- Amazon, Microsoft and Google will soon report their earnings and reveal their cloud growth.
- Analysts are wary of major challenges for all three platforms this year.
- Talent wars, cloud outages and new regulations can put a damper on cloud operations.
After two years of pandemic-driven digital transformation that has forced nearly every organization to rethink the makeup of their IT infrastructure, the Big Three cloud providers have an even stronger hold on the public cloud market.
In total, Amazon Web Services, Microsoft and Google Cloud have a staggering $123 billion in revenue, UBS said, and they are growing at a combined rate of 43%.
“We fundamentally believe that COVID has changed everything and is really moving the industry into the future faster, faster to embrace the cloud,” Matthew Hedberg, an RBC analyst, told Insider.
But as we head into 2022, doubts remain about the Big Three’s ability to sustain that cloud growth. Questions that started brewing last year around the rise of federal regulation, the value of going all-in on a cloud provider and a growing shortage of cloud experts could become even more prominent this year, experts say.
Those issues could continue to challenge the overall power of Amazon, Microsoft and Google, analysts said, and could even create an opening for a new player — like Oracle, which went on the offensive last year.
As all three cloud giants prepare to announce their quarterly results in the coming weeks — an early test of their continued growth — these are the biggest challenges analysts said Amazon Web Services, Microsoft and Google Cloud could face in the coming year. .
Federal Regulations May Curb Cloud Expansion
As the Biden administration’s focus on regulating Big Tech waned in the second half of 2021, Futurum analyst Dan Newman said it could return this year: “That stuff isn’t going away.”
Indeed, the federal government has recently renewed its push to regulate Big Tech, especially under Lina Khan, the chair of the Federal Trade Commission. The investigation puts Amazon, Microsoft and Google under the microscope, especially in mergers and acquisitions, and risks forcing those companies’ cloud operations to shrink or break down.
Such regulatory pressure, Hedberg said, could also limit what would otherwise be strategic acquisitions for the cloud providers, in areas such as productivity software companies.
For Amazon, in particular, experts have said the potential nightmare scenario is that the company’s relentless push into other markets will eventually reduce its cloud unit’s overall addressable market.
It’s no longer clear that going all-in in the cloud is the best way
After a big boon to the Big Three in 2020, it turned out last year that the frenzied rush to adopt the cloud may have been too hasty. While IT budgets aren’t necessarily shrinking in 2021, analysts said business decision makers are still putting the brakes on going all-in on the cloud.
Instead of putting all their data and applications in a cloud platform, they started to rethink which ones should stay in their data centers. Gartner called that shift a new “cloud-smart” way of thinking, rather than “cloud-first.”
But in 2022, IT spend is still growing: A December RBC survey found that 90% of business decision makers planned to increase their IT budgets in 2022 compared to 2021.
But that doesn’t mean their IT dollars are going to the Big Three: 21% of IT executives in a recent Bank of America survey planned to transfer some of their workloads, or data and applications, back to this year. move data centers.
That idea of reducing workloads on-premise, or “repatriation” as it’s called in the industry, took center stage last year after a blog post by Andreessen Horowitz partners Sarah Wang and Martin Casado raised concerns about the cloud’s financial burden on the public software companies. Once considered an extraordinary measure, more companies are quietly repatriating their workloads, Casado said.
All of that adds up to greater caution from companies moving to the cloud, and indicates that the Big Three still have work to do to win over their customers.
Awards and Talent Wars
Indeed, Amazon Web Services, Microsoft and Google Cloud have each stepped up their fight for startups and companies that have yet to move their workloads to cloud platforms.
A key lever in that battle is pricing, and AWS came under fire last year in particular for what its competitors called its “hostile” data transfer costs. The dynamic comes from increased demand about the cost of the cloud and what customers are willing to pay, especially since they know they have a lot of choice in the cloud market.
The rise of multicloud, or the use of more than one cloud provider for a company’s IT infrastructure, has already put pressure on the Big Three to provide greater transparency about costs. And software companies like Databricks and Snowflake have taken advantage of their position as cloud-neutral vendors to gain more leverage over the Big Three.
Amazon, Microsoft and Google also need talent to keep their innovation engines running and supporting customers. The problem is that they compete for a limited pool of experts.
“You see a talent war between these big players,” Newman said. “That means they have to pay premiums to get it, and that puts pressure on the company.”
While UBS called that talent shortage a modest risk last year, signs point to a greater lack of cloud experts, who are in demand so much that they can “name their price,” Newman said. Failure to hire the right experts could slow down their customer growth, UBS said.
Faults and Security Issues
Regardless of market conditions or regulatory pressures, analysts said, the biggest risk to cloud providers is reputational damage from a service outage or a security breach.
While Amazon’s cloud outages late last year forced many companies to rethink their backup and recovery plans, a security breach would be “except the worst problem,” said Maribel Lopez, principal analyst at Lopez Research.
Indeed, no cloud provider is bulletproof, making “trust, reliability and security” the biggest challenges facing Amazon, Microsoft and Google this year, Gartner analyst Raj Bala told Insider.