Cloud Computing War in Earnings Reports: Cloud Magnets Accelerate Monopolization

Jeniffer| 2018-02-07 Cloud Computing, News Comments( 0 )

Within one week, top four cloud business magnets published their earnings reports in succession. Amazon’s cloud business AWS still took the lead in the race with the earnings of $17.4 billion. Likewise, Microsoft, Google and Alibaba Cloud did not slow down their pace as well. Alibaba Cloud’s 2017 total revenues exceeded ten billions; Microsoft Azure increased up to 98% during the latest quarter; at Google, its cloud computing became the secondary growth impetus after its advertising revenues. 

Some market analysts think in the fourth quarter of 2017, cloud computing market rose by 46% over the same period of last year. To largely degree, the increase was driven by the four cloud magnets’ growth. However, just because of this, the situation that cloud giants accelerate monopolization of the cloud computing market becomes more and more evident. 

Top Four Scramble for Cloud Market

According to Amazon’s newly released earnings report, AWS obtained $5.1 billion net sales by value in the fourth quarter last year, and the net sales for three previous quarters were $3.661 billion, $4.1 billion and $4.584 billion respectively, thus AWS got up to $17.4 billion net sales last year.

During the earnings analysts call, Amazon CFO Brian Olsavsky mentioned that the rise of AWS use amount currently looked very robust, and the increasing trend continued to be powerful, the increase rate exceeded the company’ revenue growth rate greatly, and its customers still continued to increase capacity. 

On February 1, China’s largest eCommerce platform company and Amazon’s competitor in China disclosed its 2017 Q4 earnings report, which showed its cloud business accelerated growth as well. In the report, Alibaba Cloud received RMB¥3.599 billion, up 104% over the same period of last year. During the three previous quarters of 2017, Alibaba Cloud obtained RMB¥2.163 billion, RMB¥2.431 billion and RMB¥2.975 billion revenues respectively. So, Alibaba Cloud totally received RMB¥11.2 billion revenues in 2017.

Google’s parent company Alphabet also published financial report last Friday. According to the report, Alphabet 2017 Q4 total revenues were $32.323 billion, up 24% from a year earnings of $26.064 billion. The financial report displayed that hardware and cloud computing became the secondary motive force for growth after advertising revenues. 

During earnings report, Google CEO Sundar Pichai firstly opened the earnings related to Google Cloud. Pichai said that Google Cloud and GSuite now could bring $1 billion revenues for each quarter, amounting to $4 billion revenues per year. However, even so, Google Cloud’s revenues were only 3.1% of Google’s total earnings. Pichai also said that the public data showed that in 2017 Google Cloud platform was the public cloud service platform globally expanding fastest.

On February 1, Microsoft also published its 2018 Q2 earnings report. Its revenues for the quarter were $28.918 billion, up 12% over the same period of last year. Microsoft intelligent cloud business received $7.8 billion revenues, rising by 15% compared with the year earlier, and Azure business increased 98%. Microsoft CEO Satya Nadella ever said that that the investments in IoT, big data and artificial intelligence based on the cloud platform became the core advantage to drive the company continuously growing. 

Different Strategies in China

At the event of Microsoft Tech Summit 2017, Nadella fully displayed Microsoft Azure’s ambition in Chinese market. Nadella even disclosed that Microsoft Azure would triple its capacity during the next 6 months, and Azure Stack, SQL Server 2017 as well as other related services would successively be pushed out in Chinese market. 

Azure planned to triple its capacity in China within 6 months, while Google was still absent in China. Similarly, in December last year, Google announced that Hong Kong would officially become GCP’s new region and the program would be launched in 2018. Hong Kong became the sixth cloud region of GCP in Asian-Pacific region after Singapore, Sydney, Taiwan, Tokyo and Bombay. However, because Google still has no cloud regions in Chinese mainland, there are some obstacles for Google to offer enterprises cloud services. 

AWS had the same torturous experience. In 2013, Amazon entered in China. At that time, Amazon positioned Beijing as its front store and Zhongwei Nixia as its factory, and meanwhile, Sinnet and ChinaNetCenter provided IDC and ISP for Amazon. However, because Sinner couldn’t get cloud computing operating license, AWS had no choice but to sell physical infrastructure to Sinnet so as to be compliant to China’s related policy. Later, AWS started cooperating with NWCD.

Fortunately, Sinnet finally got license from MIIT by the end of last year. It also meant that it is hopeful that AWS can be practiced in large areas in Chinese market. 

Compared to the cloud magnets above, Alibaba Cloud develops much more smoothly in Chinese market. According to IDC’s data released before, Alibaba Cloud’s IaaS revenues for the first half of 2017 was $500 million, 47.6% of Chinese market share. Last year, Alibaba Cloud and China Unicom both announced to open source cloud computing resources to each other. On 1 February 2018, the two companies even upgraded their cooperation to released “WoCloud Powered by Alibaba Cloud” platform, which was reported to open to China Unicom’s 31 provincial branch offices. 

Cloud Market Becomes More and More Concentrated

According to the latest data from Synergy Research Group, during the 2017 Q4, cloud computing infrastructure service market rose by 46% over the same period of last year, reaching $13 billion, which exceeded the three previous quarters’ growth rate. 

The research group thought to most degree, the fast expansion of cloud market depended on the super-fast growth of AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud. Although Microsoft now has made great progress, AWS still occupy its leading position.

There was data from Synergy Research Group and Canalys (a market analysis company) showing that during 2017 Q4, Amazon AWS was still the major provider, having 34% market share. Microsoft, Google and IBM had 13%, 6% and 8% respectively, while Alibaba Cloud occupied 3% to 4%. The five cloud giants totally held 60% global market share.

Synergy’s chief analyst and CRO John Disdale mentioned that according to previous estimation, cloud computing growth rate would rise by the end of 2017, but the real data was better than expectation, meaning market driving force was very strong. With the demands for cloud services increasing day by day, those leading cloud service providers should satisfied, and their competition is too fierce to participating in for other companies. 

He also told that small companies could do better in vertical industries or certain districts by specializing in specific application. But in general, only those companies having redundant fund support can play well in the cloud market.

Also, market monopolization is further intensified. There was a prediction report from Goldman Sachs, saying that small and middle cloud vendors’ market share would decrease from current 25% to 2%. In the future, Amazon AWS, Microsoft Azure, Google Cloud and Alibaba Cloud will oligopolies in the cloud computing market. 

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