Though the growth rate of the cloud infrastructure sector is well below its Covid-driven peaks, the industry has not only become a veritable behemoth but is also once again picking up pace due to the artificial intelligence (AI) boom.
Throughout the massive growth period, there has also been a relative equilibrium among the market leaders, with Amazon (NASDAQ: AMZN) – through its Amazon Web Service (AWS) – remaining the biggest player in the industry.
Finbold data retrieved on July 23, however, found that Microsoft (NASDAQ: MSFT) is increasingly challenging AWS’ dominance through Azure.
Indeed, Amazon’s market share fell from 33% to 31% between the final quarter of 2021 and the first of 2024, while Azure’s rose from 21% to 25%. At the time of publication, the two companies combined command as much as 56% of the global cloud infrastructure market share.
AWS, Azure, and Google Cloud grow their dominance at expense of competitors
Another trend observable in the previous three years is the relative weakening of smaller cloud service providers. Indeed, once Amazon and Microsoft are excluded, five out of the six remaining major players in the industry have seen their market share either diminish or stagnate.
Finbold found that between Q4 2021 and Q1 2024, Alphabet’s (NASDAQ: GOOGL) Google Cloud grew its presence by 1% to 11%, while Alibaba Cloud (NYSE: BABA) – the biggest non-American cloud infrastructure provider – fell 2% from 6% to 4%.
Likewise, IBM Cloud’s (NYSE: IBM) market share diminished from 4% to 2%, while Oracle Cloud (NYSE: ORLC) and Tencent Cloud (HKG: 0700) retained 2%, and Salesforce (NYSE: CRM) 3%.
All the remaining cloud infrastructure providers control only 20% of the market share – 1% less than they did in Q4 2021.
However, it is worth pointing out that the loss of market share does not mean that the companies have seen a reduction in their business, given that the entire cloud infrastructure market’s revenue has grown from just above $50 billion in Q4 2021 to over $76 billion in Q1 2024.
Why Google and Microsoft are catching up with AWS
Amazon’s continued dominance has been attributed to its aggressive marketing campaign, which featured heavy investments from the industry’s relatively early days and enticing pricing offers during the COVID-19 mass online migration.
Along with marketing, AWS owes its popularity to its significant scalability and general convenience, which makes it appealing to a broad customer base.
Google and Microsoft have, however, been catching up largely thanks to their focus on novel technologies – AI being the standout example.
Given Azure’s rise in the last three years, the impact of Microsoft’s early partnership with OpenAI – the company behind ChatGPT – becomes evident.
Is the consolidation of cloud services a systemic risk?
On July 19, a global IT outage affecting Microsoft devices and caused by a CrowdStrike (NASDAQ: CRWD) update spooked investors and may prove a bump on Azure’s road toward capturing an ever-greater market share.
On the other hand, the impact of the incident is yet to be measured, and there are no guarantees that it will hamper Microsoft’s rise, given that cloud service outages are relatively common. AWS itself, for example, suffered one on June 14, 2023.
Nonetheless, given the non-trivial and uncomfortably frequent errors made by large corporations and the fact that two firms control more than half and eight as much as 80% of the cloud infrastructure market, there is some cause for concern.
The cloud infrastructure sector likely to continue growing at a rapid pace
Whatever the possible dangers, the world has fully accepted the benefits of cloud services – as evidenced by the market’s growth – and the industry is only expected to grow further.
Demand is driven by multiple factors, including the needs of private entities as well as governments through initiatives such as the digitalization of national governance.
More recently, the AI sector has proven a major user of cloud computing.
Given that Sam Altman – the CEO of OpenAI – has claimed that the current infrastructure is so insufficient that an investment of up to $7 trillion is merited to boost semiconductor and cloud capacity, AI may indeed prove the pivotal stepping stone for future growth of services such as AWS and Azure.
