Cloud spending said to top $30B in Q4 as Amazon, Microsoft battle for market share

We all know the cloud infrastructure market is extremely lucrative; analyst firm Canalys reports that the sector reached $30.2 billion in revenue for Q4 2019.

Cloud numbers are hard to parse because companies often lump cloud revenue into a single bucket regardless of whether it’s generated by infrastructure or software. What’s interesting about Canalys’s numbers is that it attempts to measure the pure infrastructure results themselves without other cloud incomes mixed in:

As an example, Microsoft reported $12.5 billion in total combined cloud revenue for the quarter, but Canalys estimates that just $5.3 billion comes from infrastructure (Azure). Amazon has the purest number with $9.8 billion of a reported $9.95 billion attributed to its infrastructure business. This helps you understand why in spite of the fact that Microsoft reported bigger overall cloud earnings numbers and a higher growth rate, Amazon still has just less than double Microsoft’s market share in terms of IaaS spend.

That’s not to say Microsoft didn’t still have a good quarter — it garnered 17.6% of revenue for the period. That’s up from 14.5% in the same quarter a year ago. What’s more, Amazon lost a bit of ground, according to Canalys, dropping from 33.4% in Q4 2018 to 32.4% in the most recent quarter.

Part of the reason for that is because Microsoft is growing at close to twice the rate as Amazon — 62.3% versus Amazon’s 33.2%.

Meanwhile, number-three vendor Google came in at $1.8 billion for pure infrastructure revenue, good for 6% of the market, up from 4.9% a year ago on growth rate 67.6%. Google reported $2.61 billion in overall cloud revenue, but that included software. Despite the smaller results, it was a good quarter for the Mountain View-based company.

Meanwhile, Alibaba reported $1.5 billion for the last quarter in its report last week. While the Canalys report includes Alibaba data of $1.6 billion, it was published on February 4th, before Alibaba reported its earnings, which explains the discrepancy.

Cloud market complexities

The market remains complex for a number of reasons. For starters, it’s expanding, so the competition is not zero-sum — quite the opposite. Cloud companies are fighting for bigger parts of a growing pie.

And further complicating the market is the fact that companies are not simply choosing a single vendor. Canalys chief analyst Alastair Edwards says in fact it’s very much a world of multiple vendors, where end-users choose the best one for a particular job. “Many are using a combination of multi-clouds and hybrid IT models, recognizing the strengths of each cloud service provider and the different compute operating environments needed for specific types of workloads,” Edwards said in a statement.

That said, Edwards also points out that companies are getting smarter about cloud purchasing. Recognizing that this is something they’ll be using over the long haul, they are locking in multi-year contracts at more favorable prices, which in turn gives cloud vendors more revenue certainty.

Cloud growth will continue

In spite of the projected growth, a number of stubborn workloads remain locked on-premises. As vendors come up with creative solutions for moving these more difficult workloads, the market will expand further. What’s more, there will be new workloads, and chances are good that most net-new applications and workloads will be in the cloud.

The final factor to consider is that the sheer amount of data continues to grow, and the cloud offers a great elastic solution, providing more storage and processing as needed. All of this points to a market that will continue to expand for the foreseeable future. Edwards predicts that the market will continue to grow over the next five years, as more applications and data move to the cloud. That’s a good bet.