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AWS retains cloud market leader status in Q3, as Microsoft and Google post gains

AWS retains its title as the world's biggest cloud provider, but the position is not going unchallenged by the likes Microsoft and Google, Synergy Research Group's third quarter market analysis shows

Amazon Web Services (AWS) retained its status as the supplier to beat in the public cloud market during the third quarter of 2018, despite the best efforts of its competitors.

The infrastructure as a service (IaaS) giant posted its third quarter results on 25 October 2018, which were largely in keeping with its financial performance over the past 10 quarters, where it has achieved an annualised revenue growth rate of just under 50%.

The firm posted revenue of $6.68bn for the quarter (up 46% on last year), which accounts for around 12% of the total revenue its parent company, Amazon.com, generated in Q3.

According to Synergy Research Group’s assessment of the Q3 performance of all the major cloud providers, AWS also secured another percentage point of market share during the quarter, bringing its total up to 34%.

The company remains the cloud supplier to beat in this space, with Synergy’s data showing AWS holds a bigger share of the market than its next four competitors combined.

During a conference call with analysts to discuss its Q3 results, transcribed by Seeking Alpha, Amazon chief financial officer Brian Olsavsky said its cloud division’s revenue growth can be partly attributed to the efficiencies it is making across its datacentre estate.

“On the infrastructure side … you see the operating margin for AWS is up to 31% this quarter,” he said. “A lot of that is based on efficiencies of our datacentres, not only for the AWS business, [but] also for our Amazon consumer businesses, who is AWS’ biggest customer.”

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Other contributors to its Q3 financial performance are the firms’ deepening in-roads into the public sector, both in the UK and overseas, and the growing enterprise adoption of its artificial intelligence technologies, and its relational database product, Aurora.

That is not to say AWS’ hold on the market is going unchallenged, as Microsoft also saw strong growth in its various cloud divisions during Q3, as it continues to court enterprises with its cloud infrastructure and software offerings, including Office 365.  

For example, it reported a 76% revenue growth rate for its Azure public cloud platform in its Q3 financial results, while its commercial cloud arm reported annual revenue growth of 47% to $8.5bn.

This performance has, Synergy’s data suggests, helped Microsoft grow its share of the market by 2.5 percentage points over the last four quarters to 14%, putting it in second place behind AWS.

Google’s parent company, Alphabet, does not provide a separate breakdown of how well its cloud division is performing in its financial results, favouring instead to cover this off in the “other revenues” reporting segment, which also includes its hardware and Play marketplace divisions.

According to Alphabet’s results, this segment achieved a 29.2% year-on-year rise in revenue to $4.6bn during Q3, while Synergy’s data suggests its overall market share has risen by one percentage point over the past four quarters to 7%.

Deepening engagements

While it is difficult to assess exactly how big a contribution its cloud activities has made to this total, the past few quarters have seen Google announce a series of sizeable customer wins and deepening engagements.

These include Candy Crush game-maker King, game development studio Unity and AirAsia, to name a few, as it pushes ahead with its ongoing efforts to make its cloud portfolio a more appealing proposition for enterprises.

This is on a par with IBM, who is also has a 7% share of the cloud market, based on Synergy’s figures, despite – as the analyst house states – the fact its growth “dropped off pace” in recent times.

And the market-share gains achieved by these providers is coming at the expense of SME cloud provider community, who – despite achieving reasonable revenue growth – are struggling to keep pace with their larger competitors because of a lack of scale, claims Synergy.

“Given the need for huge scale, most cloud providers outside of the top five are being forced to focus on market niches or specific geographic regions,” said John Dinsdale, chief analyst at Synergy Research Group.

“The growth rates are tailing off at some of the leading cloud providers, but that is just the law of large numbers kicking in,” he said. “You cannot keep on growing at 100% when you reach massive scale.”

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