According to Synergy Research Group who closely monitor such trends, they saw 37% overall growth year-over-year in public cloud. They reported that it has taken just two years for the public IaaS and PaaS markets to double in size and their forecast shows them doubling within the next three years. Within the overall market it is possible to discern some interesting trends amongst the top three providers, which we discuss below.
Amazon Web Services (AWS)
Last Thursday, Amazon reported that its cloud division revenue increased 35% in the third quarter, which was down from 37% in the previous quarter, and its slowest growth rate in five years. AWS finished its third-quarter with $9 billion in revenue. Each of the three previous quarters also showed a decline in growth which can be seen below.
Microsoft followed AWS’s report with Azure reporting a revenue growth rate of 59%. In a similar vein to AWS, growth was reported as slowing and was down on the previous quarter which was 64% and down from 76% from a year ago. While Microsoft doesn’t break out specific revenue amounts for Azure (unlike AWS) Microsoft did report that its “Intelligent Cloud” business revenue increased 27% to $10.8 billion, with revenue from server products and cloud services increasing 30%
Azure also hit the headlines around the same time as their earnings report with the announcement of their securing the lucrative, high profile and highly contested $10B Pentagon’s JEDI Cloud contract. This was viewed as a key strategic win for the company and a game changer in the face-off with AWS.
Google Cloud Platform (GCP)
Last to report were Google’s parent company Alphabet. During their analysts call a few references were made to overall performance which included the Alphabet CEO calling out Thomas Kurian, who leads the GCP business, in saying “Obviously, ever since Thomas has come in, he has continued to invest across the board. He’s definitely focused a lot on scaling up our sales, partner and operational teams, and it’s playing out well”. Furthermore, it was reported that GCP had hired more sales, engineering and product managers, and that GCP, analytics and compute would continue to be a focus of the company’s investments going forward.
GCP falls into Alphabets “other” revenue bucket, which includes Google Play and hardware. Of businesses, GCP had the highest revenue. Other revenue was $6.43 billion in Q3, which was a 39% increase over $4.64 billion a year ago. There is no doubt that the cloud business is the largest of the three but Alphabet didn’t break out more specific numbers for cloud.
Some of the companies outside The Big Three, including Alicloud, IBM, Oracle, etc. are all growing, but they continue to lose ground to these three dominant market leaders. To compete, hyper-scale really matters, and these three bring that in spades.
Cloud in 2020 and beyond
As we enter the next decade a number of market watchers are speculating about what the reported slow down in growth means for the public cloud market share. As has been widely observed in other markets it’s a truism that as hyper-scale is achieved growth rates will decline. However, even with the overall reduction in growth they still exceed almost every other area within the broader technology market. As of Q3 2019, the overall quarterly run rate size was $25 billion, implying the annual run rate is now over $100 billion and still growing fast. It’s unlikely that there are too many other markets with better prospects going into next year.