The IT-Spend Party Is Over; Now It’s the Optimization Hangover

It’s hard to escape the news of reduction in force (RIF) and cautionary forward-looking corporate performance of large tech companies in the news this quarter. But note that there is a huge distinction between enterprise tech and consumer tech. Many of the large tech companies participate in both massive markets. Amazon is an online consumer retailer and offers enterprise compute services via its AWS business unit. Microsoft sells gaming and other consumer productivity software as well as enterprise compute services via Azure. Google is mostly a consumer company that sells compute to enterprises via Google Cloud Platform (GCP). Meta, Spotify, Doordash, Peloton, Netflix and Twitter are consumer tech. All of these companies have announced about 10K RIF each, which for many is a small percentage of their workforce (between 1 and 10%). Twitter and Peloton are the standouts with 50% and 20% RIFs, respectively.   

For enterprise tech companies, it is cautionary. Cisco is a nearly total enterprise tech company, with the exception of its cable set top business that finds its way into many homes; it announced a 5% RIF. Percentage RIF announcements at IBM is 1.5%, SAP 2.5% and Salesforce 10%.  Dell and HPE have not announced RIFs and may not. I think you get the picture; consumer tech growth has slowed, thanks to inflation and reduced purchasing power. The enterprise market is different. Its growth is slowing but not because of budget contraction, but because of the need to optimize.  

We polled ONUG Board members to learn if their IT budgets were increasing, staying the same or decreasing. The vast majority of them indicated that their IT budgets were flat or slightly (1-5%) increasing or decreasing. During the tech bubble burst of 2001, IT budgets were coming down by some 25%; that’s huge. We don’t see anything like that here. Gartner recently noted that “Enterprise IT Spending Remains Strong. Worldwide IT spending is projected to total $4.5 trillion in 2023, an increase of 2.4% from 2022, according to the latest forecast by Gartner, Inc. This is down from the previous quarter’s forecast of 5.1% growth.”

What’s happening in the enterprise market is that everyone is undergoing an optimization exercise. In short, there was massive spend over the past three years fueling rapid digital transformation. Many IT executives are digesting that spend and evaluating its value. Nearly all ONUG Community members are undergoing value extraction and cost assessment programs. They are questioning if they need to continue spending on certain technologies and services. The biggest scrutiny is toward public cloud providers as some have increased their lock-in strategies and made it difficult to impossible to understand how they charge for their services, only to send shocking bills every month to their large enterprise customers.  

IT executives are optimizing this spend by first getting control of public cloud (SaaS/IaaS/PaaS) spend. This includes the evaluation of the following platforms:

Cloud Cost Management Platforms – These tools provide visibility into cloud costs, usage, and trends. They also allow for budgeting, forecasting and optimization of cloud costs. Examples include CloudZero, Desifty, Virtana Optimize, ParkMyCloud, Harness, Cloudability, Flexera, CloudHealth, CloudCheckr Finance Manager, AWS Cost Explorer, Azure Cost Management and Google Cloud Billing.

Cloud Automation and Orchestration Platforms – These tools allow for the automated management of cloud resources, including the ability to spin up and down resources as needed. Examples include Terraform, Ansible, CloudFormation and the ONUG Hyperautomation framework. 

Cloud Cost Monitoring Platforms – These tools provide real-time monitoring and alerts to help identify and address cost issues, such as over-provisioning or over-utilization. Examples include Cloudability, FinOps and CloudCheckr.

In addition, operational models are being reviewed to assure that IT is organized properly to extract max value from their infrastructure spend. This includes best practices to implement and deploy DevSecOps across an organization as well as platform engineering and questioning if DevOps can scale up.  

A hard focus is on automation via AI/ML within the network operations and security operations centers. Companies such as Gluware, netYCE, NetBrain, Augtera, Ansible, Itential and others are leading the way to reduce toil and infrastructure operational spend. ONUG’s work in the Cloud Security Notification Framework or CSNF is a huge productivity boost with the SOC.

Networking is being reimagined as a wide range of new Network as a Service (NaaS) offerings are now hitting the market that promises to significantly reduce cost and provide much needed flexible connectivity for devices and people to interact with their applications. The new NaaS model is based upon a programmable infrastructure that delivers on-demand networking resources with a cloud delivery model. New companies such as Graphiant, NileSecure, Alkira, Prosimo, Broadcom, Pensando (recently acquired by AMD), Valtix, Cisco and others are offering both NaaS services and hardware for building your own NaaS. Look for Verizon, AT&T and other tier-one service providers to deliver a NaaS service in the first half of this year.

It’s time to optimize. In the next few months, every enterprise tech provider will present their products and services through this lens. The IT budget is there if a solution delivers greater value extraction and cost reduction. It’s just that type of business climate we’re in.

At ONUG Spring in Dallas, this is our focus. You can check out the sessions and topics here.

Author's Bio

Nick Lippis