The major players in the cloud space are scrambling for pole position in 2023, each trying to dominate a market that’s for years been led by a handful of companies.
Some of the largest companies in the cloud computing infrastructure space reported weak growth late in 2022, prompting assurances to investors of a rebound with strong earnings to come. The industry has seen tremendous growth, particularly compared to the broader global economy, as businesses from all sectors shift their computing power and storage from physical servers to the cloud.
Expect jockeying for market share by cloud infrastructure companies amid attempts by smaller players to disrupt the status quo, analysts say.
“If you have a trillion-dollar market, which we think we will have, even a half-percent change in your share of the market makes a huge difference,” Lee Sustar, principal analyst at Forrester, told Silverlinings.
Forrester projects the cloud market will reach $1 trillion by 2026, but that growth will come at a cost for the biggest players, including Amazon Web Services (AWS), Microsoft and Google Cloud, according to Sustar.
“[This growth] will be challenged, however, by competitive pressure for hyperscalers and providers to make massive investments in services like database and analytics, development services, and SaaS — all while maintaining high levels of infrastructure investment to keep pace with their rivals’ innovation,” he wrote said in an analysis of Forrester's projections.
Cloud consumers are cutting budgets
AWS, which held the largest share of the market in cloud 2022, reported earnings from its cloud-computing arm that were short of analysts’ expectations for the third quarter of 2022, coming in at $20.5 billion compared to the $21.1 billion expected from analysis by StreetAccount.
“We do see some of the consumers are cutting their budgets and trying to save money in the short run,” Brian Olsavsky, Amazon’s chief financial officer, said on the call, adding that the shift will be “offset by increasing productivity and efficiencies in our data centers, which drive profitability.”
The cloud behemoth promised an overall resurgence for the company even if web services fluctuates – it expects fourth quarter revenues to reach $140 billion to $148.0 billion, or to grow between 2% and 8% compared with fourth quarter 2021.
However, competitors like IBM and Microsoft beat their third quarter projections on the strength of their cloud divisions.
At the same time, smaller competitors are leaning in on the cost-cutting trend. In 2022, NetApp and VMware, which was acquired by Broadcom, partnered to help companies slash the cost of their multi-cloud environments. The startup Zesty in September scored a $75 million Series B funding round for its solution to cut cloud costs by automatically adapting compute and storage needs for a company.
Oracle a ‘big wildcard’
Despite the hyperscalers hold on the global market, it is highly fragmented and competitive. New players are emerging all the time. Additionally, cloud providers are investing heavily in research and development to stay ahead of the competition.
Regional providers, which compete for about 19% of the market, are quickly becoming important players in areas where regulatory and compliance requirements have stymied the bigger companies from dominating, according to the Gartner report from October 2022.
At the same time, other tech companies are hoping to capture the data needs for an entire sector. Oracle, which bought the electronic health record company Cerner in late 2021 for more than $28 billion, has made in-roads selling industry-specific cloud applications to hospitals and health systems, company executives told investors.
“They’re the big wildcard,” Holger Mueller, principal Analyst and vice president of Constellation Research, Inc., told Silverlinings.
Oracle’s second quarter revenues, posted in mid-December, reached $12.3 billion, up 18% year over year, with help from Cerner’s growth, Oracle Chairman and chief technology officer, Larry Ellison told investors.
Comparatively, Microsoft in its most recent earnings projected its fourth quarter earnings from its Intelligent Cloud divisions would garner as much as $21.35 billion, driving by a strong third quarter. The company, unlike many of its competitors, doesn’t break its cloud division as a standalone business group.
Growth in the cloud infrastructure space, analysts say, is widely see an inevitable, driven by the need for enterprises to right-size their information technology budgets. This year, it’s a matter of which company can capitalize on that need.
“The cloud has always been the winner,” Holger said.
Got something to say? Write to the editors here.