News & Analysis

Cloud Services: The Road Ahead 

The US cloud market has been robust and the same holds good for India. But, how will the mounting inflation impact this growth?

First things first. The overall cloud services business appears to be in good health with Amazon Web Services, Microsoft Azure and Google Cloud now holding 75% of the US cloud market over the three-months ending September 30. Spends too have been steady, registering a 30% growth year-on-year. But, would companies hold back fresh investments now is the question.

The impact of high inflation, the energy crisis and the continued macroeconomic instability is causing companies to reduce spending on infrastructure. This could hit demand for cloud services in the short term, in spite of the fact that cloud services spend rose 28% globally to touch $63.1 billion in Q3 of 2022, says a report by Canalys. 

The only indicator is that this is the first time annual growth over quarters has fallen below 30% in this high impact sector that powers the global information technology business.  Of course, enterprises continued digital transformation, but the challenge is that most of the top cloud vendors missed revenue targets for the latest quarter. 


Macroeconomic factors could destabilize things 

Meanwhile Synergy Research Group said while macroeconomic factors depressed quarterly revenue growth for the three hyperscalers, enterprise spending on cloud held firm nationally, increasing 30% year over year, a level that is consistent with rates for the last 14 quarters. In fact, it went on to suggest that the US cloud services market was the engine for global growth in this segment of the industry.

The report said global spending on cloud services grew by only 24% as the effects of a strong dollar and other macroeconomic pressures have taken a heavier toll on enterprise spending. As for the US cloud market, it remained in “rude good health” with a year-on-year growth rate that is right in the middle of the range of growth rates seen over the last 14 quarters. 

This view was corroborated by Gartner which came out with a report on public cloud end-user spending data earlier this week. It forecasts spending of around $600 billion in 2023 and predicts that  worldwide end-user spending on public cloud services could grow 20.7% to a total of $591.8 billion by the end of next year, up from $490.3 billion in 2022. SRG’s report noted that the worldwide third-quarter growth rate for 2022 was slightly lower due to the strong U.S. dollar and a “severely restricted Chinese market.”


The US is pulling its weight now

Coming to the US market, the SRG report said Amazon, Microsoft, and Google accounted for 76% of the U.S. market but Snowflake, MongoDB, and Oracle all saw growth in the quarter. SRG reported that Google Cloud garnered 11% of the $57.5 billion spent on cloud infrastructure services during the third quarter, up from 10% of the $54.7 billion it earned the previous quarter.

However, Canalys VP Alex Smith thinks differently. “Under economic pressure, enterprise customers are choosing to reduce operational risks by lowering their IT budgets,” he says, adding that despite winning large deals and having a backlog of contracts to fulfill, the growth of cloud vendors will be constrained because of inevitable project delays as some customers get skittish about the economic outlook. 


AWS, Azure and Google corner the market

AWS held on to its position as the leading cloud service provider in Q3 2022, accounting for 32% of total spending after growing 27% on an annual basis. The business announced new commitments and migrations from customers across industries and geographies while expanding its footprint with a second region in the UA and new regions in Thailand. 

Microsoft Azure had a 22% market share after growing 35% annually, thanks to the strong renewal execution. The cloud business has seen stable revenues in recent times and Microsoft continues its push to host more of its own services on Azure. It announced the launch of a data center in Qatar during the quarter.

And finally, Google Cloud had the highest growth rate of 48% during the period though its market share nudged up to 9%. Besides the consumer sector, the company also gained from new business in the public sector and governments, leading to new cloud regions in Malaysia, New Zealand and Thailand.  

Leave a Response