GenAI and AI Drive Cloud Expenses Sky-High, Study Reveals

Cloud computing has been a game-changer for businesses, offering flexibility, scalability, and efficiency. However, the rapid growth of cloud services has also led to a surge in expenditures, particularly driven by the demands of artificial intelligence (AI). According to Chris Ortbals, chief product officer at Tangoe, the rise of GenAI is pushing IT expenditures to new heights, with cloud spending increasing by 30% year-over-year. Without proper management, this trend could make innovation financially unsustainable.

A recent study conducted by Tangoe surveyed 500 IT and finance professionals from various industries, revealing that 92% of respondents reported an increase in their cloud spending. The top reasons cited for this rise were AI (50%), GenAI (49%), and automation (36%). On average, companies are allocating $40 million to cloud services, with a fairly even distribution across categories such as SaaS (28%), Private Cloud (28%), IaaS (25%), and UCaaS (19%).

One of the key takeaways from the study is the complexity of cloud financial management, with specific challenges identified in the process. In response to these challenges, organizations are seeking best practices to optimize their cloud spending and drive better results. For instance, 94% of cloud cost practitioners believe that Financial Operations (FinOps) should evolve to encompass SaaS, not just focusing on Infrastructure as a Service (IaaS).

Cost management in the cloud goes beyond mere expense reduction; it also plays a crucial role in enhancing productivity and security. A significant number of respondents (94%) view increased productivity as a key benefit of effective cloud cost management. Moreover, productivity and security have emerged as top priorities, underscoring the importance of FinOps strategies that not only identify cost-saving opportunities but also advance financial operations and risk management practices.

Despite the importance of effective cost management, many organizations are still relying on problematic approaches. The study found that 63% of respondents use manual processes (21%) or native tools provided by cloud service vendors (42%) to control spending, instead of leveraging specialized FinOps software. This reliance on manual methods and basic tools is associated with a lack of confidence and heightened concerns about potential cost escalation.

In conclusion, as the cloud landscape continues to evolve, businesses must prioritize comprehensive cost management strategies to navigate the challenges posed by rising expenditures. By embracing FinOps practices that address the hidden costs and complexities of cloud services, organizations can harness the full potential of GenAI for sustainable innovation and growth.