While cloud companies made big gains during the pandemic, experts say this year will bring fresh challenges for the sector, including the rise of AI.

Last year, we looked at whether 2023 was the year of cloud technologies as experts weighed in on how they were transforming the way businesses function and grow.

We’ve come a long way from the pandemic-induced rush to digital transformation that businesses sought. Business leaders consciously moved away from an on-premises cloud model to one that relied on third parties to store their data.

But Carl Shallow, director of compliance at Dublin-based cybersecurity consultancy Integrity360, thinks that this trend that was seemingly here to stay may see its cloud burst this year after all.

“Where it was thought that there would be a logical and continuous shift away from on-prem to the cloud, this transition is now not as certain as it once was, with concerns having been growing among organisations for several reasons in recent times,” Shallow said.

Cost and security concerns

For starters, there have been several high-profile cloud breaches last year. Shallow gave the example of Toyota, which in June revealed that roughly 260,000 customers’ data was exposed due to a “misconfigured” cloud environment.

A 2023 cloud security study conducted by Thales found that nearly 40pc of businesses experienced a data breach in their cloud environment. This is a problem from not only a security perspective, but also cost – one of the leading concerns in the sector.

“Organisations are spending significantly on cloud platforms and supportive security, yet the economic gains that they anticipated are struggling to materialise in many cases. Of course, the cloud won’t be scrapped,” Shallow went on.

“Yet it’s possible that we’ll see several organisations planning to move a proportion of their key assets back on-prem in 2024 as they seek to ease concerns surrounding both cost and security.”

AI can threaten cloud players

Like all other sectors, the recent rise in artificial intelligence technologies will inevitably impact the global cloud industry this year. And while the impact will be largely positive, Forrester principal analyst Lee Sustar thinks AI could also pose a threat to big cloud players.

“Cloud providers may be the biggest of Big Tech, but they can still be rattled. The coming year will bring a raft of challenges to cloud providers and their customers as they grapple with the disruptive forces of AI,” Sustar explained.

According to him, hyperscalers – large cloud providers who offer computing and storage services at enterprise scale – have the scope to host graphic process units (GPUs) that “otherwise strain” data centre capacity and pocketbooks.

“Customers want the GPU processors that are critical to AI, and the three biggest cloud providers have a lot of them – but far from all,” Sustar said.

“In fact, they are most likely to be impacted by any chip supply shortages. New cloud providers with GPUs are emerging, as well as resurgent tech companies with market-ready offerings, to enable wider AI adoption among customers.”

Moreover, cloud providers will also have to contend with forces beyond any challenges from rivals, he argued.

“Customers are determined to take their fate into their own hands with the rise of financial operations and increasingly expect their cloud providers to support emerging standards in that space. Meanwhile, delivering sovereign cloud is increasingly difficult as requirements mount.”

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