Cloud wars: a report from the frontline

2020 started with a bang for the four cloud giants. With the FTC looking into AWS, Microsoft winning the JEDI contract, Alibaba looking to expand and Google bent on outranking its rivals by 2023, it’s going to be an interesting year for the cloud compute market.
Mor Pecht

Mor Pecht

Feb 24, 2020

TLDR: AWS remains the overwhelming market leader but with Alibaba gaining a foothold in the EU and looking to expand globally, 2020 could be a pivotal year.  

 

The cloud wars are heating up. Not that the field was cool till now— but since the last month of 2019, Amazon, Microsoft, Google, and Alibaba have been upping the ante. With the new year and decade descending upon us, gaining a stronger foothold in the sprinting cloud market is the name of a very profitable game.

That’s hardly surprising. While the public cloud services market is already valued at $227.8 billion in 2019, it continues to race ahead at a breathtaking CAGR of 17%, on pace to reach a market value of $266.4 billion in 2020, according to Gartner. Although AWS is holding onto its staggering first-mover advantage, the challengers are grabbing bigger pieces of this fast-growing pie.

 

The Rankings

Unsurprisingly, AWS, maintained its strong lead in total public cloud spending, ending Q4 2019 with a commanding 47% market share. AWS is still outpacing the next three fastest horses: Azure with 22%: Alibaba with 8% and GCP with 7%. All the other horses in the race are nibbling at the remaining 16%. 

However, the Federal Trade Commission (FTC) has been looking into Amazon’s dominant position in the e-commerce market and, in December, their antitrust investigation was broadened to include the company’s cloud-operation practices. According to Bloomberg, quoting sources familiar with the investigation, the FTC is trying to figure out whether Amazon is discriminating against software companies that work with competing cloud providers. In the event the FTC decides to sue Amazon, the verdict could range from an inconsequential slap on the wrist to a financial penalty settlement, all the way to blocking mergers and acquisitions and even unwinding those that have already been consummated. In the meantime, AWS continues to gallop well ahead of all competitors.

2019 was an especially big year for the runner up, Microsoft Azure. Last October, it won the coveted $10 billion Joint Enterprise Defense Infrastructure (JEDI) cloud contract from the US Department of Defense. Quickly following, on November 22nd, though, Amazon filed a suit protesting the decision, claiming it was not “adjudicated fairly”. Amazon suggested that President Trump’s personal bias against Jeff Bezos was behind the award, according to Tech Crunch and even requested to depose the President. The contract was temporarily blocked on February 13th, following Amazon’s suit, leading to a dip in Microsoft shares. AWS was instructed to obtain $42M for “costs and damages” in the event their injunction was filed “wrongfully”. Microsoft remains confident even if a bit disappointed with the additional delay, according to Fortune.

Sprinting at #3 is the undisputable Chinese market leader, Alibaba Cloud, which is also the fastest-growing IaaS provider, according to Gartner’s 2019 IaaS report. With several key limited partnerships, including Vodafone in Germany and BT in the UK, it’s clear Alibaba is trying to gain a foothold outside China as well. None of the other leading cloud players have a hold on the Chinese market, and Alibaba hopes to use this key differentiator to appeal to companies looking to enter the Chinese market in addition to Chinese companies looking to go global, according to ComputerWeekly. Alibaba’s main obstacle will be gaining the trust of US companies, the leading cloud spenders (over 10X that of China, ranked second in cloud spend) according to IDC, who don’t want their data kept on a Chinese owned cloud, due to geopolitical reasons. 

That leaves #4, Google. The company made some big decisions, like the launch of Anthos early in 2019 targeting businesses with hybrid or multi-cloud applications, to help meet their internal goal of outranking one or both leaders (AWS and Microsoft) by 2023. This direction followed a heated internal debate about the future of its cloud operation. According to The Information, decisionmakers at Google were considering whether the company could win in the cloud business, and, if so, how. The senior group even contemplated—but eventually dismissed—the idea of leaving the cloud market entirely to focus on more profitable products. Their final decision was to stay the course, albeit with the whip of an aggressive growth goal. Google Cloud now accounts for the largest number of new hires and the company plans to triple its cloud sales force in the next few years.

The betting is fast and furious, the racecourse is running fast and the horses are sprinting ahead. It’s an interesting competition with a lot at stake. Hold onto the reins and let’s see how the cloud derby develops in 2020. 


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