and manage their cloud costs, if they’re to drive value from their investments.

The early adopters who lifted and shifted applications to the cloud are realising that this hasn’t delivered the value they expected. Many have embarked on more genuine transformations, often moving from IaaS to PaaS by their modernising applications.

A key enabler of that journey will be industry solutions (also known as ‘industry clouds’). Though these offer significant potential, their impact so far has been mixed. But I think they’ll make waves in 2024, as CSPs embed gen AI into them, and offer increasingly effective, end-to-end functional solutions. These will likely see take-up in the banking, healthcare, and consumer sectors, where CSPs have the most mature industry clouds.

Firms adopting edge computing strategies is a trend from last year that will gather strength in 2024. These will be more important than ever in industries like energy, manufacturing, pharmaceuticals, healthcare and automotive – where edge technology has the highest impact and most mature use cases.

Finally, while many government departments use the cloud extensively, there’s huge scope for greater consumption in this sector. Many departments plan significant investments, which will gradually reduce technical debt across government, and create new capabilities in line with their digital strategies.

As more organisations invest in their cloud estates, to benefit from emerging technologies liked gen AI, they’ll face a twin challenge: maximising value while minimising cost.

On the value front, many established, product-based technology businesses are revamping their approach to agile. Product teams have increased their speed. But the next step in the evolution should be better developer enablement and more automation, to improve the structural foundations that underpin speed, agility and control.

Most firms have a cloud cost management capability. But they often struggle to get product teams to prioritise cost while they’re busy delivering functions and features for the business.

This will remain an important focus in 2024. But there’s the added complexity of a changing cost landscape. Inflation, the rising cost of AI workloads and regulatory pressures are combining to bring more volatility to the cloud’s economic model.

And, of course, cyber security will stay paramount. The understanding of cloud controls and resilience has matured significantly, but cloud estates often include outdated or sub-optimal security and controls postures. That’s nothing new, but in 2024, awareness of the issue of technical debt in the cloud will inevitably increase.

If that’s too dour an outlook, let’s remember that the cloud is where the best enterprises go to build the capabilities required to compete, remain resilient and delight customers. Without doubt, the impact of the cloud on business functions will be greater than ever next year.

KPMG’s Cloud team can help you understand what the latest market trends mean for your cloud strategy. Please get in touch to find out how we can support your enterprise as you prepare for the year ahead.