Hyperscaler earnings 'highlight new era of maturity' in global cloud market

Experts have suggested that the lower-than-expected earnings reported by all three of the major hyperscslers could indicate the cloud market is entering a new phase of maturity.

In recent weeks, Microsoft Azure recorded 31% revenue growth in the final quarter of the year, marking a decrease from the previous quarter.

Similarly, AWS recorded a 20% revenue increase in the fourth quarter - a decrease on 27.5% in Q3 - while Google Cloud revenue rose by 32% to $7.32 billion, narrowly missing estimates of $7.44 billion.

Suggestions that the figures illustrate a reported looming global ‘cloud slowdown’ have been somewhat dismissed by Philip Dawson, VP analyst at Gartner.

Speaking to IT Pro, he said they more likely represent the combined effects of ongoing economic challenges and changes in the way businesses approach cloud adoption.

“I think there’s a macroeconomic element here. There’s the uncertainty as a result of the post-COVID recovery, and there’s obviously the invasion of Ukraine, inflation,and higher energy costs causing uncertainty,” he told IT Pro.

“But I think cloud is entering a different phase of maturity now, and on the back of that uncertainty it might look like a slowdown.”

Google Cloud and Azure gathering pace

With Google Cloud and Azure both posting more promising results than Amazon in the recent quarter, Dawson suggested that this is down to how individual providers have traditionally positioned themselves in the cloud market.

AWS has maintained the largest market share of the three hyperscalers for several years. Gartner estimates have shown that AWS led the cloud infrastructure market with a 39% share in 2021.

However, AWS has typically been a go-to provider for “lift and shift” migrations, Dawson said. Meanwhile, in recent years Google Cloud and Azure have developed a reputation for offering a broader scope of services and products.

“Amazon was very good at doing the lift and shift migration traditionally. Microsoft has a slightly different position, especially in Europe. Microsoft has its channel, structured partners, and that geographic presence,” he said.

Dawson described AWS as the traditional “radical, revolutionary” cloud vendor which has long dominated the market. However, Microsoft has positioned itself in recent years as a more “evolutionary” vendor.

“In Europe at least, that differentiates them a bit. The channel base and go-to-market in different regions and verticals gives them a different capacity and breadth.”

Google Cloud has also gathered pace during this period and has been growing at a moderate rate.

“They are investing heavily. If you take the revolutionary-evolutionary perspective, then Google is in the middle. They’re competing on price, and they’re investing in skills, which is important,” Dawson said.

Google Cloud and Azure have been highly aggressive in positioning themselves as key vendors, and this appears to have accelerated further in recent months.

Earlier this month, Microsoft announced plans to broaden access to OpenAI technologies such as ChatGPT for enterprise Azure customers in a move hailed as an “important milestone” for broader Azure service offerings.

Similarly, Google Cloud recently outlined plans to develop closer ties with its cloud ecosystem in 2023.

Kevin Ichhpurani, corporate vice president for global ecosystems and channels at Google Cloud, said the tech giant aims to position the Google Cloud Marketplace as the “go-to destination” for cloud customers.

While AWS has continued to maintain a far larger portion of the market, competition for the provider has heated up in recent years as Google and Microsoft both sought to expand their respective share.

AWS revenue growth has decelerated consistently over the last eight years, highlighting this increasingly stifled marketplace.

A recent Forrester study on public cloud growth highlighted this growing competitive landscape – suggesting that hyperscalers will be forced to prioritise investments in “differentiated premium services”.

Shifting cloud approach

Rising costs and growing economic disruption is prompting organisations globally to tighten budgets and reassess how they leverage cloud, and this is having an impact, Dawson said.

Similarly, current market demographics could also be playing a key role, with more cloud-mature organisations optimising processes to compensate for a lack of spending while hesitant firms double down on their traditional reluctant approach.

Dawson said that current consumer demographics with regard to cloud use can be compartmentalised into three distinct groups.

“We’ve got one-third [of businesses] in the cloud, one-third on-prem that find it difficult to move the cloud - and probably won’t within the next five years, and we have the final third that is going to the cloud.”

This middle contingent of cloud-hesitant organisations has traditionally been a tough market to pierce for all three hyperscalers, but macroeconomic conditions are exacerbating the issue as budgets become increasingly strained.

“I think that middle third is still a growth opportunity looking ahead, but more of a complex growth opportunity for vendors,” he added.