Study finds GenAI and AI drive cloud expenses much higher
According to a new Vanson Bourne study commissioned by Tangoe, cloud spending is up 30% on average due largely in part to Generative AI and traditional AI technologies, and 72% of IT and financial leaders agree that GenAI-driven cloud spending is becoming unmanageable.
“GenAI is creating a cloud boom that will take IT expenditures to new heights,” said Chris Ortbals, chief product officer at Tangoe. “With year-over-year cloud spending up 30%, we’re seeing the financial fallout of AI demands. Left unmanaged, GenAI has the potential to make innovation financially unsustainable.”
The study surveyed 500 IT and finance professionals across a wide range of business sizes and industries with the overwhelming majority (92%) reporting their cloud spending is on the rise. The top three reasons were listed as AI (50%), GenAI (49%) and automation (36%). On average, companies spend $40M on cloud services with a surprisingly even split among categories: SaaS (28%), Private Cloud (28%), IaaS (25%), and UCaaS (19%).
The findings also spotlight the complexity of cloud financial management, highlighting specific challenge areas.
- Hybrid cloud cost management is rising in criticality — 80% find private cloud costs trickier to manage, yet 95% plan to repatriate at least some of their resources from public to private clouds with 47% of resources slated for repatriation on average.
- Software is a key contributor to overspending — 38% of SaaS spending comes from Shadow IT, and 67% admit their productivity software licenses (like Microsoft 365® and Google® Workspace) go to waste.
- Sharing cloud expenses is important but difficult — 93% agree shared cloud expenses should be allocated across the organization, and yet, 53% find chargebacks challenging and time consuming.
Handling rising cloud expenditures
In addition to putting context around the challenges associated with cloud financial management, the study also reveals the best practices helping accelerate results.
A decisive 94% of cloud cost practitioners assert that FinOps must evolve to incorporate SaaS, and not just focus on Infrastructure as a Service (IaaS). A case study shows how a FinOps offering from Tangoe helped a manufacturer reduce Microsoft 365 spending.
Tackling cloud costs is more than cost cutting, productivity and security are also key issues. Here 94% of respondents consider increased productivity a derived value of cloud cost management. Enhancing productivity and security have emerged among the top three benefits of effective cost management, highlighting the need for FinOps that do more than just pinpoint ways to save but also advance financial operations and risk management practices.
Popular approaches are problematic. In controlling spending, a collective 63% of respondents use either manual processes (21%) or native tools from cloud service providers (42%), rather than adopting specialized FinOps software. These approaches correspond with a lack of confidence and higher concerns that costs will spiral out of control.
“The cloud’s hidden costs and unpredictable invoices can become the silent killer of GenAI,” added Ortbals. “The more urgently companies adopt comprehensive cost management FinOps strategies, the easier it is for them to turn GenAI’s promise into lasting innovation instead of runaway expenses and technical debt.”
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