Cloud Spending Surge: AI's Impact on Business Expenditures
The Rising Costs of Cloud Services and AI Involvement
As businesses increasingly integrate Generative AI and traditional AI technologies, cloud expenditures have surged dramatically, up by an average of 30%. In a recent survey, a significant 72% of IT and financial leaders acknowledged that the spending driven by GenAI has become unmanageable. This trend highlights the importance of addressing financial strain in the tech landscape.
Insights from Recent Studies
The Role of Generative AI in Spending
A study surveyed 500 IT and finance professionals across diverse industries, revealing that a staggering 92% reported rising cloud costs. The main contributors listed were AI (50%), GenAI (49%), and automation (36%). On average, companies invest about $40 million on cloud services. Breaking it down, the spending distribution includes Software as a Service (SaaS) at 28%, Private Cloud at 28%, Infrastructure as a Service (IaaS) at 25%, and Unified Communications as a Service (UCaaS) at 19%.
Challenges in Cloud Financial Management
While GenAI creates numerous opportunities, it also brings specific challenges in managing cloud costs. According to experts, 80% of organizations find managing private cloud costs increasingly difficult. To address this, 95% are considering shifting resources back from public clouds to private clouds, with an average of 47% of resources expected to be repatriated.
Key Areas of Concern in Cloud Spending
Overspending on Software Licenses
Software costs are significant in the overall picture, with 38% of SaaS expenditures originating from Shadow IT. Even more concerning, 67% of professionals admitted that productivity software licenses for tools like Microsoft 365 and Google Workspace often remain unused, leading to wasted resources.
The Dilemma of Allocating Shared Cloud Expenses
While 93% recognize the necessity of allocating shared cloud expenses throughout the organization, 53% find this process challenging and time-consuming. This discrepancy emphasizes the need for more effective strategies in managing shared cloud costs.
Effective Strategies for Managing Cloud Expenditures
Expanding FinOps Coverage
A critical insight from the study is the call for FinOps practices to evolve. A resounding 94% of cloud cost professionals believe that FinOps should expand beyond Infrastructure as a Service to include SaaS applications. This shift is necessary for comprehensive financial management in the cloud era.
Focusing on Productivity and Security
Both productivity and security are primary concerns for companies looking to optimize their cloud costs. A surprising 94% of survey respondents identified increased productivity as a crucial benefit of effective cloud cost management. Companies are urged to adopt FinOps solutions that enhance both financial operations and risk management.
Addressing Hidden Costs in Cloud Services
Chris Ortbals, the chief product officer, emphasized the need to focus on the hidden costs associated with the cloud. He noted, “The cloud’s hidden costs and unpredictable invoices can become the silent killer of GenAI.” The importance of robust cost management strategies cannot be overstated as companies strive to harness AI’s potential while maintaining financial sustainability.
About Tangoe
Tangoe has been at the forefront of technology expense management for over two decades. As a leader in AI-powered automation, Tangoe helps enterprises manage their expenses more effectively, enhancing visibility over spending and mobile devices. With a comprehensive solution for telecom, mobile, and cloud cost optimization, Tangoe offers significant benefits in financial predictability and digital ROI. To learn more, visit Tangoe.com and follow them on LinkedIn.
Frequently Asked Questions
What is causing the increase in cloud expenses?
The rise in cloud expenditures is largely attributed to the adoption of Generative AI and traditional AI technologies, which drive demand for cloud services.
How do organizations manage rising costs associated with cloud services?
Becoming increasingly common, organizations are implementing FinOps strategies to better manage and optimize cloud spending while ensuring operational efficiency.
What percentage of IT leaders find cloud spending unmanageable?
A significant 72% of IT and financial leaders reported finding GenAI-driven cloud spending to be unmanageable.
What are the biggest contributors to overspending in cloud services?
The study identified AI technologies as the primary drivers of increased cloud costs, with Shadow IT also contributing significantly to software overspending.
How long has Tangoe been operating in the technology expense management area?
Tangoe has been a leader in technology expense management for over 20 years, continually innovating through AI automation and strategic cost management practices.
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