Synergy: Q3 Cloud Spending Up Over $11 Billion YoY; Google Cloud gained market share in 3Q-2022

Synergy Research estimates the cloud infrastructure market at $57B in Q3-2022. That was up by well over $11 billion from the third quarter of last year despite two fierce headwinds – historically strong U.S. dollar and a severely restricted Chinese market. The incremental spending represents year-on-year growth of 24%. If exchange rates had remained constant over the last year, the growth rate would have been over 30%. As the market continues on a strong growth trajectory,

Google is alone among the hyper-scaler giants to be gaining market share.  Google Cloud increased its market share in Q3 compared to the prior quarter, while Amazon and Microsoft market shares remained relatively unchanged. Compared to a year ago all three have increased their market share by at least a percentage point. Amazon, Microsoft and Google combined had a 66% share of the worldwide market in the quarter, up from 61% a year ago. In aggregate all other cloud providers have tripled their revenues since late 2017, though their collective market share has plunged from 50% to 34% as their growth rates remain far below the market leaders.

Synergy estimates that quarterly cloud infrastructure service revenues (including IaaS, PaaS and hosted private cloud services) were $57.5 billion, with trailing twelve-month revenues reaching $217 billion. Public IaaS and PaaS services account for the bulk of the market and those grew by 26% in Q3. The dominance of the major cloud providers is even more pronounced in public cloud, where the top three control 72% of the market. Geographically, the cloud market continues to grow strongly in all regions of the world.

“It is a strong testament to the benefits of cloud computing that despite two major obstacles to growth the worldwide market still expanded by 24% from last year. Had exchange rates remained stable and had the Chinese market remained on a more normal path then the growth rate percentage would have been well into the thirties,” said John Dinsdale, a Chief Analyst at Synergy Research Group. “The three leading cloud providers all report their financials in US dollars so their growth rates are all beaten down by the historic strength of their home currency. Despite that all three have increased their share of a rapidly growing market over the last year, which is a strong testament to their strategies and performance. Beyond these three, all other cloud providers in aggregate have been losing around three percentage points of market share per year but are still seeing strong double-digit revenue growth. The key for these companies is to focus on specific portions of the market where they can outperform the big three.”

About Synergy Research Group:

Synergy provides quarterly market tracking and segmentation data on IT and Cloud related markets, including vendor revenues by segment and by region. Market shares and forecasts are provided via Synergy’s uniquely designed online database SIA™, which enables easy access to complex data sets. Synergy’s Competitive Matrix™ and CustomView™ take this research capability one step further, enabling our clients to receive on-going quantitative market research that matches their internal, executive view of the market segments they compete in.


Synergy Research: public cloud service and infrastructure market hit $126B in 1Q-2022

Cloud Computing Giants Growth Slows; Recession Looms, Layoffs Begin


2 thoughts on “Synergy: Q3 Cloud Spending Up Over $11 Billion YoY; Google Cloud gained market share in 3Q-2022

  1. Light Reading:

    The voices of opposition to the public cloud are growing louder. One of the most recently heard belongs to David
    Heinemeier Hansson, a Danish programmer and partner at software development company Basecamp. In a blog entitled “Why we’re leaving the cloud,” published a few days ago, he explains in plain English why the numbers simply no longer add up for Basecamp. “It’s finally time to conclude: Renting computers is (mostly) a bad deal for medium-sized companies like ours with stable growth,” he said. “The savings promised in reduced complexity never materialized.”
    For small companies starting out, the public cloud is probably a no-brainer, he concedes. Traffic is so thin for most startups that investing in IT resources and managing them directly would carry a much higher cost. Another notable exception is when a company’s loads are highly unpredictable – “when you have no idea whether you need ten servers or a hundred,” as Hansson puts it. Basecamp ran into this problem when it launched an email service called HEY and had 300,000 sign-ups in just three weeks, rather than the 30,000 it had forecast in six months.

    Neither of these conditions now applies to Basecamp, which continues to pay more than $500,000 a year to Amazon for certain public-cloud services. “Do you know how many insanely beefy servers you could purchase on a budget of half a million dollars per year?” said Hansson. He is equally scathing about the suggestion the public cloud removes labor and management overhead. “I’ve yet to hear of organizations at our scale being able to materially shrink their operations team, just because they moved to the cloud.”

    Obscene margins

    Basecamp is not some outlier, according to James Crawshaw, a principal analyst at Omdia (a sister company to Light Reading). On a recent podcast, he noted that Dropbox arrived at the same conclusion about the public cloud. “It’s all great for a startup,” said Crawshaw. “You don’t want to have to go out and invest in a huge data center. But once you’ve got an established business, as Dropbox presumably has, the economics make sense to bring it back in-house.”

    Thing is, Basecamp, Dropbox and several others that have outgrown their startup shoes remain small and unpredictable next to most telcos, and there are some prominent naysayers in the operator community. Deutsche Telekom, Europe’s biggest operator, shares skepticism about the economic benefits, as does the UK’s BT. Nearly all the telco software companies Crawshaw canvassed at a recent TM Forum event in Copenhagen said not much of their software was being deployed in the public cloud. “Most of it is still going in the telecom operators’ own data centers or private clouds,” he said.

    Hansson also accuses AWS of fleecing its customers, citing the biggest public cloud’s “obscene” profit margins as evidence. Results published last week show an operating margin of 30% for the first nine months of this year, on sales of nearly $59 billion, despite Amazon’s sizeable investments in capacity and services. That margin slips to about 26% for the recent third quarter alone, but one equity analyst expects it to recover.

    Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.
    “AWS is providing an array of cost optimizations to customers, experiencing weaker volumes in some verticals, and absorbing elevated costs from its ongoing capacity build, higher wages and increasing energy costs,” said Brian Fitzgerald at Wells Fargo in a research note. “Ultimately, we view backlog as the most important indicator of the health of the franchise and expect growth and margins to rebound.”

    Operating margins look even more outrageous at Microsoft. While it does not break out the figure for the Azure unit that competes directly against AWS, its overall “intelligent cloud” segment reported an operating margin of 44% on sales of $20.3 billion for the recent third quarter. Of the big three, only Google is unprofitable in this area, reporting an operating loss of $699 million on revenues of nearly $6.9 billion for the third quarter. But it is growing faster than its rivals, with quarterly sales up 38% year-on-year, compared with a 20% increase at Microsoft’s intelligent cloud segment and a 27% gain at AWS.

    The public-cloud oligopoly

    The real worry for customers is the growing muscle of these three titans. “Compared to a year ago, all three have increased their market share by at least a percentage point,” said John Dinsdale, an analyst at Synergy Research Group, in a note. “Amazon, Microsoft and Google combined had a 66% share of the worldwide market in the quarter, up from 61% a year ago.” The market share of all other players combined has plummeted from 50% to 34% since 2017, according to his research.

    “It strikes me as downright tragic that this decentralized wonder of the world is now largely operating on computers owned by a handful of mega corporations,” said Hansson in his blog. “If one of the primary AWS regions go down, seemingly half the Internet is offline along with it. This is not what DARPA designed!”

  2. The vast majority of Amazon’s profit derives from its extremely successful cloud computing business, Amazon Web Services Inc., but the unit failed to grow as fast as expected. Concerns over the cloud business were raised earlier in the week after Amazon’s rival Microsoft Corp. reported decelerating cloud growth and warned of a further decline in the holiday quarter.

    It turns out those fears had some merit, as AWS posted sales of just $20.5 billion, below the $21.1 billion forecast. AWS’ growth rate of 27% might look impressive, but it was notably the slowest rate of revenue growth it has reported since 2014, when Amazon first began reporting the numbers. In total, AWS generated an operating income of $5.4 billion, accounting for all of Amazon’s profit in the quarter and then some.

Comments are closed.