The State of the Cloud Infrastructure Market in 2020

The cloud infrastructure market in 2020 mirrored broader societal trends, with leading companies experiencing increased success while those with smaller market positions faced challenges. Total revenue for the year reached $129 billion, as reported by Synergy Research Group. This represents an increase from approximately $97 billion in the preceding year, 2019.

Market Growth and Quarterly Performance

Synergy’s data also indicated that the cloud infrastructure market generated $37 billion in revenue during the fourth quarter. This figure demonstrates growth compared to the $33 billion recorded in the third quarter, and a substantial 35% increase year-over-year.

Throughout the past nine months, numerous founders have indicated that the pandemic accelerated the adoption of digital transformation initiatives. A significant component of this shift involved a faster transition to cloud-based solutions. The reported financial figures appear to validate these observations.

Dominant Players and Market Share

The top three companies in the market remained Amazon, Microsoft, and Google. Alibaba has solidified its position as the fourth-largest provider, while IBM has fallen to fifth place. Notably, Microsoft’s growth rate surpassed that of Amazon, achieving a 20% market share by the end of 2020.

The Redmond-based software company has effectively doubled its market share since 2017, demonstrating remarkably rapid expansion. Google and Alibaba held 9% and 6% of the market, respectively.

Amazon's Position and Revenue

Amazon’s market share has stabilized at around 33% over the past four years of Synergy’s data collection. However, as the overall market continues to expand, Amazon’s public cloud revenues have also increased proportionally.

Amazon Web Services (AWS) generated $12.74 billion in revenue during the fourth quarter, resulting in an annualized run rate exceeding $50 billion for the first time. This represents an increase from $11.6 billion in the previous quarter. Microsoft’s revenue, calculated at $7.4 billion based on a 20% share of the $37 billion market, also saw growth from $5.9 billion in the prior quarter.

Revenue Figures for Other Providers

Google reported $3.3 billion in revenue, up from $2.98 billion in the third quarter of 2020. Alibaba’s revenue reached $2.22 billion, an increase from $1.65 billion over the same period.

Analyst Insights

John Dinsdale, a principal analyst at Synergy, suggests that the leading providers have established strong positions with substantial market numbers and significant gaps between competitors. He stated that AWS has been a successful venture for over a decade and maintains a robust market position despite growing competition.

Dinsdale views Microsoft as a credible competitor, but anticipates potential growth limitations as the company expands. He explained that maintaining high growth rates becomes more challenging as a company’s size increases, a principle known as the law of large numbers.

Challenges for Smaller Providers

Market share among smaller cloud providers has declined, even as the overall market has grown considerably. Synergy reported that these providers collectively lost 13 percentage points of market share over the last 16 quarters.

Dinsdale believes that smaller players can succeed by focusing on specific market niches, such as geographic regions, service types, or customer segments. Alternatively, they can attempt to offer a broad range of cloud services to a diverse customer base. He suggests that companies pursuing the former strategy are more likely to thrive, while those adopting the latter approach will face significant obstacles.

Comparison with Canalys Data

Canalys provides slightly different figures, estimating the total market at around $142 billion and almost $40 billion for the quarter. However, the percentage-based market share distribution aligns with Synergy’s findings.

Cloud Infrastructure as a Percentage of Total IT Spend

Despite the substantial revenue figures, the public cloud infrastructure market represents a relatively small portion of overall worldwide IT expenditure. Gartner estimates that global IT spending in 2020 reached $3.6 trillion.

Consequently, the cloud infrastructure market accounted for only 3.85% of total IT spend in 2020, indicating significant potential for future growth and expansion.

Future Outlook

Disrupting the current market leaders would require a significant shift in the way we approach computing. For the time being, it appears challenging to displace the established players without unforeseen and dramatic changes.