While Amazon has kept a healthy lead for now, both Microsoft and Google are inching closer to the market leader in this cloud services battle)
Any business where the top three control more than three-fifths of the market, has to be termed a monopoly of sorts. However, when it comes to cloud services, the battle for supremacy is raging amongst the top-three Amazon, Microsoft and Google and in this process is actually keeping them miles ahead of the rest of the field.
New research suggests that cloud infrastructure services spending grew 20% year-over-year during the first quarter of 2023 to generate $63 billion in revenue, according to data provided by the Synergy Research Group (SRG). This growth was fuelled by the foundational benefits of cloud adoption, says SRG chief analyst John Dinsdale.
Public infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) represented the majority of the market and grew 21% in the first quarter. Among the top three, Microsoft has 23% of the market and Google 10% which means AWS kept its leadership position at 32%. However, both number two and three gained a percentage point in market share.
However, the research company was quick to point out that the global macroeconomic situation had constrained some growth in cloud spending over the quarter, though Dinsdale was of the view that the current expansion rate of the market was quite healthy. Here’s a quick check on the numbers shared by each of the three cloud giants:
From Google’s point of view, its cloud is finally turning profitable as CEO Sundar Pichai announced during the earnings call. Investors had raised concerns about Google’s cloud consuming millions of dollars and reporting operating losses in spite of a 32% revenue growth in the fourth quarter of 2022.
Pichai has since credited Google Cloud Platform’s $7.5 billion Q1 revenues that delivered a 28% year on year growth as a turnaround that everyone was seeking. “We are leaning into optimization. “I mean, this is an important moment to help our customers, and we take a long-term view,” he had told investors even as CFO Ruth Porter said slower cloud growth in the quarter was due to cost optimization around economic instability.
As for Microsoft, revenues ere in the range of $28 billion in the first quarter with a 22% annual growth, driven in large part by the OpenAI partnership. “Think about the consumer tech companies that are all spinning essentially Azure meters because they have gone to OpenAI and are using their API. These are not customers of Azure at all,” CEO Satya Nadella said.
During the earnings call, investors were told about the cautionary offtake of cloud services during the quarter but this did little to ease nervousness about how much of the IaaS and PaaS consumption slowdown was due to economic issues versus “something more fundamental” about the technologies.
Nadella sought to explain it away saying optimizations would continue and that Microsoft was focused on it. “In the long run, that’s the best way to secure the loyalty and long-term contracts with customers, when they know that they can count on a cloud provider like us to help them continuously optimize their workflow,” he said.
Coming to the market leader, Amazon CFO Brian Olsavsky revealed during an earnings call that AWS revenues stood at $21.4 billion in the first quarter, representing a 16% annual growth rate, a good four points lower than in the previous quarter.
“We’re working to build customer relationships and a business that will outlast all of us,” Olsavsky said. “Therefore, our AWS sales and support teams continue to spend much of their time helping customers optimize their AWS spend so that they can better weather this uncertain economy.”
On another note, CEO Andy Jassy said it was important to remember that customers are pretty explicitly telling us that this is not a cost-cutting effort but a reprioritization of what matters most to our business at this time. He also spoke about the potential of new AWS cloud customers migrating from on-premises environments.