Amazon, Microsoft and Google are strengthening their grip on the cloud

The pandemic period has been a boon for the trio of companies that dominate the cloud computing industry. Now that the economy is entering a chaotic new phase, Amazon, Microsoft and Google seem ready to step up a gear.

According to analyst firm Synergy Research Group, these three companies garnered 65% of the $53 billion in global spending on cloud computing services in the first quarter, up from 52% of global sales four years ago. Their control of this crucial and booming market is likely to continue as their size allows them to better invest and attract clients seeking stability in turbulent times, according to industry professionals and analysts.

Despite their comfortable position in the market, the development of the cloud computing divisions of Amazon, Microsoft and Google (Alphabet) is similar to that of start-ups, with sales up more than 30% year-on-year on the other over recent quarters, as smaller cloud services have seen market share fall as cloud computing spending migrates to larger platforms, according to Synergy.

The pandemic has led to a clear shift in spending towards remote computing services (“cloud”), as life and work are digitized. Major cloud IT players have cemented their hegemony in part due to the economics of the industry, which requires massive investments in servers and the facilities that host them, analysts say.

The larger these server farm networks, the lower the average cost to build and operate, giving these three companies an edge. They are also favored by their ability to develop chips, software and other technologies for the cloud.

“We’ve been investing heavily in this space for 15 years, and it’s not something that’s easy to catch up,” said Matt Garman, senior vice president of sales and marketing for Amazon Web Services, the cloud division of the e-commerce giant.

Meanwhile, smaller companies in the sector are set to face tougher fundraising conditions, analysts say, as falling stock prices make investors less inclined to take big risks. Additionally, customers are looking to consolidate their spending and are more likely to favor larger players in the market which often offer more reliability and a broader set of features.

Saber, a software company for the travel industry, has decided to focus more on the cloud, which it says will help it save money and gain operational flexibility. The company is increasingly making use of Google’s cloud, since through the use of a single supplier, it manages to simplify the technology used by its engineers and the rest of its employees.

Google’s ability to analyze large amounts of data and its wide range of features allow Saber to focus its spending on a single vendor, saving it the time and effort of juggling too many vendors, said Joe DiFonzo, CIO of Saber.

“We’re moving from managing hundreds and hundreds of one-to-one relationships administered through third-party software to increasingly using Google Cloud,” he said. According to him, while 28% of the company’s spending on cloud computing services has been with Google so far, that figure is expected to rise to 65% of Saber’s cloud budget by the end of the year. year.

According to analysts polled by FactSet, the three US groups’ combined revenue from their cloud computing offerings grew more than 33% last year and is expected to grow nearly 29% this year.

“These three giants are really outpacing everyone else. said John Dinsdale, Synergy’s chief analyst.

As other tech sectors face post-pandemic slowdowns, demand for cloud computing services has remained strong, said Thomas Kurian, chief executive of Google Cloud, whose global market share fell 1.5% in 2015 to 7.1% in 2021, according to research firm Gartner.

“We continue to see sustained demand and interest from customers around the world in virtually every industry,” he said.

In recent years, some cloud computing companies, new and old, have grown their business by providing software and services to help customers interact with the cloud. However, the dominance of these three companies in cloud hosting means that other companies in this segment generally have to continue to work with them, which later allows these giants to offer competing products.

Aaron Levie, chief executive of the Box company, explains that the weight of the big three companies helps drive down prices for Box, but it also reveals their stranglehold on the market.

“These players are able to achieve economies of scale, and this is a self-sustaining phenomenon. said Mr. Levie. Box sells cloud-based content management and collaboration software, making it a user of services from the big three cloud companies as well as a competitor.

Snowflake is one of the cloud service providers that has grown rapidly in recent years. But he faces growing competition from the cloud platforms he uses. Its annual revenue has doubled in its past two fiscal years, but the company expects growth to slow to 66% this year.

The company, which helps customers analyze enterprise data across different clouds, accused Google of trying to cut sales by pushing its competing data analytics product, BigQuery.

“Google is not an open platform,” Snowflake CFO Michael Scarpelli said at an event earlier this year. “They don’t like to form partnerships very much, especially if they feel threatened. »

Google said it had proven it could work smarter with its competitors, and some customers chose its product over Snowflake’s because it was better.

Other publishers have accused Amazon of developing competing software in the cloud. Amazon said it was just meeting the needs of its customers.

Newcomers to cloud computing platforms, such as start-up Sushi Cloud, are trying to break through by focusing on specific niches, such as lowering the costs of running artificial intelligence software in the cloud ( AI). Others, like Cloudflare, try to woo customers by offering great prices to move data out of their clouds. Major cloud computing companies often charge high rates for data transfer.

“The harsh reality is that the big three are sticking around and signing on and they’re going to keep growing,” said Shauna O’Flaherty, COO of Sushi Cloud. “I just hope that competing companies can break into this market without being intimidated. »

Translated from the original English version by Emmanuelle Serrano

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