Despite a batch of mixed earnings reports from tech companies recently, lower GDP in the last quarter of last year and higher inflation, the cloud continues its unrelenting expansion in the IT landscape.
Amazon Web Services Inc. and Microsoft Corp. and Alphabet Inc. About its earnings, and when it includes Alibaba Group Holding Ltd.’s cloud. In the mix, the Big Four companies with a super-wide range are on track to generate $167 billion in profits this year. on our expectations.
But as we’ve said many times, the definition of a cloud is expanding. Hybrid environments have become the norm in large organizations. We’re seeing the largest enterprise technology companies focus on solving hybrid problems and every public cloud company now has a strategy to bring their environments closer to where customers’ workloads reside — in the data centers and the edge.
In this breaking analysis, we’ll share with you our latest cloud forecasts and predictions. We’ll share the latest enterprise technology research data and some feedback on what’s happening in the “hybrid region” of the cloud.
High Volume IaaS and PaaS Performance 4
In the chart above, we share our Big Four Infrastructure-as-a-service and Paa-as-a-service cloud engagements for 2020, 2021, and the first quarter of 2022, and our estimate for full-year 2022 and relative growth. Remember that AWS and Alibaba only report relatively clean IaaS and PaaS numbers, while Microsoft and Google combine cloud infrastructure with their software as service numbers. However, both companies offer guidelines and we use survey data and other tidbits to create an apples-to-apples comparison.
For the quarter, the Big Four approached $37 billion in revenue as a group. Azure’s growth rate has been reported by Microsoft, but the absolute revenue figure is not. Azure growth accelerated sequentially by 49 percent to just over $13 billion per quarter according to our estimates, while AWS growth slowed sequentially from the previous quarter but revenue is still $18.4 billion. Azure accounts for more than two-thirds of AWS’ cloud business. Google Cloud Platform and Alibaba are vying for the bronze medal, but they lag far behind the two leaders. Microsoft Azure acceleration is very nice for such a large revenue base, but it’s not as unprecedented as we’ve seen this pattern before with AWS. However, the fact that Azure is growing at the same rate as GCP is impressive.
A couple of other anecdotes: Amazon’s stock took a hit the day after it reported earnings due to inflation and slower growth. But AWS continues to exceed Wall Street expectations. A look at Amazon’s operating income this quarter tells the story. Amazon’s overall operating loss was $3.66 billion. AWS operating income was $6.52 billion. AWS operating margin grew sequentially from about 30% to 35.3% – an amazingly profitable number. This is similar to highly profitable companies like Oracle Corp. and Microsoft – software companies with marginal economies of software. Is this level sustainable? Probably not, but it still catches the eye.
A breakdown of spending patterns in the Big Four
The chart above shows the net score accuracy of the Big Four players on the cloud. Net Score measures spending momentum by asking customers if they are adopting new products – this is lime green; Increase spending by 6% or more – this is the green forest; Flat outlay is gray; spending decreases by 6% or worse – this is light pink; And the red color turns off the platform. Subtract the degrees of red from the greens and you get the net result shown on the right. Anything over 40% is too high.
The main points here are as follows: Microsoft’s data above includes the entire business of the company – not just the cloud. Only Azure’s Net Score is 67 – higher than AWS. it’s huge. Google Cloud, on the other hand, while still high, is far behind the two leaders. Alibaba’s data sample in the ETR survey is small and China has put its foot in the neck of big tech for a while, so we can’t read much into the net 26 points.
But note the substitutions in red – the odd numbers for all and the low odds for the two giants – 1% – are pretty impressive.
Capital spending tells the story
Capital expenditure tends to be a good indicator of volume. Charles Fitzgerald, who runs the Plaformonomics blog, spends a lot of time on this topic and we’ve borrowed the graph below from a recent post – and added some of our own.
It shows Capex spending over time for five cloud companies – the big three US companies plus IBM Corp. and Oracle. It’s always amazing to go back to the pre-cloud era and look back at IBM. The company was in an excellent position to control the transition to as a service but couldn’t get its head around the cloud and out of its professional services and outsourcing business. IBM is that dark blue or black font. He’s been spending on Amazon in Capex pretty well for the past decade. Same with spending on research and development, by the way.
Charles is kind of cynical – he likes to make fun of our super cloud concept even though we’re sure it’s evolving and is real. But his view above is correct. The Big Three in the US spend a lot more on Capex than IBM and Oracle. He jokes that Oracle’s increase in capital spending is making it past IBM, but the two are struggling to distance themselves from the X-axis. Nice guy.
In its latest earnings report, Amazon said about 40% of its capital expenditures go to infrastructure and most of that to AWS. And you expect capital expenditures to grow this year and about 50% to go toward infrastructure, so we’ve fitted our estimate of where AWS will land.
Again, Microsoft is famous because unlike Amazon, it doesn’t have a zillion warehouses to ship products to consumers. And while Google’s spending is huge, it’s mostly done on servers to run its ad network. Of course, GCP can take advantage of that infrastructure and the technology behind it. And she is.
So can anyone else who can benefit from all of these CAPEX outlays. We’ll come back to that and talk about super audio in a bit.
The expanding cloud landscape
The above graph shows a 2D view of ETR data for cloud computing. On the vertical axis is the net outcome or spending momentum and on the horizontal axis is the spread in the data set. The X-axis is like market share within a survey, if you will. The insertion of the table shows the data for how the points are plotted for each seller on each axis.
The red dotted line at 40% indicates a very high position. The green arrows show the movement for some companies compared to what it was three months ago.
Microsoft and AWS are circled in red in the right corner. Very impressive. Just to reduce clutter, we’re not showing AWS Lambda and some other high-altitude services that would raise your AWS Net Score. But it’s still really good…as in Azure. Both are moving strongly to the right relative to the Q4 poll.
Google is behind and has a lot of work to do. It was announced last week that Google Cloud’s head of sales, Rob Enslin, will be leaving to join UiPath Inc…some exciting news out there.
We have highlighted the Mixed Zone. Now to the topic of this urgent analysis – the ever-expanding cloud. AWS has announced that it has completed the launch of 16 local regions in the United States and there are 32 more regions coming across 26 countries. On-premises mainly bring cloud infrastructure to areas where there is a lot of IT that won’t move. For reasons of proximity and latency, they have to get close to customers. There is that Capex build come to play again.
Now the reason why this hybrid area is so interesting is that you see players from the big organizations are finally chasing the hybrid cloud in earnest. It’s as if the announcement of AWS Outposts in 2018 was a wake-up call for traditional infrastructure operators like Dell Technologies Inc. and Hewlett Packard Enterprise Co. and IBM. Oracle kind of skips over to its own tune, but it’s in that mixed territory as well. IBM had a good quarter and the acquisition of Red Hat appears to support its hybrid cloud strategy.
Several years ago, VMware cleaned up its murky cloud strategy and partnered with everyone else. And as you can see above, VMware Cloud on AWS does well, as well as VMware Cloud, its on-premises offering. Although it is somewhat lower on the X-axis for the last quarter, it is moving to the right with a larger presence in the data set.
Dell and HPE are also interesting. Both companies are working hard after service with APEX and GreenLake, respectively. HPE, based on survey data from ETR, appears to have spending momentum, while Dell has a larger presence in the survey as a much larger company. HPE climbs on the X axis, as does Dell, but not as fast.
The point we come back to often is that the definition of the cloud is in the eye of the customer. AWS could say, “This is not a cloud.” And the audience in the workplace can say, “We have the cloud too!” It doesn’t really matter. What matters is what the customer thinks and what platforms they choose to invest in.
That’s why we keep coming back to the idea of the super cloud. You see it developing and you will hear more and more about it. Probably not the term – not many like it – but we will continue to use it as a metaphor for a class that takes advantage of the Capex gift to the industry’s top talents. This is a real opportunity for the likes of Dell, HPE, IBM and Cisco Systems Inc. And dozens of other companies that provide computing infrastructure, storage, networking, security, database and other parts of the stack. It’s different for us than multicloud, and it’s really multi-vendor – that is, my stack runs on clouds 1, 2, and 3 as a dedicated service.
The opportunity in our view is to hide the underlying complexity of the cloud, manipulate all the APIs and primitive slime, and create a unique experience on the premises, across all clouds, and beyond to the edge. We see this as a new battle taking shape and new opportunities to make it easier for startups. Building will be expensive and will require ecosystem collaboration via the API economy to make it a reality. There is a specific customer need for this shared experience, and we see it manifest in today’s pockets and in R&D projects in both start-ups and established players.
In our view, it’s the future of the cloud for any company that can’t spend $30 billion annually on capital expenditures.
keep in touch
Thanks to Stephanie Chan, who has researched topics for this urgent analysis. Alex Myerson in production, podcast and media workflow. Special thanks to Kristen Martin and Sheryl Knight, who have helped us keep our community informed and informed, and to Rob Huff, Editor in Chief at SiliconANGLE.
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Here’s the full video analysis:
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