We often say that the next decade of cloud computing will not be the same as the past decade. With the strong momentum of the trillion-dollar technology business, cloud computing has firmly rooted on the other side of the divide. Sellers and buyers are adopting cloud technologies, and many are building their own value tiers on top of the cloud.
In the coming years, Wikibon expects innovation to continue around the three largest U.S. clouds and Alibaba in the Asia-Pacific region, and to build a valuable ecosystem of hardware, software, and tools from these hyperscale cloud service providers.
Importantly, Wikibon doesn't see this as a bottom-by-the-line competition. Instead, Wikibon's expectation is that large public cloud players will continue to reduce platform costs through innovation, automation, and integration. Other cloud providers and ecosystems, including traditional IT buyers, will take advantage of hyperscale clouds and tap into opportunities in their respective markets. Wikibon argues that this is not a zero-sum game.
Cloud computing big event
Let's take a look at what people are talking about in the cloud computing industry and some of the recent news.
Google Cloud。 By the beginning of February 2022, all the big cloud computing companies except Alibaba had announced their results. Google continues to focus on growth at the expense of profits. Alphabet reported that its cloud business, which includes apps like Google Workspace, grew 45 percent to $5.5 billion, but lost $890 million in operating. Since Thomas Kurian joined Google and led the cloud business, Google has increased the number of employees in its cloud computing business from 25,000 to 40,000 now in an effort to catch up with the competition, but the catch-up is expensive.
From this perspective, AWS's revenue in the first quarter of 2018 was $5.4 billion, so it's almost exactly the same as Google's current total cloud computing business. AWS was growing at a rate of 49 percent. Keep in mind that Google includes a chunk of highly profitable software in its cloud computing figures. AWS's operating profit for that quarter was $1.4 billion; about 26 percent of its revenue. So it's a highly profitable business — comparable to Cisco's overall business profit — and it's a strong business.
That's what happens when Google ranks third and doesn't break away from the ad monetization model quickly enough. To be fair, Google still gets a high rating for the quality of its technology. According to Corey Quinn of Duckbill Group, Amazon and Google Cloud "go hand in hand in terms of reliability."
Microsoft Azure. Then look at the Microsoft Cloud. Microsoft's overall cloud business surpassed $22 billion in the December 2021 quarter, up 32 percent year-over-year. Like Google, Microsoft includes application software and SaaS products in its cloud revenue figures and provides valuable guidance for its Azure infrastructure-as-a-service business. Wikibon estimates that Azure accounts for 45 percent of Microsoft's cloud business, and Wikibon believes microsoft's overall cloud business reached $40 billion in annual revenue last quarter. Microsoft noted in its earnings call that Azure's recent downward trend in growth will reverse in the first quarter of 2022 and show continuous growth.
AWS。 Amazon reported earnings in early February 2022, and the day after the earnings, the company's value rose by $191 billion, setting a record for an increase in the valuation of U.S. stocks. AWS revenue for the quarter increased 40% year-over-year. It reached $62 billion at the close of the year and reached $71 billion in annual revenue. AWS is now bigger than IBM, which has $67 billion in annual revenue without Kyndryl. IBM's revenue in 2011 was $107 billion.
There was a recent discussion in the media and social media that in order to continue to grow and compete with Microsoft, AWS must enter the SaaS business and deliver applications. Wikibon doesn't think this is the right strategy Amazon should adopt in the near future. Instead, Wikibon believes that AWS should enable developers to compete and develop SaaS products.
Finally, Amazon disclosed that 48 of its top 50 customers were using Graviton2 instances. Why is this important? Because AWS is far ahead of the competition in custom chips and far superior to x86-based alternatives in price performance curves. That's one of the reasons why this business isn't competing at the bottom. Google, Microsoft, and Alibaba, following AWS's initiatives in the chip space, will continue to drive down their internal cost structures and provide a price/performance ratio equal to or better than the previous Moore's Law curve.
The four cloud computing superpowers have revenues of more than $120 billion
Let's see how 2021 for these four hyperscale enterprises ends and looks ahead to 2022.
The table above shows aws, Microsoft, Alibaba, and Google's revenue expectations for global IaaS and PaaS. Keep in mind that Amazon and Alibaba share net IaaS numbers, while Microsoft and Alphabet only give data that needs to be deciphered. This data is then correlated with other data collected by Wikibon, one of the few organizations that actually tries to make peer-to-peer comparisons. Synergy Research is another company that tracks this data and makes it public (there is no paywall), but can't determine their data. Synergy's GCP data looks high, while Azure seems to be somewhat overvalued, and Synergy also counts other areas such as hosted private cloud services.
Go back to the table above. Based on comparisons with alphabet's statements in recent quarters and other survey data that has led to Wikibon being less optimistic, Wikibon has slightly adjusted the GCP data downwards. Only Alibaba has yet to announce revenue, so Wikibon will maintain its market size forecast of about $120 billion in 2021, up 41% relative to 2020. Wikibon expects this number to grow 38 percent to $166 billion in 2022.
These four companies create an opportunity for this ecosystem to build a super cloud on top of this infrastructure. We are witnessing this happening.
AWS: Four consecutive quarters of accelerated growth
The chart below shows the quarterly revenue share of these four companies.
Note that AWS reversed the trend of its share churning and rose slightly. AWS has accelerated growth for four consecutive quarters. Last year, it accounted for 52 percent of revenue from the big four super-scale cloud companies, up from nearly 54 percent in the fourth quarter. In 2021, Azure accounted for 32% of revenue in hyperscale cloud enterprises, while that percentage fell to 30% in the fourth quarter. You can see that GCP and Alibaba are vying for the bronze medal.
Notably, in Wikibon's recently released 2022 forecast article, Wikibon said that Google's cloud platform will surpass Alibaba this year, but given the recent data cuts, Google still needs to do some work to achieve this prediction.
The quarterly growth rate of cloud computing is converging
Let's take a look at the quarterly growth rate in the chart below, which will see a trend of market compression.
The data in the chart above, which tracks quarterly revenue growth, can be traced back to the first quarter of 2019 and can see the trajectory of steady decline and the reversal experienced by AWS in the first quarter of last year. Now keep in mind the market guidance provided by Microsoft for continuous growth of Azure, so the orange line should show a rebound trend. Given that GCP is much smaller and has made significant market-entry investments, we would like to see its accelerated growth.
AWS's performance has been impressive, with the company able to accelerate growth in its $71 billion business. Alibaba is a bit opaque, and Wikibon admits it's not that close to the Chinese market, but will continue to watch from a distance because the sharp decline in the rate of growth is worrying.
The huge momentum of the cloud giants
The chart below shows time-shifted data for some selected cloud platforms that show spending momentum in the ETR dataset. ETR uses a metric called Net Score to measure the rate at which products and services are spent. The net score basically asks if customers are spending more, less, or the same on the platform? It subtracts less from more and produces a net score.
This chart shows the net scores of five cloud platforms dating back to January 2020. Notice the table inserted, which shows the net score and Shared N, which represents the number of mentions in the dataset, all the platforms listed here show a strong presence in the survey, and the 40% red dotted line indicates that spending is at a high level.
You can see that Azure, AWS and VMware Cloud on AWS, as well as GCP, have all improved well and rebounded from the October data, indicating that the overall momentum of the cloud is still continuing.
However, the biggest surprise of these numbers was Oracle's steady climb and steep upward momentum, reaching a level of just under 40 percent. Of course, a quarter doesn't represent a trend, but back in January 2020, Oracle's peak is getting higher and higher. This will continue to attract market attention.
On-premises and hybrid clouds are showing considerable momentum
The following graph shows a sequence view of some of the other cloud platforms in the ETR survey at the same time.
In the chart, some large hybrid cloud players are introduced, notably VMware Cloud, i.e. VCFs and other on-premises solutions. Red Hat OpenStack is still popular among telcos who want to build their own clouds. We're also starting to see HPE GreenLake and Dell Apex appear more frequently. A few years ago, IBM acquired SoftLayer, which is primarily a bare-metal hosting company. IBM has used the platform to develop its own public cloud. After largely missing out on the cloud wave, IBM is now taking Red Hat OpenShift as the key to its strategy to catch up in hybrid cloud.
These data tell us that, first of all, the presence of these platforms in the dataset is different from that of previous participants. VMware is a possible exception, with a Shared N of 110. With the exception of VMware, these players didn't show a trend of accelerated spending in the previous chart, and most of them are below the red line.
HPE and Dell are interesting. They are transitioning their early private cloud businesses to GreenLake and Apex, respectively. After years of focusing on the public cloud that crowded out the traditional on-premises infrastructure market, they are now building cloud-like infrastructure, services, and pricing models for their customers on-premises. They are transitioning to a cloud model and marketing it in a smarter and more engaging way. As a result, Wikibon expects a rebound in the data of both companies as their installed base shifts and eventually enters a stable phase.
Let's look at IBM again. The company is undergoing a major overhaul. Arvind Krishna inherits three generations of professional services-minded leadership teams. In the post-Gerstner era, Pang and Rayland have held fast to IBM's tradition of service for too long and protected the past from the future. IBM missed the opportunity to do cloud computing and was forced to acquire Red Hat to prepare for the hybrid cloud war. Luo Ruilan tried to reduce the size to grow, but without success. Krishna is accelerating its actions to address legacy issues and is committed to revenue growth in the mid-single digits following the spin-off of Kyndryl, which would be a welcome change. IBM has a lot of work to do, and Wikibon expects its net score figure to rebound as customers transition into the future.
The impressive position of AWS and Azure
Let's look at all these players in a different context.
The chart above plots all the clouds mentioned earlier, with the vertical axis being the net score or spending velocity and the horizontal axis being the market share or prevalence in the dataset. Here are a few key questions to ask: the data confirms wikibon's claims for some time, that AWS and Microsoft stand out for their strong presence and tens of billions of revenues — but they're both well above the 40 percent line and clearly ahead of GCP in both areas; VMware, while much smaller, is showing reasonable momentum, which has to do with its public statements; Alibaba didn't have a really big sample in the survey to see HPE, Dell and IBM still have some work to do, but are starting to show a larger presence in the survey, but the spending momentum is still modest compared to the leaders. Oracle was the biggest surprise — look at Oracle's position in the January 2021 survey, and their recent spike.
Oracle is the king of mission-critical applications
A video on Twitter that raised attention was a database migration scenario. For those who have experienced a major migration of mission-critical systems, migrating out of Oracle is really painful. And despite all the hatred and all the drawbacks that people have toward Oracle, it really is the best environment for mission-critical systems. Customers know this.
Now it's the case that Oracle is building the best cloud for Oracle databases and mission-critical applications, and it has a lot of really profitable customers with huge on-premises applications that are migrating to Oracle Cloud Infrastructure (OCI). With the same integrated Exadata hardware and software available in the Oracle Cloud to run the database, Oracle has an advantage over its competitors. Oracle not only invests in optimizing the cloud infrastructure for its mission-critical applications, but also improves cost-effectiveness by penalizing customers running Oracle elsewhere. Oracle has raised licensing fees to run its software on other clouds and allowed those clouds to call Oracle cheaper.
Analysts speak highly of Oracle's cloud database. Oracle's differentiated position helps explain why Oracle is the king of mission-critical applications, such as Gartner's Magic Quadrant for Cloud Databases and other analytics that show Oracle is in such a strong position.
As you can see in the image above, Oracle is in the same position in the quadrant as AWS and Microsoft, and ahead of Google. On the right is Gartner's key capability rating of DBMS in operational use cases, and Oracle leads the way in almost all categories tracked by Gartner. The chart above shows traditional trading, but Gartner believes Oracle is ahead of all vendors in terms of stream processing, operational intelligence, and real-time enhanced trading.
Wikibon thinks Gartner may be missing out on some emerging opportunities, such as those that Snowflake is pioneering. But there's no denying that Oracle is making the right move in cloud computing through optimizations for the Redhat suite. There's no doubt about that in Wikibon's view, and when it comes to mission-critical, we think Gartner's analysis is correct.
Looking to the future of cloud computing
Start with the big three cloud players. AWS is accelerating innovation — a good example is the use of custom chips such as Nitro, Graviton, and others that will help the company address concerns related to "going to zero carbon." Wikibon believes that AWS will allow its developers to focus on the SaaS business, and in most cases, AWS will provide solutions that address large vertical markets such as call centers. Edge is still unknown to AWS and all cloud players. AWS believes that all workloads will run in the public cloud by then. It's hard to imagine Tesla's self-driving cars running in a public cloud, but maybe AWS will redefine what the cloud means.
Microsoft is ubiquitous and is now expanding further into games and metaversities. When Nadella became CEO in 2014, many thought he should give up Xbox. Many Oracle employees joked at the time that Safra Catz would buy Xbox consoles for her children, nieces, nephews, and children's friends during the holidays because Microsoft lost money for every Xbox it shipped. But Nadella persevered and saw an opportunity to expand through the online gaming community. His first acquisition as CEO was Minecraft, and now the acquisition of Activision Blizzard will make Microsoft the third-largest global gaming company by revenue, behind Tencent and Sony. All of this will be powered by Azure and will drive more computing, storage, artificial intelligence, and tools.
Google is trying to stay relevant and follow closely in this conversation. Fortunately, thanks to Google's lucrative advertising business, it was able to afford to suffer huge losses in the cloud. Don't expect Google to abandon cloud computing, as many have speculated, which would be a huge mistake because the market is large enough to accommodate three players.
Next up are other clouds. The cloud ecosystem, especially AWS's ecosystem, is exploding, and the idea of a super cloud— a value layer that spans multiple clouds and hides the underlying complexity— is starting to surface. Traditional players stay in close contact with their customers and work hard to keep them spending — and it works. Dell, HPE, Cisco, and small local vendors like Pure Storage are still doing relatively well, they're just not as "sexy" as big cloud players.
What's really interesting is that companies within the industry are transforming to create their own digital businesses, and almost all of these businesses run a subset of their products in the public cloud — but often all connected to workloads and data on-premises. Making this work work work and creating great experiences in all settings is a huge opportunity, and we're witnessing the process firsthand. Don't miss it! (Text/Compiled in the Era of Cloud Technology)
(Translation from: https://wikibon.com/breaking-analysis-expect-cloud-2022-beyond/)