A version of this article originally appeared in Forbes.
During a downturn, IT budgets will inevitably tighten, and many startups will need to prove their relevance—and value—as must-haves. But despite the macro concerns we’ve all been living through, a promising sign is that overall growth in cloud spending is still robust.
With more than two decades of investing experience in infrastructure software (including developer tools, data infrastructure, and cybersecurity), my top prediction for the year ahead is that the public cloud ecosystem will continue to catapult forward. Here’s why:
Cloud spending isn’t decelerating
The three largest public cloud vendors—Amazon, Microsoft, and Google—all announced third-quarter annual growth of 28% to 42%. These three players are getting close to $200 billion in annualized revenue, which is a clear indicator that cloud projects aren’t getting slashed.
Some may interpret Microsoft Azure’s 42% year-over-year growth in Q3 as a sign of waning interest (compared to 48% year-over-year growth in Q3 2021)—but 42% year-over-year growth at $13B is still exceptional.
We’re still in the early innings of cloud adoption
Looking at the bigger picture, it’s clear that this market is enormous, is still largely untapped, and will likely outlast the current economic turmoil. As this cloud spend reference by Datadog shows, the early stages of cloud adoption leave a lot of room for growth.
- According to Gartner’s forecast of public cloud services worldwide, an estimated $500 billion in cloud spend in 2022 accounts for only about 11% of total IT spend
- By 2023, cloud spend is projected to reach nearly $600 billion, or about 12% of total IT spend
- By 2026, that percentage of total IT spend climbs to 17%
- Based on current growth rates, we expect that cloud services will one day account for at least 25% of global IT spending
The bottom line: Against this backdrop, we can also expect to see more consolidation among cybersecurity startups and a slimmed-down modern data stack. While none of us know for sure how long this next downturn will last, the untapped billions in cloud spend could be this year’s silver lining.
Read more VC predictions:
- “Cybersecurity M&As Can Be the Beginning, Not the End” by Oren Yunger, partner at GGV Capital
- “2023 Will Accelerate the Modern Data Stack” by Dan Cahana, investor at GGV Capital