European public cloud spending will reach $142bn in 2023 - IDC

Despite economic challenges, spending on cloud services is set to grow and continue breaking records in 2023

European public cloud spending is set to reach $142bn (£112.37bn) in 2023 and will reach $291bn (£230.27bn) by 2027, IDC reports.

According to IDC's Worldwide software and public cloud services spending guide, spending for cloud services in Europe will record a five-year (2022-2027) compound annual growth rate (CAGR) of 20 per cent.

Software-as-a-service (SaaS) will continue to drive most of the spending, while platform-as-a-service (PaaS) will remain the fastest-growing area.

Despite the macroeconomic challenges of 2023, IDC reported that European businesses will push forward in their public cloud adoption journey and do not expect cloud-related investments to be at risk when it comes to IT budget cuts.

About 55 per cent of European companies will migrate to the cloud by the end of 2023 to improve IT staff productivity, strengthen data security, and drive AI-infused automation, which is gaining momentum thanks to the generative AI (GenAI) hype.

Banking, retail, and telecommunications will be the top spenders for public cloud in 2023, accounting for 26 per cent of the overall market value.

Telecommunications companies have been less impacted by higher energy prices than other industries.

Debt redemption in the telecom sector remains low, and costs linked to higher interest rates are contained, creating favourable circumstances for releasing IT budgets.

IDC said it expects public cloud investments in the telecoms to grow strongly in 2024, placing it among the highest-spending industries, along with life sciences, utilities, and healthcare payer.

In the longer term, software and information services will have the highest CAGR among industries in Europe, growing 27 per cent over 2022-2027.

Despite being one of the most innovative sectors, software and information services has experienced reduced business revenue growth, mass employee layoffs, and higher infrastructure costs.

These factors led businesses to invest in cloud to automate tasks in areas where headcounts were reduced and to support productivity among the workforces.

"Inflation remains high, costs of living are affecting customer price sensitivity, and businesses want to reduce costs to avoid financial trouble," says Andrea Minonne, research manager at IDC UK.

"Although IT prospects are less favourable than previously forecast and customers are facing price increases related to their cloud usage, cloud migration continues, since the technology is seen as a way to boost efficiency and optimise cost, going against the odds of an unfavourable market."

Investments in cloud continue to drive innovation and, together with emerging technologies such as GenAI, will support businesses' digital transformation in the years to come.

The rise of GenAI will also be a significant market factor, as it relies on extensive language models (LLMs) and demands strong and easily scalable computing capabilities to handle real-time data processing.

IDC also reported earlier this year that worldwide spending on public cloud services is also expected to break records. Spending is forecast to reach $1.35tr in 2027, according to the latest update to IDC's Worldwide software and public cloud services spending guide.

In April, research by Gartner found that worldwide cloud spend would reach $600bn in 2023 alone.