Cloud Computing Giants Growth Slows; Recession Looms, Layoffs Begin

Among the megatrends driving the technology industry, cloud computing has been a major force.  But for the first time in its brief history, the cloud has grown stormy as third-quarter cloud giant earnings details made very clear:

  • Amazon Web Services (AWS) fell short of the mark on both earnings and revenue.  Reports say parent Amazon.com (AMZN) has frozen hiring at its cloud computing unit and will be laying off 10,000 employees.
  • Microsoft’s (MSFT) Azure cloud business at  posted an unexpected slowdown in cloud computing growth.  At Microsoft, “Intelligent Cloud” revenue rose 24% to $25.7 billion during the company’s fiscal first quarter, including Azure’s 35% growth to $14.4 billion. Excluding the impact of currency exchange rates, Azure revenue climbed 42%
  • Alphabet’s (GOOGL) Google Cloud business came in ahead of forecasts, but Oppenheimer analyst Tim Horan said in a note to clients that it has “no line of sight to meaningful profits.”

Note: We don’t consider Facebook/Meta Platforms a cloud service provider, even though they build the IT infrastructure for their cloud resident data centers.  They are first and foremost a social network provider that’s now desperately trying to create a market for the Metaverse, which really does not exist and may never be!

In late October, Synergy Research reported that Amazon, Microsoft and Google combined had a 66% share of the worldwide cloud services market in the 3rd quarter, up from 61% a year ago. Alibaba and IBM placed fourth and fifth, respectively according to Synergy. In aggregate, all cloud service providers excluding the big three have tripled their revenues since late 2017, yet their collective market share has plunged from 50% to 34% as their growth rates remain far below the market leaders.

In 2022, capital spending on internet data centers by the three big cloud computing companies will jump a healthy 25% to $74 billion, estimates Dell’Oro Group.  In 2023, spending on warehouse-size data centers packed with computer servers and data storage gear is expected to slow. Dell’Oro puts growth at just 7%, which would take the market up to $79 billion.

Oppenheimer’s Horan wrote, “Cloud providers remain very bullish on long-term trends, but investors have been surprised at how economically sensitive the sector is. “Sales cycles in cloud services have elongated and customers are looking to cut cloud spending by becoming more efficient.  Despite the deceleration, cloud is now a $160 billion-plus industry. But investors will be concerned given this is our first real cloud recession, which makes forecasts difficult.”

“This macro slowdown clearly will impact all aspects of tech spending over the next 12 to 18 months. Cloud spending is not immune to the dark macro backdrop as seen during earnings season over the past few weeks,” Wedbush analyst Daniel Ives told Investor’s Business Daily via an email.  “That said, we estimate 45% of workloads have moved to the cloud globally and (the share is) poised to hit 70% by 2025 in a massive $1 trillion shift. Enterprises will aggressively push to the cloud and we do not believe this near-term period takes that broader thesis off course.  The near-term environment is more of a speed bump rather than a brick wall on the cloud transformation underway. Microsoft, Amazon, Google, IBM (IBM) and Oracle (ORCL) will be clear beneficiaries of this cloud shift over the coming years and will power through this Category 5 (hurricane) economic storm.”

Bank of America expects a boost from next-generation cloud services that cater to “edge computing.”  Amazon, Microsoft and Google are “treating the edge as an extension of their public cloud,” said a BofA report. The giant cloud computing companies have all partnered with telecom firms AT&T (T), Verizon (VZ) and T-Mobile US (TMUS).  Their aim to embed their cloud services within 5G wireless networks. “Telcos are leveraging the hyperscale cloud to launch their own edge compute businesses,” BofA said.

At BMO Capital Markets, analyst Keith Bachman says investors need to reset their expectations as the coronavirus pandemic eases. The corporate switch to working from home spurred demand for cloud services. Online shopping boomed. And consumers turned to internet video and online gaming for entertainment.

“We think many organizations accelerated the journey to the cloud as Covid and hybrid work requirements exposed weaknesses in existing on-premise IT capabilities,” Bachman said in a note. “While spend remains healthy in the cloud category, growth has decelerated for the past few quarters. We believe economic forces are at work as well as a slower pace of cloud migrations post-Covid.”

Market research heavyweight Gartner updated its global cloud computing growth forecast Oct. 31. The new forecast was completed before third-quarter earnings were released by Amazon, Microsoft and Google. Gartner forecasted worldwide end-user spending on public cloud services will grow 20.7% in 2023 to $591.8 billion. That’s up from 18.8% growth in 2022.

In a press release, Gartner analyst Sid Nag cautioned: “Organizations can only spend what they have. Cloud spending could decrease if overall IT budgets shrink, given that cloud continues to be the largest chunk of IT spend and proportionate budget growth.

AWS, Microsoft Azure and Google’s cloud computing units are all growing at an above-industry-average rate. Still, AWS and Azure are slowing, perhaps a bit due to size as well as the economy.

  • At Wolfe Research, MSFT stock analyst Alex Zukin said in his note: “The damage in Microsoft’s case came from another Azure miss in the quarter, but the bigger surprise was the guide of 37%. That is the largest sequential growth deceleration on record.”
  • Google’s cloud computing revenue rose 38% to $6.28 billion. That’s up 2% from the previous quarter and topped estimates from GOOGL stock analysts by 4%.  However, the company reported an operating loss of $644 million for the cloud business versus a $699 million loss a year earlier.  Hoping to take market share from bigger AWS and Microsoft’s Azure, Google has priced cloud services aggressively, analysts say. It also stepped up hiring and spending on data centers. And it acquired cybersecurity firm Mandiant for $5.4 billion.
  • “Amazon noted it has seen an uptick in AWS customers focused on controlling costs and is working to help customers cost-optimize,” Amazon stock analyst Youssef Squali at Truist Securities said in a report to clients. “The company is also seeing slower growth from certain industries (financial services, mortgage and crypto sectors),” he added.
  • Oppenheimer’s Horan estimates that AWS will produce $13.9 billion in free cash flow in 2022. But he sees Google’s cloud unit having $10.6 billion in negative free cash flow.

Nonetheless, Deutsche Bank analyst Brad Zelnick remains upbeat on the cloud computing business.  He wrote in a research note:

“We see a temporary slowdown in bringing new workloads to the cloud, though importantly not a change in organizations’ long-term cloud ambitions. The near-term forces of optimization can obscure what we believe remain very supportive underlying trends. We remain confident that we are in the early innings of a generational shift to cloud.”

References:

The First Real Cloud Computing Recession Is Here — What It Means For Tech Stocks

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

 

Canalys: Global cloud services spending +33% in Q2 2022 to $62.3B

According to market research firm Canalys, cloud infrastructure services continued to be in high demand in Q2 2022. Worldwide cloud spending increased 33% year on year to US$62.3 billion, driven by a range of factors, including demand for data analytics and machine learning, data center consolidation, application migration, cloud-native development and service delivery. The growing use of industry-specific cloud applications also contributed to the broader horizontal use cases seen across IT transformation. The latest Canalys data shows expenditure was over US$6 billion more than in the previous quarter and US$15 billion more than in Q2 2021.

The top three vendors in Q2 2022,  Amazon Web Services (AWS), Microsoft Azure and Google Cloud, together accounted for 63% of global spending in Q2 2022 and collectively grew 42%.  The key to increasing global market share is continually growing and upgrading cloud data center infrastructure, which all big three cloud service providers are working on.

  • AWS accounted for 31% of total cloud infrastructure services spend in Q2 2022, making it the leading cloud service provider. It grew 33% on an annual basis.
  • Microsoft Azure was the second largest cloud service provider in Q2, with a 24% market share after growing 40% annually.
  • Google Cloud grew 45% in the latest quarter and accounted for an 8% market share.

In the next year, AWS plans to launch 24 new availability zones in eight regions, and Microsoft plans to launch 10 new cloud regions. Google Cloud, which accounted for 8% of Q2 cloud spend, recently announced Latin America expansion plans.

The hyperscale battle between leader AWS and challenger Microsoft Azure continues to intensify, with Azure closing the gap on its rival. Fueling this growth, Microsoft had a record number of larger multi-year deals in both the US$100 million-plus and US$1 billion-plus segments. Microsoft also said it plans to increase the efficiency of its server and network equipment by extending the depreciable useful life from four years to six.

A diverse go-to-market ecosystem, combined with a broad portfolio and wide range of software partnerships is enabling Microsoft to stay hot on the heels of AWS in the race to be #1 in cloud services.

Cloud remains the strong growth segment in tech,” said Canalys VP Alex Smith. “While opportunities abound for providers large and small, the interesting battle remains right at the top between AWS and Microsoft. The race to invest in infrastructure to keep pace with demand will be intense and test the nerves of the companies’ CFOs as both inflation and rising interest rates create cost headwinds.”

Both AWS and Microsoft are continuing to roll out infrastructure. AWS has plans to launch 24 availability zones across eight regions, while Microsoft plans to launch 10 new regions over the next year. In both cases, the providers are increasing investment outside of the US as they look to capture global demand and ensure they can provide low-latency and high data sovereignty solutions.

“Microsoft announced it would extend the depreciable useful life of its server and network equipment from four to six years, citing efficiency improvements in how it is using technology,” said Smith. “This will improve operating income and suggests that Microsoft will sweat its assets more, which helps investment cycles as the scale of its infrastructure continues to soar. The question will be whether customers feel any negative impact in terms of user experience in the future, as some services will inevitably run on legacy equipment.”

Beyond the capacity investments, software capabilities and partnerships will be vital to meet customers’ cloud demands, especially when considering the compute needs of highly specialized services across different verticals.

“Most companies have gone beyond the initial step of moving a portion of their workloads to the cloud and are looking at migrating key services,” said Canalys Research Analyst Yi Zhang. “The top cloud vendors are accelerating their partnerships with a variety of software companies to demonstrate a differentiated value proposition. Recently, Microsoft pointed to expanded services to migrate more Oracle workloads to Azure, which in turn are connected to databases running in Oracle Cloud.”

Canalys defines cloud infrastructure services as those that provide infrastructure-as-a-service and platform-as-a-service, either on dedicated hosted private infrastructure or shared public infrastructure. This excludes software-as-a-service expenditure directly, but includes revenue generated from the infrastructure services being consumed to host and operate them.

For more information, please contact:  Alex Smith: [email protected]  OR  Yi Zhang:  [email protected]

References:

https://canalys.com/newsroom/global-cloud-services-Q2-2022

Oracle and Microsoft Enhance Interoperability of their Cloud Platforms (facilitating multi-cloud)

At Microsoft Inspire, an online event for Microsoft partners, Oracle and Microsoft announced a deeper interoperability of their cloud platforms which will permit customers to more easily run projects across their two cloud platforms.  The new service connects Oracle’s database service directly to the Azure cloud, eliminating custom work that previously would have been required.

With the general availability of Oracle Database Service for Microsoft Azure, Microsoft Azure customers can easily provision, access, and monitor enterprise-grade Oracle Database services in Oracle Cloud Infrastructure (OCI) with a familiar experience. Users can migrate or build new applications on Azure and then connect to high-performance and high-availability managed Oracle Database services such as Autonomous Database running on OCI.

Years ago, many cloud providers tried to lock customers into a single platform, but that is no longer feasible as the cloud has become more central to operations. Customers typically use multiple clouds, and cloud platform providers such as Microsoft and Oracle are adapting to that multi-cloud environment. About two-thirds of enterprise-level companies use multiple clouds (AKA multi-cloud), according to a May 2021 report by Boston Consulting Group.

Since 2019, when Oracle and Microsoft partnered to deliver the Oracle Interconnect for Microsoft Azure, hundreds of organizations have used the secure and private interconnections in 11 global regions.

Microsoft and Oracle are extending this collaboration to further simplify the multicloud experience with Oracle Database Service for Microsoft Azure. Many joint customers, including some of the world’s largest corporations such as AT&T, Marriott International, Veritas and SGS, want to choose the best services across cloud providers to optimize performance, scalability, and the ability to accelerate their business modernization efforts. The Oracle Database Service for Microsoft Azure builds upon the core capabilities of the Oracle Interconnect for Azure and enables customers to more easily integrate workloads on Microsoft Azure with Oracle Database services on OCI. Customers are not charged for using the Oracle Database Service for Microsoft Azure or for the underlying network interconnection, data egress, or data ingress between Azure and OCI. Customers will pay only for the other Azure or Oracle services they consume, such as Azure Synapse or Oracle Autonomous Database.

“Over the last couple years we have had a lot of success with Oracle Interconnect for Microsoft Azure. And we also got a lot of customer feedback. And one of the things that customers (said) was, ‘Hey, it’s great you are working together, but we really would like a more integrated experience,’” said Clay Magouyrk, executive vice president, Oracle Cloud Infrastructure.

“Microsoft and Oracle have a long history of working together to support the needs of our joint customers, and this partnership is an example of how we offer customer choice and flexibility as they digitally transform with cloud technology. Oracle’s decision to select Microsoft as its preferred partner deepens the relationship between our two companies and provides customers with the assurance of working with two industry leaders,” said Corey Sanders, corporate vice president, Microsoft Cloud for Industry and Global Expansion.  “The ability to benefit from both clouds, and the flexibility, is a real win for customers,” Sanders added.

“There’s a well-known myth that you can’t run real applications across two clouds. We can now dispel that myth as we give Oracle and Microsoft customers the ability to easily test and demonstrate the value of combining Oracle databases with Azure applications. There is no need for deep skills on either of our platforms or complex configurations—anyone can use the Azure Portal to harness the power of our two clouds together,” said Clay Magouyrk, executive vice president, Oracle Cloud Infrastructure.

“Multi-cloud takes on a whole new meaning with the launch of the Oracle Database Service for Microsoft Azure. This service, designed to provide intuitive, simple access to the Exadata Database Service and Autonomous Database to Azure users in a transparent manner, responds to the critical need of Azure and Oracle customers to apply the benefits of the latest in Oracle Database technology to their Azure workloads. This combined and interactive connection of services across public clouds sets the stage for what a multi-cloud experience should be, and is a bold statement about where the future of cloud is heading. It should deliver huge benefits for customers, developers, and the cloud services landscape overall,” said Carl Olofson, research vice president, Data Management Software, IDC.

With the new Oracle Database Service for Microsoft Azure, in just a few clicks users can connect their Azure subscriptions to their OCI tenancy. The service automatically configures everything required to link the two cloud environments and federates Azure Active Directory identities, making it easy for Azure customers to use the service. It also provides a familiar dashboard for Oracle Database Services on OCI using Azure terminology and monitoring with Azure Application Insights.

“Many of our mission-critical workloads are running Oracle databases on-premises at massive scale. As we move these workloads to the cloud, Oracle Database Service for Azure enables us to modernize these Oracle databases to services such as Autonomous Database in OCI while leveraging Microsoft Azure for the application tier,” said Jeremy Legg, chief technology officer, AT&T. Watch the video.

“Multi-cloud architectures enable us to choose the best cloud provider for each workload based on capabilities, performance, and price. The OCI and Azure partnership integrates the capabilities of two major cloud providers, including the Oracle Database services in OCI and Azure’s application development capabilities,” said Naveen Manga, chief technology officer, Marriott International. Watch the video.

“Oracle Database Service for Microsoft Azure has simplified the use of a multicloud environment for data analytics. We were able to easily ingest large volumes of data hosted by Oracle Exadata Database Service on OCI to Azure Data Factory where we are using Azure Synapse for analysis,” said Jane Zhu, senior vice president and chief information officer, Corporate Operations, Veritas.

“Oracle Database Service for Microsoft Azure simplifies our multi-cloud approach. We’re going to be able to leverage the best of Oracle databases in Azure, and we are going to be able to keep our infrastructure in Azure. This is a great opportunity to have the best of the two worlds that eases our migration to the cloud and improves the skills of our people in IT,” said David Plaza, chief information officer, SGS. Watch the video.

References:

https://www.oracle.com/bd/news/announcement/oracle-database-service-for-microsoft-azure-2022-07-20/

https://www.wsj.com/articles/oracle-and-microsoft-agree-to-deepen-interoperability-of-cloud-platforms-11658318400

https://www.spiceworks.com/tech/cloud/articles/multi-cloud-vs-hybrid-cloud/

 

Dish Network & Nokia: world’s first 5G SA core network deployed on public cloud (AWS)

Dish Network is just a month into the commercial launch of its  cloud native based 5G core network, but is already planning how it will expand that architecture to take advantage of multicloud and hybrid cloud environments.

During a Dish-Nokia fireside chat this Tuesday (sponsored by Nokia) on LinkedIn, Jitin Bhandari – CTO and VP, Cloud and Network Services, Nokia interviewed Sidd Chenumolu, VP of technology development and network services at Dish Wireless, provided some insight into the carrier’s current use of Amazon Web Services (AWS) public cloud resources.  

Chenumolu said Dish’s 5G core was currently using three of AWS’ four public regions, was deployed in “multiple availability zones and almost all the local zones, but most were deployed with Nokia applications across AWS around the country.”

[AWS Outposts GM Joshua Burgin had previously explained to SDxCentral that Dish would be using a mixture of AWS Regions, Local Zones, and Outposts, specifically the smaller form factor AWS Outposts servers, to power its network. This includes the deployment of single 1U Outpost servers, some with an accelerator card, to run network functions in single-digit milliseconds at cell sites, he said in a phone interview.]

AWS Local Zones, which are built on Outpost racks and span 15 locations around the U.S., some of which were deployed to meet Dish’s demands, run Dish’s less latency-sensitive functions, Burgin explained. Dish’s operations and business support systems will run on AWS Regions.

“How to we deploy 5G SA core network on multi-cloud,” Sidd asked but did not answer.  He then started to turn the tables and interview Jitin via a series of questions.

Chenumolu did not provide an update on Dish’s use of AWS’ Wavelength platform, which the cloud giant initially launched in partnership with Verizon to marry the network operators’ 5G networks with AWS’ edge compute service. Burgin had previously stated that support “could come down the line.”

The usual hype and back slapping/praise with glib expressions like “disintegrated disruptor, uncharted territory, automate learning with AI, cloud RAN,” etc. characterized the session.

References:

https://www.linkedin.com/video/event/urn:li:ugcPost:6945794807772438528/

https://www.sdxcentral.com/articles/news/dish-eyes-5g-multicloud-hybrid-cloud-expansion/2022/07/

IDC: Worldwide Public Cloud Services Revenues Grew 29% to $408.6 Billion in 2021 with Microsoft #1?

The worldwide public cloud services market, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service – System Infrastructure Software (SaaS – SIS), and Software as a Service – Applications, grew 29.0% year over year in 2021 with revenues totaling $408.6 billion, according to the International Data Corporation (IDCWorldwide Semiannual Public Cloud Services Tracker.

Spending continued to consolidate in 2021 with the combined revenue of the top 5 public cloud service providers (Microsoft, Amazon Web Services, Salesforce Inc., Google, and SAP) capturing nearly 40% of the worldwide total and growing 36.6% year over year. With offerings in all four deployment categories, Microsoft captured the top position in the overall public cloud services market with 14.4% share in 2021, followed closely by Amazon Web Services with 13.7% share.

“Organizations continued their strong adoption of shared public cloud services in 2021 to align IT investments more closely with business outcomes and ensure rapid access to the innovations required to be a digital-first business,” said Rick Villars, group vice president, Worldwide Research at IDC. “For the next several years, leading cloud providers will play a critical role in helping enterprises navigate the current storms of disruption (inflation, supply chain, and geopolitical tensions), but IT teams will also focus more on bringing greater financial accountability to the variable spend models of public cloud services.”

While the overall public cloud services market grew 29.0% in 2021, revenue for foundational cloud services* that support digital-first strategies saw revenue growth of 38.5%. This highlights the increasing reliance of enterprises on a cloud innovation platform built around widely deployed compute services, data/AI services, and app framework services to drive innovation. IDC expects spending on foundational cloud services (especially IaaS and PaaS elements) to continue growing at a higher rate than the overall cloud market as enterprises leverage cloud to overcome the current disruptions and accelerate their shift toward digital business.

“The last few years have demonstrated that in challenging times, businesses increasingly rely on cloud services to modernize their operations and deliver more value to customers,” said Dave McCarthy, research vice president, Cloud and Edge Infrastructure Services. “This trend is expected to continue as public cloud providers offer more ways of extending cloud services to on-premises datacenters and edge locations. These expanded deployment options reduce many barriers to migration and will facilitate the next wave of cloud adoption.”

“In the digital-first world, enterprises that are serious about competing for the long term use the lens of business outcomes to evaluate strategic technology decisions, which fuels the fast-growing ecosystem seen in the public cloud market,” said Lara Greden, research director, Platform as a Service, IDC. “Cloud service providers showed relentless drive to enhance the productivity of developers and overall speed of application delivery, including emphasis on containers-first and serverless-first approaches.”

“SaaS applications remain the largest and most mature segment of public cloud, with 2021 revenues that have now reached $177 billion. The tailwinds of the pandemic continued to fuel expedited upgrades and replacements of older systems in 2021, though company goals haven’t changed. Companies seek applications that will help increase enterprise intelligence, improve operational efficiency, and drive better decision making. Ease of use, ease of implementation and integration, streamlined workflows, data and analytical accessibility, and time to value are the key criteria driving purchasing decisions, though verticalization has also steadily increased as a key priority,” said Eric Newmark, group vice president and general manager of IDC’s SaaS, Enterprise Software, and Worldwide Services division.

Worldwide Public Cloud Services Revenue and Year-over-Year Growth, Calendar Year 2021 (revenues in US$ billions)
Deployment Category 2021 Revenue Market Share 2020 Revenue Market Share Year-over-Year Growth
IaaS $91.3 22.4% $67.3 21.3% 35.6%
PaaS $68.2 16.7% $49.1 15.5% 39.1%
SaaS – Applications $177.8 43.5% $143.9 45.4% 23.5%
SaaS – System Infrastructure Software $71.2 17.4% $56.4 17.8% 26.4%
Total $408.6 100% $316.7 100% 29.0%
Source: IDC Worldwide Semiannual Public Cloud Services Tracker, 2H 2021

While both the foundational cloud services market and the SaaS – Applications market are led by a small number of companies, there continues to be a healthy long tail of companies delivering cloud services around the globe. In the foundational cloud services market, these leading companies account for nearly three quarters of the market’s revenues with targeted use case-specific PaaS services or cross-cloud compute, data, or network governance services. The long tail is more pronounced in the SaaS– Applications market, where customers’ growing focus on specific outcomes ensures that over two thirds of the spending is captured outside the top 5.

Analysis:

We remain SUPER SKEPTICAL about IDC’s claim that Microsoft beat out cloud rival Amazon Web Services (AWS) in capturing the largest share of global public cloud services revenue last year.  That conflicts with all our other resource checks!!!

IDC reported that Microsoft accumulated 14.4% of the market’s $408.6 billion in revenues last year, just a whisker ahead of the 13.7% that AWS snared. Microsoft has offerings in all four sections of the public cloud services market lumped by IDC into its report, including infrastructure as a service (IaaS), platform as a service (PaaS), system infrastructure SaaS, and application SaaS.

Salesforce, Google, and SAP rounded out the top five in IDC’s ranking, with those vendors capturing 40% of the total market. Overall market revenues increased 29% compared to the previous year.

SaaS applications brought in the most cloud services revenue with $177.8 billion, representing 23.5% growth from the year prior. IaaS accounted for $91.3 billion of revenue, followed by system infrastructure SaaS and PaaS.

Of the categories comprising IDC’s public cloud foundational services, PaaS saw the highest year-over-year growth at 39.1%, though it brought in the least 2021 revenue at $68.2 billion.

“Organizations continued their strong adoption of shared public cloud services in 2021 to align IT investments more closely with business outcomes and ensure rapid access to the innovations required to be a digital-first business,” IDC VP Rick Villars said in a statement.

In an increasingly digital world, enterprises that are truly thinking ahead use a business outcomes lens to make strategic decisions, and this is what fuels public cloud ecosystem growth, IDC PaaS Research Director Lara Greden explained.

Cloud service providers played their part in that growth this year with a “relentless drive” to improve developer productivity and speed of application delivery, “including emphasis on containers-first and serverless-first approaches,” she added.

Villars expects these cloud giants will continue to have a crucial role in helping enterprises solve persistent market challenges like supply chain disruption, inflation, and geopolitical tension.

“IT teams will also focus more on bringing greater financial accountability to the variable spend models of public cloud services,” Villars added.

……………………………………………………………………………………………………………………………………..

* Note: IDC defines Foundational Cloud Services as the Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service – System Infrastructure Software (SaaS – SIS) market segments where the top eight public cloud services providers (Amazon Web Services, Microsoft, Google, Alibaba Group, IBM, Tencent, Huawei, and Oracle) account for most of the revenue. These include the following key service portfolios:

  • Compute Services: Virtualized x86 Compute, Bare Metal Compute, Block Storage, Accelerated Compute, Other Compute, and Software-Defined Compute Software.
  • Data Services: Data Management Systems, Object Storage, File Storage, and Event Stream Processing Software.
  • App Framework Services: Developer-centric software to develop and deploy applications in the cloud, including lifecycle management. These services include Integration Software, Deployment-Centric Application Platforms, and AI Lifecycle Software.
  • Usage Multiplier Services: Services that encourage greater/more effective use of high value services by making it easier to adopt, connect, deploy, track, secure, and update those services. Includes load balancing and DNS as well as marketplaces and bundles of open-source software solutions.

References:

https://www.idc.com/getdoc.jsp?containerId=prUS49420022

https://www.sdxcentral.com/articles/news/microsoft-bests-amazon-as-top-public-cloud-idc-reports/2022/07/

IDC’s New Public Cloud Numbers: Microsoft Azure Edged Out AWS in 2021

 

 

IDC: Microsoft Azure now tied with AWS as top global cloud services provider

 

 

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

According to a new report from Synergy Research Group, public cloud service and infrastructure service provider and vendor revenues for the 1st quarter of 2022 reached $126 billion, having grown by 26% (YoY) from the 1st quarter of 2021.

As expected, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud led public cloud service providers (CSPs) in revenue growth.  Those three CSPs powered a robust 36% growth rate in the infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) public cloud segments, which hit $44 billion in revenues during the quarter.

In the other main service segments, managed private cloud services, enterprise SaaS and CDN (Content Delivery Networks) added another $54 billion in service revenues, having grown by an average 21% from last year. In order to support both these and other digital services, public cloud providers spent $28 billion on building, leasing and equipping their data center infrastructure, which was up 20% from Q1 of last year. Across the whole public cloud ecosystem, companies that featured the most prominently were Microsoft, Amazon, Salesforce and Google. Other major players included Adobe, Alibaba, Cisco, Dell, Digital Realty, IBM, Inspur, Oracle, SAP and VMware. In aggregate these companies accounted for 60% of all public cloud-related revenues.

Amazon, IBM, and Microsoft led in managed private cloud revenue during the quarter; Microsoft, Salesforce, and Adobe powered similar growth in enterprise software-as-a-service (SaaS) revenues; and Akamai, Amazon, and Cloudflare headed up a 14% increase in content delivery network (CDN) revenues for the quarter. Those three segments in total generated $54 billion in revenues during the first three months of the year.

While cloud markets are growing strongly in all regions of the world, the United States remains a center of gravity. In Q1 it accounted for 44% of all cloud service revenues and 51% of hyperscale data center capacity. Across all service and infrastructure markets, the vast majority of leading players are US companies, with most of the rest being Chinese (e.g. Alibaba, Tencent and Huawei). China accounted for 8% of all Q1 cloud service revenues and 15% of hyperscale data center capacity.

Editor’s Note:

In China, Alibaba Cloud remains the leader with a 37% market share, ranking first in the cloud market in 2021, Huawei Cloud and Tencent Cloud second and third respectively, and Baidu AI cloud fourth. In 2021, the four cloud providers jointly accounted for 80% of the market share.

…………………………………………………………………………………………………………………

“Public cloud-related markets are typically growing at rates ranging from 15% to 40% per year, with PaaS and IaaS leading the charge. Looking out over the next five years the growth rates will inevitably tail off as these markets become ever-more massive, but we are still forecasting annual growth rates that are generally in the 10% to 30% range,” said John Dinsdale, a Chief Analyst at Synergy Research Group. “To enable cloud service markets to keep up with demand by doubling in size in the next 3-4 years, the major cloud providers need an ever larger footprint of hyperscale data centers and more raw computing power, which then drives the markets for data center hardware and software. For sure the competition will be tough, but up and down the cloud ecosystem there will be a bright future for companies that bring the right products to market in a timely fashion.”

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 Group helps marketing and strategic decision makers around the world via its syndicated market research programs and custom consulting projects. For nearly two decades, Synergy has been a trusted source for quantitative research and market intelligence.

References:

https://www.srgresearch.com/articles/public-cloud-ecosystem-quarterly-revenues-leap-26-to-126-billion-in-q1

Synergy Research: Microsoft and Amazon (AWS) Dominate IT Vendor Revenue & Growth; Popularity of Multi-cloud in 2021

Google Cloud expands footprint with 34 global regions

 

Telefónica Tech to integrate Red Hat’s OpenShift platform into new enterprise cloud service in Europe and Latin America

Telecom technology integrator Telefónica Tech has signed an agreement with IBM/Red Hat to integrate Red Hat’s OpenShift platform into a new cloud service marketed at enterprises across Telefónica’s footprint in Europe and Latin America.

The integration will be marketed as the Telefónica Red Hat OpenShift Service (TROS), which will tap into the use of containers to help organizations modernize their cloud applications and drive their digital transformation. It will allow those organizations to migrate applications to hybrid cloud or multi-cloud environments using either private or public clouds from hyperscalers like Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform (GCP).

OpenShift is based on the Kubernetes container orchestration project that allows for the migration of applications across different cloud and on-premises environments. A recent report from TBR Senior Analyst Catie Merrill noted that Red Hat’s OpenShift platform has four-times as many customers as it did before IBM acquired the company for $34 billion in mid-2019.

Red Hat OpenShift differentiates itself by combining multiple hardened open source technologies to provide a more complete modern application platform, enabling organizations to use it as the foundation for current and future IT strategies.  Additionally, the use of Red Hat OpenShift  allows for use in any type of cloud, facilitating the creation of this Multi-Cloud service for Telefónica Tech.

This new, open hybrid, multi-cloud approach will allow Telefonica Tech to strengthen and differentiate its value proposition, and provide more flexibility to its customers in their digital transformation and application modernization in the markets where Telefónica Tech is present.

The complementary nature of cloud technologies integrated in TROS will enable Telefónica Tech, Red Hat and IBM to jointly define innovative use cases and provide high value-added professional services to customers to help them make the process more efficient, cost-effective and cost-optimal.

The strategic agreement also enables Telefónica Tech to develop additional services on TROS based on Red Hat technologies and IBM Cloud Paks so that customers can accelerate their transformation to cloud-native applications, enabling a more consistent user experience both in their own cloud and on the hyperscalers.

María Jesús Almazor, CEO of Cybersecurity and Cloud at Telefónica Tech, said: “This strategic agreement allows us to strengthen our differential multicloud offer by integrating world class technologies from Red Hat and IBM and consolidate our position as a leading partner for the digital transformation of businesses. We continue to evolve our ecosystem of alliances to enhance the digital capabilities of our professionals and to include in our portfolio the most innovative proposals in the market, fundamental aspects to continue offering the best service to our customers.”

Horacio Morell, IBM General Manager for Spain, Portugal, Greece and Israel: “This alliance enables us to take a quantum leap in our business collaboration with Telefonica Tech to continue co-creating enterprise multi-cloud and cybersecurity solutions that will enable companies around the world, across all industries, to implement their technology transformation strategies with greater speed, consistency and agility, while ensuring data control, privacy and reliability and increasing decision-making efficiency through the unique capabilities of IBM’s technologies.”

Julia Bernal, Country Manager for Spain and Portugal at Red Hat, said: “Red Hat is fully committed to helping our customers and partners optimize their business with open hybrid cloud and focus on innovation rather than simply managing their IT infrastructure. Our mission is to mitigate the complexities of modern cloud-scale IT environments and with managed cloud services they can do just that. Telefónica Red Hat OpenShift Service enables customers to free resources to create and manage applications more quickly across multiple clouds, streamlining time to market and accelerating growth opportunities.”

“It is going to be the way forward and what many customers who want to evolve their business models,” said Santiago Madruga, VP for ecosystem success in EMEA at Red Hat, in an interview with SDxCentral. “When going digital, it’s not just putting workloads on the cloud but really transforming businesses.” Madruga added that the use of OpenShift also allows for the micro-segmentation of application components that will open the door for edge distributed cloud work.

IBM is providing its Cloud Pak containerized software products, Spectrum Fusion storage, Power hardware, and professional services to the offering. The deal also builds on past work between IBM and Telefónica, including a multi-year agreement signed last year whereby Telefónica will use IBM software to power the carrier’s cloud-native, 5G core network platform.
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………

References:

Telefónica Tech launches ‘Telefónica Red Hat OpenShift Service’ with Red Hat and IBM to drive customers’ transformation to the cloud

https://www.sdxcentral.com/articles/news/ibm-red-hat-expand-telefonicas-cloud-push/2022/06/

https://newsroom.ibm.com/2021-09-23-Telefonica-Chooses-IBM-To-Implement-Its-First-Ever-Cloud-Native-5G-Core-Network-Platform

 

Google Cloud expands footprint with 34 global regions

Google Cloud has added a region in Dallas, Texas, which brings Google Cloud’s total number of global regions to 34. The rollout follows the launch of its 33rd cloud region in Columbus, Ohio late last month. Other recent additions include regions in Milan, Italy; Paris, France; and Madrid, Spain.

“We’ve heard from many of you that the availability of your workloads and business continuity are increasingly top priorities. The Dallas region gives you added capacity and the flexibility to distribute your workloads across the U.S.,” Google Cloud executive Stacy Trackey Meagher wrote in a blog post.

The Texas site is the eleventh region in North America and second in the central U.S., with the other located in Iowa. It also has North American cloud regions in Oregon, Salt Lake City, Los Angeles, Las Vegas, South Carolina and Northern Virginia as well as Montreal and Toronto, Canada.

Google Cloud regions are geographic areas of coverage that consist of several smaller zones. Most cloud regions are comprised of 3 zones. With its 34 current regions, Google Cloud now has 103 zones. Additional plans to expand its footprint are in place, with Google targeting new regions in Doha, Qatar; Turin, Italy; Berlin, Germany; Dammam, Saudi Arabia; and Tel Aviv, Israel.

The aggressive infrastructure investment comes as parent Alphabet chases profitability for its cloud unit and as Google Cloud looks to gain market share. But it has an uphill battle.

As of the end of Q1 2022, Synergy Research Group data showed AWS led the cloud market with 33% market share, with Microsoft following with 22% and Google Cloud rounding out the top three with 10%. And earlier this year, AWS announced plans to expand its Local Zone cloud compute capabilities to more than two dozen new countries.

Google Cloud revenue in Q1 rose 44% to $5.8 billion, but the company still posted a net loss of $931 million. Asked on an earnings call what the next phase of growth for Google Cloud will entail, Alphabet CEO Sundar Pichai said he is looking forward to more product innovation but added “We are scaling up, particularly in our go-to-market as well…over time, as we focus on converting bookings to consumption as well.”

References:

https://cloud.google.com/blog/products/infrastructure/a-google-cloud-region-now-available-in-dallas-texas

 

AWS, Microsoft Azure, Google Cloud account for 62% – 66% of cloud spending in 1Q-2022

New data from Synergy Research Group shows that Q1 enterprise spending on cloud infrastructure services was approaching $53 billion. That is up 34% from the first quarter of 2021, making it the eleventh time in twelve quarters that the year-on-year growth rate has been in the 34-40% range.

To the surprise of no one, Amazon AWS continues to lead with its worldwide market share remaining at 33%. For the third consecutive quarter its annual growth came in above the growth of the overall market.

Microsoft Azure continues to gain almost two percentage points of market share per year while Google Cloud’s annual market share gain is approaching one percentage point.

In aggregate all other cloud providers have grown their revenues by over 150% since the first quarter of 2018, though their collective market share has plunged from 48% to 36% 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 $52.7 billion, with trailing twelve-month revenues reaching $191 billion. Public IaaS and PaaS services account for the bulk of the market and those grew by 37% in Q1. The dominance of the major cloud providers is even more pronounced in public cloud, where the top three control 71% of the market. Geographically, the cloud market continues to grow strongly in all regions of the world.

“While the level of competition remains high, the huge and rapidly growing cloud market continues to coalesce around Amazon, Microsoft and Google,” said John Dinsdale, a Chief Analyst at Synergy Research Group. “Aside from the Chinese market, which remains totally dominated by local Chinese companies, other cloud providers simply cannot match the scale and geographic reach of the big three market leaders. As Amazon, Microsoft and Google continue to grow at 35-50% per year, other non-Chinese cloud providers are typically growing in the 10-20% range. That can still be an attractive proposition for those smaller providers, as long as they focus on regional or service niches where they can differentiate themselves from the big three.”

…………………………………………………………………………………………………………………..

Separately, Canalys estimates global cloud infrastructure services spending increased 34% to US$55.9 billion in Q1 2022, as organizations prioritized digitalization strategies to meet market challenges. That was over US$2 billion more than in the previous quarter and US$14 billion more than in Q1 2021.

The top three cloud service providers have benefited from increased adoption and scale, collectively growing 42% year on year and accounting for 62% of global customer spend.

Cloud-enabled business transformation has become a priority as organizations face global supply chain issues, cybersecurity threats and geopolitical instability. Organizations of all sizes and vertical markets are turning to cloud to ensure flexibility and resilience in the face of these challenges.

SMBs, in particular, have driven investment in cloud infrastructure services to support workload migration, data storage services and cloud-native application development. At the same time, infrastructure hardware shortages and the threat of further price inflation has spurred many large enterprises to invest in large-scale, multi-year cloud contracts to lock in upfront discounts with the hyperscalers.

All the major cloud providers have seen a significant increase in order backlogs as a result, which now total several hundred billion dollars worldwide. This in turn is driving the importance of cloud marketplaces as a sales channel for third-party software and security, as businesses seek to burn down these cloud commitments, further fueling infrastructure consumption.

“Cloud has continued to be a hot market and transformation strategies are emphasizing digital resiliency to face the market challenges of today and tomorrow,” said Canalys Research Analyst Blake Murray. “To be effective in resiliency planning, customers are turning to channel partners with the technical and consulting skills to help them effectively embrace hyper-scaler cloud services.”

Top cloud partners are doubling down on certification efforts and skills recruitment around hyper-scaler cloud services.

Global systems integrators, including Accenture, Atos, Deloitte, HCL Technologies, TCS, Kyndryl, Tech Mahindra and Wipro, are building practices with tens of thousands of cloud engineers and consultants. This has also included acquisitions of cloud application development and migration specialists, as well as the launch of new dedicated cloud services brands.

Smaller consultants, resellers, service providers and distributors are pursuing similar strategies as mid-market and SMB customers also demand support with cloud adoption.

“As the use cases for cloud infrastructure services expand so does the potential complexity, and we see that hybrid and multi-cloud deployments are commonplace in the market,” said Canalys Research Analyst Yi Zhang. “The hyperscalers are investing in rapid channel development and partners are responding as the opportunities grow.”

…………………………………………………………………………………………………………….

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.

About Canalys:

Canalys is an independent analyst company that strives to guide clients on the future of the technology industry and to think beyond the business models of the past. We deliver smart market insights to IT, channel and service provider professionals around the world. We stake our reputation on the quality of our data, our innovative use of technology and our high level of customer service.

References:

https://www.canalys.com/newsroom/global-cloud-services-Q1-2022

https://www.srgresearch.com/articles/huge-cloud-market-is-still-growing-at-34-per-year-amazon-microsoft-and-google-now-account-for-65-of-all-cloud-revenues

………………………………………………………………………………………………………………………………………..

May 6, 2022 Update from Light Counting:

ICPs (Internet Cloud Providers) have grown spending by double digit rates (year-over-year) for many quarters and Q1 2022 looks like it will be no exception, as the combined spending of Alphabet, Amazon, Meta, and Microsoft increased 29% versus Q1 2021. What is surprising though is that Alphabet, not Meta, showed the fastest growth, with a 65% increase to more than $9.5 billion, a new record. And Alphabet’s big increase was not fueled by spending on infrastructure however, but by the closing of purchases of office facilities in New York, London, and Poland, which the company said added $4 billion to total spending in the quarter. We expect Alphabet’s Q2 capex will return from the stratosphere to the $5 billion range it has been running at. If Alphabet’s real estate spending is removed, Q1 capex for the group of four was up only 15% compared to Q1 2021, at the low end of the typical range for the Top 15 ICPs.

While ICP spending appears on track to continue growing at double-digit rates this year, Q1 revenues were decidedly ‘off’ for the four majors that have reported, with no records set, and two of the four (Amazon and Meta) growing sales by only single-digit growth rates y-o-y.

The Cloud services revenues of Alphabet, Amazon, and Microsoft continued to grow faster than overall company sales, increasing 44%, 37%, and 17% respectively.
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
Network equipment makers sales growth in Q1 2022 declined by 1% y-o-y in aggregate among the reported companies, but this figure belies the fact that individual company growth rates ranged from strong double-digits (Adtran, ADVA), middling single-digits (Ericsson Networks, Infinera, ZTE), to sales declines (Nokia Networks, Ribbon Communications).
Five Chinese optical transceiver vendors have reported Q1 results, and four of them showed strong growth: HG Tech, Innolight, Accelink, and Eoptolink.  CIG was negatively impacted by shutdowns in both Shanghai and Shenzhen, which affected its ability to fulfill orders.
Among U.S.-based optical component makers, Neophotonics reported Q1 2022 revenue of $89 million, up 47% year-over-year, with 400G and above products growing 70% y-o-y to $54 million. The company is now shipping production volumes of 400ZR modules to cloud and data center customers.
Two years after the start of the COVID-19 pandemic, the effects of the COVID mitigation measures continue to disrupt manufacturing, shipping, and sales in the optical industry.  Several companies warned that shortages and higher component and shipping costs would persist or even worsen as 2022 progresses.  And finally, costs from Russia’s invasion of Ukraine, and subsequent withdrawals from the Russian telecoms market are starting to become known, ranging from $5 million (Infinera) to 900 million Euro (Ericsson).

Gartner: Public Cloud End-User Spending to approach $500B in 2022; $600B in 2023

Gartner forecasts that public cloud end user spending will reach nearly $600 billion by the end of 2023.  The market research firm says public cloud services will continue in 2022, and nearly capture $494.7 billion in global spending this year – up from $410.9 billion in 2021. That represents a 20.4% increase in spending from 2021.

“Cloud is the powerhouse that drives today’s digital organizations,” said Sid Nag, research vice president at Gartner. “CIOs are beyond the era of irrational exuberance of procuring cloud services and are being thoughtful in their choice of public cloud providers to drive specific, desired business and technology outcomes in their digital transformation journey.”

Infrastructure-as-a-service (IaaS) is forecast to experience the highest end-user spending growth in 2022 at 30.6%, followed by desktop-as-a-service (DaaS) at 26.6% and platform-as-a-service (PaaS) at 26.1% (see Table 1). The new reality of hybrid work is prompting organizations to move away from powering their workforce with traditional client computing solutions, such as desktops and other physical in-office tools, and toward DaaS, which is driving spending to reach $2.6 billion in 2022. Demand for cloud-native capabilities by end-users accounts for PaaS growing to $109.6 billion in spending.

Table 1. Worldwide Public Cloud Services End-User Spending Forecast (Millions of U.S. Dollars)

  2021 2022 2023
Cloud Business Process Services (BPaaS) 51,410 55,598 60,619
Cloud Application Infrastructure Services (PaaS) 86,943 109,623 136,404
Cloud Application Services (SaaS) 152,184 176,622 208,080
Cloud Management and Security Services 26,665 30,471 35,218
Cloud System Infrastructure Services (IaaS) 91,642 119,717 156,276
Desktop as a Service (DaaS) 2,072 2,623 3,244
Total Market 410,915 494,654 599,840

BPaaS = business process as a service; IaaS = infrastructure as a service; PaaS = platform as a service; SaaS = software as a service. Note: Totals may not add up due to rounding.  Source: Gartner (April 2022)

“Cloud native capabilities such as containerization, database platform-as-a-service (dbPaaS) and artificial intelligence/machine learning contain richer features than commoditized compute such as IaaS or network-as-a-service,” said Nag. “As a result, they are generally more expensive which is fueling spending growth.”

SaaS remains the largest public cloud services market segment, forecasted to reach $176.6 billion in end-user spending in 2022. Gartner expects steady growth within this segment as enterprises take multiple routes to market with SaaS, for example via cloud marketplaces, and continue to break up larger, monolithic applications into composable parts for more efficient DevOps processes.

Emerging technologies in cloud computing such as hyperscale edge computing and secure access service edge (SASE) are disrupting adjacent markets and forming new product categories, creating additional revenue streams for public cloud providers.

“Driven by maturation of core cloud services, the focus of differentiation is gradually shifting to capabilities that can disrupt digital businesses and operations in enterprises directly,” said Nag. “Public cloud services have become so integral that providers are now forced to address social and political challenges, such as sustainability and data sovereignty.

“IT leaders who view the cloud as an enabler rather than an end state will be most successful in their digital transformational journeys,” said Nag. “The organizations combining cloud with other adjacent, emerging technologies will fare even better.”

Gartner clients can read more in Forecast: Public Cloud Services, Worldwide, 2020-2026, 1Q22 Update.  Lean more in the complimentary Gartner webinar Cloud Computing Scenario: The Future of Cloud.

 

References:

https://www.gartner.com/en/newsroom/press-releases/2022-04-19-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-500-billion-in-2022

IDC: Cloud Infrastructure Spending +13.5% YoY in 4Q-2021 to $21.1 billion; Forecast CAGR of 12.6% from 2021-2026

Gartner: Accelerated Move to Public Cloud to Overtake Traditional IT Spending in 2025

 

Strong growth for global cloud infrastructure spending by hyperscalers and enterprise customers

Gartner: Global public cloud spending to reach $332.3 billion in 2021; 23.1% YoY increase