Amazon Leads Market, Loses Cloud Shares


Sep. 8 2019, Updated 10:11 a.m. ET

Technology giant Amazon (AMZN) leads the IaaS (infrastructure as a service) Public Cloud Services market. Research firm Gartner estimated the company’s share at 47.8% at the end of 2018. In comparison, the other top players include Microsoft (MSFT), Alibaba (BABA), Google (GOOGL), and IBM (IBM) with shares of 15.5%, 7.7%, 4%, and 1.8%, respectively.

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Amazon leads the public cloud market

The IaaS Public Cloud Services market rose 31.3% year-over-year to $32.44 billion in 2018. Comparatively, Amazon’s sales grew by 26.8% while Microsoft’s cloud sales rose by 60.9%. Also, Alibaba and Google outpaced the overall growth as revenue rose by 92.6% and 60.2%, respectively.

Overall, the top five players accounted for 76.8% of the total market in 2018, up from 72.6% in 2017. According to Gartner’s research vice president Sid Nag, “Only those providers who invest capital expenditure in building out data centers at scale across multiple regions will succeed and continue to capture market share. Offering rich feature functionality across the cloud technology stack will be the ticket to success, as well.”

Gartner also expects the top five players to consolidate their positions in 2019. Nag added, “We can see that the major players grew sales by 39% year-over-year in 2018, compared to just 11% growth for other companies.”

Amazon loses cloud market share to Microsoft

We have seen that Amazon accounts for almost 50% of the cloud segment. But the company is losing market share to Microsoft, Alibaba, and Google. Alibaba is the largest IaaS cloud provider in China. The company almost doubled sales in 2018.

In the first quarter of 2018, AWS (Amazon Web Services) sales rose 41% to $7.7 billion, up from $5.44 billion in the prior-year period. However, though Amazon is quickly growing sales, the company’s revenue growth is slowing down. This allows other players to catch up.

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According to research firm Canalys, Amazon’s Cloud Infrastructure sales rose by 41% in the first quarter of 2019. This growth was far higher for Microsoft and Google at 75% and 83%, respectively. While Amazon reported cloud sales of $7.6 billion, Microsoft reported revenue of $3.4 billion. This is followed by Google at $2.3 billion in the first quarter of 2019.

Google is pushing hard to gain traction in cloud computing. The company recently hired former SAP (SAP) executive Dave Hutchison to join its cloud division.

The cloud market is booming

Gartner has estimated the global IaaS cloud market to reach $83.5 billion by 2021. Comparatively, the SaaS (software as a service) Cloud market and the PaaS (platform as a service) Cloud market are expected to reach $117.1 billion and $27.3 billion by 2021.

Overall, the total addressable market for top cloud players continues to expand. In addition, it will be interesting to see if the company can grow in line with the overall market to maintain or increase its market share. Will Alibaba, Google, and Microsoft continue to disrupt this space and gain at a more robust pace? The top players have enough cash to invest aggressively in capital expenditure or for growing through acquisitions.

Amazon’s AWS still has a strong presence

The cloud segment remains critical for Amazon as it’s also the company’s most profitable business venture. AWS sales accounted for 13.2% of revenue. But AWS operating profit accounted for almost 69% of total operating profit in the second quarter.

Personally, I believe that as long as the company has enough presence in the public cloud, the company will continue to be a major player for a long time.

We had outlined Amazon and Alibaba as two stocks for investors to buy for 2020.


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