Europe is set to witness a substantial surge in public cloud services spending. Despite facing economic challenges, European businesses are expected to invest heavily in cloud technology, with spending projected to reach $142 billion in 2023, and an estimated growth to $291 billion by 2027.
This represents a remarkable five-year compound annual growth rate (CAGR) of 20 percent from 2022 to 2027, according to the recently published “Worldwide Software and Public Cloud Services Spending Guide” by the International Data Corporation (IDC).
SaaS Leading the Way
Software-as-a-service (SaaS) is expected to remain the driving force behind most of the cloud spending, facilitating businesses in their digital transformation journeys. Meanwhile, platform-as-a-service (PaaS) will continue to be the fastest-growing segment within the cloud services market, the report said.
Resilience Amid Economic Challenges
Europe has faced a series of macroeconomic challenges in 2023, including high inflation, banking crises, and layoffs in the tech sector. Nevertheless, European companies remain committed to their cloud adoption initiatives. They do not anticipate cloud-related investments to be jeopardized, recognizing the cloud’s pivotal role in enhancing IT staff productivity, bolstering data security, and harnessing AI-infused automation.
Approximately 55 percent of European enterprises are expected to migrate to the cloud by the end of 2023, driven by the need for increased efficiency, improved data security, and the growing momentum of generative AI (GenAI).
Top Spending Industries
In 2023, the banking, retail, and telecommunications sectors are projected to lead public cloud spending, collectively accounting for 26 percent of the total market value. Telecommunications companies have faced fewer challenges related to rising energy costs, making them more resilient. Additionally, low debt redemption rates and controlled interest rate-associated expenses create a favorable environment for increased IT budget allocation. IDC foresees strong growth in public cloud investments in the telecommunications sector in 2024, placing it among the highest-spending industries, alongside life sciences, utilities, and healthcare payers.
Software and Information Services on the Rise
Over the longer term, the software and information services sector is predicted to experience the highest CAGR in Europe, with a growth rate of 27 percent from 2022 to 2027. Despite being an innovative industry, it has encountered challenges such as reduced business revenue growth, extensive layoffs, and higher infrastructure costs. Consequently, businesses have turned to the cloud to automate tasks, particularly in areas where workforce reductions occurred, and to enhance overall workforce productivity.
Andrea Minonne, research manager at IDC U.K., emphasized, “Although IT prospects are less favorable 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 optimize cost, going against the odds of an unfavorable market.”
Driving Digital Transformation
Investments in cloud technology are expected to drive innovation and, in conjunction with emerging technologies like GenAI, will support the digital transformation of businesses in the coming years. The rise of GenAI is poised to be a significant market factor, as it relies on extensive language models (LLMs) and necessitates robust and easily scalable computing capabilities to handle real-time data processing. This transformative force promises to reshape industries and propel them into a new era of digital innovation.