It’s still early days in cloud computing, the hottest sector in the gigantic business technology market. But the window of opportunity for companies to grab a piece of it is closing fast.
That’s the word from Goldman Sachs, which just released its latest quarterly report on the cloud market. The good news, according to analysts Heather Bellini, Heath Terry, Piyush Mubayi, Caroline Liu, Mark Grant, and Ted Lin is that the market for cloud services will continue to grow by at least 20% a year through 2021.
The bad news? A growing percentage of that spending will go to just four players — Amazon, Microsoft, Google, and Alibaba.
“We continue to expect that the public cloud landscape will consolidate into an oligopolistic market structure,” the Goldman Sachs analysts said in the report.
Amazon pioneered the cloud computing market when it launched Amazon Web Services more than a decade ago. Although AWS has grown since then into a multi-billion-dollar behemoth, the overall cloud computing market is still a nascent one, Goldman Sachs said in the report. Many companies still haven’t shifted over to the cloud, and the vast majority of enterprise spending is still on traditional services.
The analysts focused on the core cloud services — infrastructure as a service (IaaS), where companies such as Amazon offer computing processing power; and platform as a service (PaaS), where Microsoft and other companies offer a kind of cloud-based operating system on which people can build and run applications — and the non-cloud enterprise tech services with which they directly compete. The combined amount companies spend on cloud services and the non-cloud ones that are direct competitors represents the total potential market for cloud services.
As cloud spending expands, it will be doing so in part by eating into money companies used to spend on such things as maintaining and running applications on their own servers.
Last year, spending on cloud services accounted for about 8% of the total potential market. That should jump to about 15% by 2021, Goldman Sachs estimated. In other words, a growing portion of corporate IT budgets will be going to the cloud.
“Our checks continue to suggest that we remain in the early innings of public cloud,” the analysts said in their report.
That trend will represent a big move in real dollars as well as percentages. Enterprise companies spent about $47 billion last year on the core cloud services, according to Goldman Sachs. The firm expects that amount to grow to $62 billion this year, and $116 billion by 2021.
Frequently, with a rapidly expanding market there’s room for plenty of competitors to flourish. But that’s not what Goldman Sachs expects. The cloud market has already started to consolidate, and that trend is only going to become more pronounced in coming years, the analyst predicted. Basically, only the biggest players — Amazon Web Services, Microsoft Azure, Google Cloud, and Chinese giant Alibaba Cloud — have the resources to offer differentiated services and to continue to build out the data server infrastructure needed to compete, they said.
Last year, Amazon, Microsoft, Google, and Alibaba accounted for about 56% of the core cloud computing market. By next year, their combined share should hit 84%, according to Goldman Sachs’ forecast. The three American giants alone will account for 77% of the total market, the analysts said.
“The largest three players (AWS, Azure, Google), will continue to dominate share of the market,” the analysts said.
While the biggest players will see their revenue go up, the amount of revenue going to the rest of the players in the cloud market will actually decrease, despite the market’s overall expansion. While companies other than the big four pulled in about $21 billion by offering core cloud services last year, that amount will decline to $20 billion this year and just $12 million next year, Goldman Sachs projected.
That could be ominous IBM, Oracle, and other companies that have been trying to edge into the cloud-computing market. If Goldman Sachs is right, they’re going to be left fighting for fewer and fewer table scraps left by the cloud giants.
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