Recent quarters have seen a pause in the expansion of the cloud infrastructure market, with lower growth figures than we were used to seeing in the past. That changed in the final quarter of 2023 thanks in large part to interest in generative AI. The new wave of revenue began just last year, fueled by ChatGPT's hype cycle, but has already boosted cloud infrastructure revenue in Q2023 74 to $12 billion, up $5,6 billion from last year at this time and $XNUMX billion more than the third quarter, the largest. quarterly increase that the cloud market has experienced, according to Synergy research.
The full-year cloud infrastructure market grew to a staggering $270 billion, up from $212 billion in 2022. Synergy's John Dinsdale predicts the growth we saw in the last year came to stay, even when the market continues maturing and The law of large numbers has an increasing effect. “Cloud is now a huge market and it takes a lot to move the needle, but AI has done just that. Looking ahead, the law of large numbers means the cloud market will never return to the growth rates seen before 2022, but Synergy predicts growth rates will now plateau, resulting in continued huge annual increases. in cloud spending,” he said in a statement.
Jamin Ball, partner at Altimeter Capital, writing in his excellent Clouded Judgment newsletter foresees an equally bright future for these suppliers:
Hyperscalers are really starting to see the tailwind from new workload growth outweighing the headwind from optimizations. Sometimes new workloads are related to AI. Sometimes they are classic migrations to the cloud. Hyperscalers benefit from massive scale, distribution, trust, and depth of customer relationships like no other software company does. They are also seeing AI (largely computing) revenues appear before anyone else.
Ball's data supports Dinsdale's claims about declining growth rates, but in a market this large, growth for growth's sake becomes a much less important metric:
For now, it appears that Microsoft's lucrative investment/partnership with OpenAI is giving it an edge in the market, as we saw the company's market share grow a full two percentage points to 25% in the fourth quarter, an increase remarkable of a quarter. amazon remains the king of the mountain with a share of 31%, although two points less than the last quarter. It would be easy to say that Amazon's loss was Microsoft's gain, although it's probably not that simple and there are probably more nuanced impacts across the market. Meanwhile, Google remained stable with a share of around 11%.
Synergy reports that the Big 3 make up 67% of the overall market share, or about 50 $1 billion in total cloud revenue coming from the three largest companies during a single quarter.
From a dollar perspective, the numbers are, as usual, a bit mind-boggling: Amazon totals $23.000 billion, Microsoft $18.500 billion, and Google about $8.000 billion. If these numbers don't exactly match the reported numbers, it's because these companies often combine different types of cloud revenue to arrive at the numbers. Synergy analyzes IaaS, PaaS and hosted private cloud services, and cloud figures reported by companies may include SaaS and other revenue that Synergy does not count.
In terms of quarterly percentage growth, taking into account those caveats about how companies measure revenue, AWS was up 13%, Azure was up 30%, and Google Cloud was up about 25% (although they don't separate SaaS revenue into that number).
One thing became clear last year: Microsoft was putting pressure on Amazon and left the company hot on its heels, perhaps for the first time, with its aggressive deal with OpenAI.
Scott Raney, a partner at Redpoint, said in December that Amazon was clearly playing catch-up when it came to AI, and that it was an unusual place for the company to find itself. “This might be the first time people look and say Amazon is not in the first position to take advantage of this huge opportunity. “What Microsoft has done with Copilot and the fact that Q is coming out means that they are actually 100% playing catch-up,” Raney said at the time.
While generative AI represents a huge opportunity for all cloud providers, it's still early days. They always like to say that being first to market is a huge advantage, and it certainly has been for Amazon all these years. It's not yet clear whether Microsoft's aggressive approach to AI represents a similar advantage, but a two percentage point increase in market share in a single quarter is hard to ignore. For now it looks like Microsoft has taken the lead when it comes to AI in the enterprise, but Google and Amazon still have plenty of time to figure it out.
