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For the first time, the cloud market is slowing down

Companies around the world are optimizing their costs for cloud services
(photo: CC0 Public Domain)

Spending on cloud infrastructure services grew just 19% in the first quarter of the year to $66.4 billion, according to new research from Canalys. For the first time, growth in the cloud services business is below 20%, analysts note.

Cloud computing remains one of the fastest growing segments of the IT market. At the same time, amid macroeconomic uncertainty, companies continue to cut costs for cloud services amid cuts in IT budgets, with a focus on optimizing costs, controlling and improving the efficiency of cloud use, Canalys analysis shows.

Given all this, the growth rate of the cloud market fell below 20% for the first time. In particular, hyperscalers saw growth decline by 4 percentage points compared to the previous quarter. Cumulative growth for the top three providers – AWS, Microsoft Azure and Google Cloud – was 22% (in Q4 2022 it was 26%), and together they control 64% of customer spending.

By region, the weakest performer was Asia Pacific (APAC), due to reduced spending by customers in mainland China. Cloud spending will continue to decline in the second half of 2023.

In view of the trend towards optimization of cloud computing, the demand for control technologies, AI and FinOps is increasing. The drive to reduce costs and increase control is driving more companies to migrate cloud workloads.

“Enterprises are benefiting from the hybrid cloud model, but moving workloads between on-premises and cloud platforms can be expensive,” said Alex Smith, vice president of Canalys. “Increased reliance on complex cloud environments can lead to challenges when it comes to managing them, but there are assistive technologies that can play a big role in determining efficiencies and streamlining processes, especially automating routine tasks and analytics.”

At the same time, the introduction of new computing-intensive applications such as generative artificial intelligence is creating a huge global demand for public cloud capacity. This will allow hyperscalers to partially offset customer spending cuts over the next few quarters, Canalys noted.

Amazon Web Services (AWS) was the leading vendor during the reporting period, accounting for 32% of total spend – up 16% year-on-year, below the 20% mark for the first time. Amid the trend to incorporate generative AI into existing and new products, AWS has launched Amazon Bedrock, a suite of cloud-based AI tools.

Second place belongs to Microsoft Azure with a market share of 23% and growth of 27% year-on-year. The company launched Azure OpenAI services, which enable more customers to offer high-performance AI services on the Azure cloud. Microsoft acquired over 2,500 new Azure OpenAI customers during the reporting period, including Coursera, Mercedes-Benz and Shell.

Third place in the cloud market is occupied by Google Cloud Platform with a 9% share and a growth of 30% on an annual basis. Google’s cloud business turned a profit for the first time in the quarter. Extending the life cycle of equipment has allowed Google Cloud to increase the profitability of its operation. Investments in the creation of a partner ecosystem are also starting to bear fruit – to date, more than 100,000 companies are members of the Google Cloud Partner Advantage program.

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