Australian businesses are leaving most of the cloud services they signed on for with hyperscale providers unused, putting them in weaker renegotiating positions or forcing them to ratchet up their investments in migration plans.
That’s according to analysis of financial disclosures by Indian big tech firm Infosys, which works with cloud customers around the world, including Australian firms and governments, to get more out of their cloud commitments.
With the company expecting artificial intelligence to drive even more investment in cloud services from a local market dominated by three hyperscalers, it is advising end users to have a genuine business case before locking into multi year commitments.
Anant Adya, a US-based Infosys executive vice president said public cloud providers like Microsoft, AWS and Google are asking customers to sign consumption commitments as part of their contracts. In the case of large companies it can be a commitment to consume hundreds of millions of dollars of cloud services by an agreed time.
“Most of the customers have not been able to consume the commitments they have made,” Mr Adya said.
He points to Sabre, a 63 year old Texas travel technology company that signed a $2 billion, 10-year agreement with Google Cloud in 2020, rejecting a multi-provider approach.
18 months in and the company relied on by major airlines around the world had barely made a dent in the commitment, reportedly spending less than $10 million — around $80 million below planned at that point.
“Reality hit them in terms of migrating workloads to the cloud or modernising their workloads and then putting them on cloud. They found that it is not that easy, because of the way application architecture is required to be run on cloud,” Mr Adya told InnovationAus.com.
“That is [the same reason] why the majority of customers today are struggling to consume the commitments that they have made.”
Infosys has analysed unrealised revenue filings to Securities and Exchange Commission by the big three hyperscalers and other leading providers. It found this cloud utilisation gap is now US$321.4 billion and represents more than half of currently contracted cloud services.
According to Infosys, the unused cloud commitments will be consumed in the next three-to-five years but will likely be renegotiated and blended into a larger figure for longer contract terms.
But the company warns the cloud utilisation gap ultimately leads to bad outcomes for the users – write off the spend, spend more to accelerate a migration and take advantage of the services, or renegotiate new commitments from a position of weakness, according to Infosys.
The Australian Senate this year probed the influence of digital platforms, hearing evidence that market leader Amazon Web Services makes it difficult for small businesses to negotiate contract terms and get fair prices, in part because of its “pseudo duopoly” with Microsoft.
The hyperscalers were accused of imposing non transparent cloud agreements, including difficult to understand consumption costs. The Senate has recommended tougher regulations for digital platforms and a new coordination body to help watchdogs enforce them.
Mr Adya said the cloud utilisation gap is significantly bigger in the local market — 63 per cent of ANZ companies have used less than 50 per cent of the cloud they have committed to.
In Australia there is a “very high” disposition towards cloud and the cloud first strategy has taken hold, creating a healthy cloud “posture”.
“Every IT executive will say, ‘yes, absolutely, we are aligned to cloud, we want to invest, we want to move to cloud’,” Mr Adya said.
“But when it comes to reality, in terms of the way cloud has been adopted in this country, I think it’s way below what the posture looks like. That is predominantly because of the fact that the amount of effort it takes for you to take this lock stock barrel approach to cloud is very, very high. I think it’s very complex [to actually achieve].”
Infosys, which offers a service that uses thousands of cloud assets and blueprints to get more out of cloud offerings but has itself struggled to deliver technology platforms in Australia, tells clients they need a genuine use case to justify big cloud commitments.
Users looking to cloud to cut down current costs will be disappointed – “cloud is not cheap” – but for businesses that needs to scale up at certain times like busy holiday periods cloud is a way to do this without building infrastructure that will otherwise lay unused.
“Ultimately, the conversation comes back to can you embed the business case in the cloud? Unless you have that, there will be challenges.”
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