
Credit: wynpnt
Following a strong second quarter, the cloud software and infrastructure market sustained its momentum in the third quarter of 2022. A new report from Synergy Research Group found that cloud spending for the quarter amounted to $57.5 billion, up by more than $11 billion and representing 24% growth year-over-year. This is a remarkable feat considering the market is plagued with economic headwinds like trade restrictions, high inflation, and disadvantageous foreign exchange rates.
However, despite the increase in spending, the third quarter reflects a decline from the previous quarter, which saw 29% year-over-year growth. This may be a sign that the cloud market is cooling down following its staggering growth in the past few years. And the aforementioned headwinds have a lot to do with it. A report from Wanclouds shows that 81% of IT leaders were directed by their C-suite to cut down on cloud spending as companies struggle with the high prices of consumer goods, a restricted Chinese market, and the strong dollar.
According to Synergy Research Group Chief Analyst John Dinsdale, the cloud market growth in spending would have exceeded 30% had the discrepancy between the US dollar and other currencies been smaller and if the Chinese market were more stable. With this, the cloud software, cloud infrastructure services, and cloud management software markets could collectively regain their luster when economies recover from the current global inflation crisis.
In the case of the United States, cloud providers will have to hold out until at least 2023 before the economy stabilizes. Preston Caldwell, head of US economics for research firm Morningstar, projected that the inflation rate between 2023 and 2025 will be around 1.5%.
Google Outpaces Amazon and Microsoft
While the cloud market growth in the third quarter has dwindled, Google Cloud has been surging of late. Its year-over-year revenue growth for the third quarter amounted to 37.6%, surpassing that of market leader Amazon Web Services (AWS) (27.4%) and revenue leader Microsoft Azure (35%). This led Google to gain a larger share of the market at 11%, up from last year’s 10%. Among the “big three” cloud providers, Google was also the only one to beat analysts’ expectations for the quarter.
Google CEO Sundar Pichai said that long-term cloud computing trends that have been driving adoption continue to play a pivotal role in today’s rough economic times. He also mentioned that Google Cloud is a priority for the company as it helps users solve business challenges, reduce costs, boost productivity, and harness new growth. As such, Google has made strides to further improve its services, recently expanding the storage of Workspace Individual users to 1 TB and automatically transcribing cloud-based meetings, among other feature enhancements.
Meanwhile, AWS managed to increase its year-on-year revenue by 27.4% in the quarter, a step down from its impressive first and second quarters, which amounted to 37% and 33%, respectively. Amazon had already anticipated this drop, with the company’s CFO Brian Olsavsky expecting the company’s growth to be in the mid-20% range for the remainder of the year, including the upcoming quarter.
Microsoft Azure also experienced a slide in revenue growth from 40% in the previous quarter to 35%. And the company’s executives foresee another 5% drop in the upcoming quarter. This has led some analysts to believe that the cloud software market had already plateaued, as the two biggest cloud service providers have been recording steady growth declines. But the true test comes when global economies eventually recover from inflation.
The ‘Big Three’ Remain Dominant
Despite their dips in growth, the three leading cloud providers tightened their grip on their positions at the top of the ladder. New cloud computing statistics indicate that the big three account for 66% of the cloud infrastructure services market, increasing their share by 5% over last year’s.
AWS leads the pack with a market share of 34%, followed by Microsoft Azure (21%), Google Cloud (11%), Alibaba (5%), and IBM (3%). The next 25 companies beneath the big three make up 25% of the market and all of the remaining vendors own 9% of the global market. Interestingly, even though their market share decreased, companies outside the big three have tripled their collective revenue since 2017. However, their growth rates are well below those of the three market leaders. This means that the big three could become even more dominant in the long run.
What’s more, the big three occupy 72% of the public cloud market, with AWS, Azure, and Google Cloud recording significant growth across all world regions. Meanwhile, public industry-as-a-service (IaaS) and platform-as-a-service (PaaS) companies account for a large part of the cloud services infrastructure market and posted 26% growth collectively in the third quarter.
Amid the strong performance of the big three, what smaller players can do to stay afloat is to focus on areas of the market with high growth potential, especially those where the market leaders aren’t too dominant. They can develop new solutions for widely used systems like IaaS, PaaS, and cloud management software, innovate on existing services, and adopt the handiest features of related platforms.
Google has already laid out the blueprint for improving customer experiences and has reaped the rewards, based on the company’s third-quarter performance. Smaller players can follow a similar approach to developing new solutions.
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