The pandemic period has been a boon for three companies that dominate the cloud computing industry. Now that the economy has entered a chaotic new phase, it looks like Amazon, Microsoft and Google are ready to step up the pace.
According to analyst firm Synergy Research Group, these three companies raised 65% of $53 billion of global spending on cloud computing services in the first quarter, up from 52% of global sales four years earlier. They are likely to continue to dominate this important and thriving market because their size allows them to better invest and attract clients looking for stability in turbulent times, according to industry professionals and analysts.
Despite their convenient market position, the development of the cloud computing divisions of Amazon, Microsoft and Google (Alphabet) is similar to that of startups, with sales up more than 30% year-over-year on the other hand. The past few quarters, smaller cloud services have seen their market share decline as spending on cloud computing moves to larger platforms, according to Synergy.
The pandemic has led to a clear shift in spending towards remote (“cloud”) computing services, where life and work are digitized. Cloud IT players have consolidated their dominance in part due to industry economics, which require huge investments in servers and facilities that host them, analysts say.
The larger the server farm networks, the lower the average cost to build and operate, which gives these three companies an advantage. They are also favored by their ability to develop chips, software, and other technologies for the cloud.
said Matt Jarman, senior vice president of sales and marketing at Amazon Web Services, the e-commerce giant’s cloud division.
Meanwhile, smaller companies in the sector are set to face tougher fundraising conditions, analysts say, as lower stock prices make investors less inclined to take too much risk. Additionally, customers are looking to standardize their spending and are likely to prefer larger players in the market that often offer more reliability and a broader set of features.
Saber, a software company for the travel industry, has decided to move more toward the cloud, which it says will help it save money and gain operational flexibility. The company is increasingly benefiting from the Google cloud, because by using a single resource, it has been able to simplify the technology used by its engineers and the rest of its employees.
Joe DeFonzo, CIO at Saber, said Google’s ability to analyze large amounts of data and its wide feature set allow Saber to focus its spending on a single vendor, saving it time and effort juggling multiple vendors.
“We are moving from managing hundreds and hundreds of one-to-one relationships managed through third-party software to increasingly using Google Cloud,” he said. According to him, if 28% of the company’s spending on cloud computing services is with Google to date, this figure should rise to 65% of Saber’s cloud budget by the end of the year.
According to analysts polled by FactSet, the combined revenue of the three US groups from their cloud computing offerings grew more than 33% last year and is expected to grow about 29% this year.
“These three giants really outperform everyone else,” said John Dinsdale, senior analyst at Synergy.
Thomas Kurian, CEO of Google Cloud, whose global market share fell 1.5% in 2015 to 7.1% in 2021, according to research firm Gartner, said as other technology sectors grapple with post-pandemic slowdowns, demand for Google Cloud services has remained unchanged. Cloud computing is powerful.
“We continue to see continued demand and interest from customers around the world in nearly every industry,” he said.
In recent years, some cloud computing companies, both new and old, have advanced their business by providing software and services to help customers interact with the cloud. However, the dominance of these three companies in cloud hosting means that other companies in the sector generally have to keep working with them, subsequently allowing these giants to offer competing products.
Aaron Levy, managing director of Box, explains that the heft of the Big Three helps bring down Box prices, but it also reveals their dominance of the market.
“These players are able to achieve economies of scale, and this is a self-sustaining phenomenon,” said Mr. Levy. Box sells cloud-based content management and collaboration software, making it a user of services from the Big Three cloud companies as well as a competitor.
Snowflake is one of the cloud service providers that has grown rapidly in recent years. But it faces increasing competition from the cloud platforms it uses. Its annual revenue has doubled in the past two fiscal years, but the company expects growth to slow to 66% this year.
The company, which helps customers analyze enterprise data across various clouds, accused Google of trying to drive down sales by pushing its rival data analytics product, BigQuery.
“Google is not an open platform,” Snowflake’s chief financial officer, Michael Scarpelle, said at an event earlier this year. “They don’t like to form partnerships very much, especially if they feel threatened.”
Google said it proved it could work smarter with its competitors and that some customers chose its product over Snowflake because it was better.
Other publishers have accused Amazon of developing competing software in the cloud. Amazon said it was only catering to its customers.
Newcomers to cloud computing platforms, such as startup Sushi Cloud, are trying to break through by focusing on specific areas, such as lowering the costs of running artificial intelligence (AI) programs in the cloud. Others, like Cloudflare, try to lure customers by offering great rates for transferring data from their clouds. Big cloud computing companies often charge high data transfer rates.
“The harsh reality is that the Big Three are still going around and logging in and it will continue to grow,” said Shauna O’Flaherty, COO of Sushi Cloud. “I just hope that competitors can break into this market without being intimidated.”
Translated by Emanuel Cyrano from the original English version