Cloud providers are running out of ‘next big things’

Recent research from Gartner and IDC paints a sobering picture: Cloud providers are experiencing diminishing returns on their innovation investments. Cloud spending continues to grow, but industry analysts note that the pace of revolutionary new services has significantly slowed.

Remember when cloud providers were dropping game-changing innovations every few months? Infrastructure as a service (IaaS) revolutionized our thoughts about computing resources. Serverless computing eliminated entire categories of operational overhead. Container orchestration transformed application architecture. Those were the glory days of cloud innovation.

Innovation is getting thin

Strip away the AI hype and look at the recent announcements from AWS re:Invent, Microsoft Ignite, or Google Cloud Next. Most improvements are incremental: better VM performance, minor serverless enhancements, and slightly more efficient container management. It’s evolution, not revolution.

But Dave, what about AI? Surely AI has supplied a vast amount of innovation cred.

Yes, every cloud provider is now “an AI company,” but let’s be honest — they’re primarily engineering someone else’s innovations into cloud-consumable services. GPT-4 through Microsoft Azure? That’s OpenAI’s innovation. Vector databases? They came from the open source community. Cloud providers are becoming AI implementation platforms rather than AI innovators.

This doesn’t mean they aren’t contributing to innovations, they are. Microsoft’s investment in OpenAI is monetary rocket fuel being injected into the ChatGPT engine to accelerate the juggernaut of generative AI. However, that’s not a cloud-born innovation. Enhancing genAI with cloud money and delivering it through a public cloud provider does not count as an innovation; it’s just building on existing evolutions.

The ‘innovation wall’ is real

The root causes of the slowdown in innovation are clear. Market maturity indicates that the foundational issues in cloud computing have mostly been resolved. What’s left are increasingly specialized niche cases. Second, AWS, Azure, and Google Cloud are no longer the disruptors — they’re the defenders of market share. Their focus has shifted from innovation to optimization and retention.

A defender’s mindset manifests itself in product strategies. Rather than introducing revolutionary new services, cloud providers are fine-tuning existing offerings. They’re also expanding geographically, with the hyperscalers expected to announce 30 new regions in 2025. However, these expansions are driven more by data sovereignty requirements than innovative new capabilities.

This innovation slowdown has profound implications for enterprises. Many organizations bet their digital transformation on cloud-native architectures with continuous innovation. As innovation slows, the cost-to-value ratio of cloud services becomes less favorable. The competitive advantage becomes more challenging when everyone can access the same commoditized services.

Ten years ago, many new cloud users cited innovation as the reason to move to cloud-dependent solutions. Although there were some instances of serverless technology, which was essentially a game-changing innovation, such developments have been rare in recent years.

Charting a new course

Innovative companies are proactively adjusting their strategies and building internal innovations instead of waiting for cloud providers to resolve their problems. They’re embracing multicloud with the belief that providers will innovate in different areas. Most importantly, they’re focusing on business outcomes rather than chasing the latest features—that is, if they’re smart.

The pressure needs to come from both directions. Enterprise customers should demand more from their cloud providers and make innovation a key factor in vendor selection and renewal decisions. Meanwhile, cloud providers must rediscover their innovative spirit to look beyond incremental improvements and find the next breakthrough.

If providers wait for others to innovate, such as generative AI, they will continue to be behind the curve. Enterprises need to evaluate the value of any technology by the innovative differentiators they can offer.  

Moving to the cloud as a community

The cloud industry is entering a new phase. The easy innovations are done. The hard work of solving complex enterprise problems remains. The cloud is no less important — if anything, it’s more critical than ever. However, we need to be more thoughtful about how we use cloud services and more realistic about what we expect from cloud providers.

Cloud providers are taken aback by people like me who call them out on this innovation gap. They quickly jump to a list of new features and bundled technology sets, largely stuff driven by generative AI in the past few years. When someone points out the lack of innovative forethought in what they are now selling, many come to realize that this is a larger problem than they thought.

AI supplies a temporary revenue boost that allows providers to kick the can of true innovation down the road for now. However, the momentum surrounding AI is also slowing down. Enterprises are having difficulty identifying effective business cases, and we are moving past the initial excitement to the practical challenges of successfully integrating AI into operations.

The future of cloud innovation isn’t dead; it’s just getting harder. That might not be a bad thing. It forces us to focus on what really matters, to solve real business problems rather than chase the next shiny object. In an industry often driven by hype, a return to fundamentals might be precisely what we need.

Looking ahead to 2025 and beyond, the winners won’t simply adopt the latest cloud features. They’ll understand how to combine cloud services, internal innovation, and business strategy to create real value. The innovation wall isn’t the end of the cloud story. Cloud providers need to reinvest the billions they’re extracting from enterprises into innovations that can truly change the game. It’s your game to lose.