According to the latest report released by Canalys, in the fourth quarter of 2022, global cloud infrastructure service spending increased by 23% year-on-year to $65.8 billion, an increase of $12.3 billion. For the full year of 2022, total spending on cloud infrastructure services will grow from $191.7 billion in 2021 to $247.1 billion, a year-on-year increase of 29%. Quarter-on-quarter growth rates slow significantly, down more than 10 percentage points compared to Q1 2022 (34% in Q1 2022 and 23% in Q4 2022). Rising public cloud costs, driven by inflation, are forcing enterprise customers to focus on optimizing public cloud spending after investing in digitally transformed IT over the past three years. Macroeconomic uncertainty is driving enterprises to adopt a more conservative approach to IT budgets. More and more customers are aligning their cloud strategies for greater efficiency and control. Some enterprises are beginning to “go back against the cloud” by repatriating certain cloud workloads to private clouds or colocation to reduce costs, which is driving the adoption of hybrid cloud and multi-cloud deployment strategies. While enterprise demand for cloud services persists, growth in cloud infrastructure services will continue to slow in the coming quarters. In 2023, Canalys expects global spending on cloud infrastructure services to grow by 23% for the full year, compared to 29% in 2022.
The reality of deteriorating macroeconomic conditions and a looming recession contributed to a slowdown in the volume and pace of enterprise customers migrating to the cloud in the fourth quarter, especially those with larger workloads. International leading cloud vendors were inevitably affected, and their growth dropped by about 5 percentage points from the previous quarter. The top three in Q4 2022, namely Amazon Cloud Technologies, Microsoft Azure, and Google Cloud, grew by a combined 26% to account for 65% of spending share.
“Amid tough macroeconomic conditions, enterprise customers are responding to higher cloud prices and higher-than-expected operating costs,” said Canalys research analyst Yi Zhang. “Customers with pay-as-you-go models are optimizing cloud activities, reducing cloud consumption and saving costs. At the same time, customers are less willing to use contract billing models, which will also lead to a decrease in related cloud revenue.”
“Customers are rethinking how they use the cloud in their business operations,” said Canalys vice president Alex Smith. “In some cases, there will be a natural slowdown in computing demand as core business activities decrease. In addition, conservative budgets among enterprises will lead to reduced trial activity over the next 12 months.”
Amazon Cloud Technologies leads the cloud infrastructure services market in Q4 2022, accounting for 32% of total spending. In this quarter, it grew by 20% year-on-year. According to Canalys statistics, this is the lowest growth rate in the history of Amazon cloud technology. Its profitability has been increasingly negatively impacted by a decline in enterprise client spending, as well as rising server energy and operating costs. But Amazon Cloud Technology continues to invest aggressively in its channel ecosystem to expand its reach and acquire new customers. This quarter, Amazon Cloud Technology announced that it has won head new customers including Nasdaq, Yahoo and Descartes Labs. In terms of capital investment, it launched new availability regions in Spain and Switzerland, and a second availability region in India, continuously expanding the infrastructure coverage of Amazon cloud technology.
Microsoft Azure holds 23% of the global cloud infrastructure services market, up 31% year-on-year, and remains the second largest provider. While seeing slower consumption growth for Azure, its future revenue should remain stable as its backlog grows to $189 billion in Q4 2022. Azure continues to lead the hybrid computing market with Azure Arc as more customers move to hybrid cloud services. It announced that it has more than 12,000 Azure Arc customers, including companies like Citrix, Northern Trust and PayPal, double the total number from a year ago. Microsoft is also betting big on artificial intelligence as a growth driver for Azure. It announced that it has become the exclusive cloud provider of OpenAI, and will run artificial intelligence services including ChatGPT on Azure in the future, and is expected to further integrate with ChatGPT.
Google Cloud is the third largest cloud service provider, with a year-on-year increase of 36%, while surpassing Amazon Cloud Technology and Microsoft Azure, while the market share is 10%. Although Google Cloud is still operating at a loss, its losses have narrowed. Its differentiated products and focused go-to-market strategies help drive customer momentum. The entry of major customers, including Siemens Energy, Intel, Qualcomm, and Magic Leap, will bring continuous and stable revenue growth in 2022. In 2023, Google Cloud promises deeper engagement with the channel partner community to drive new growth. Meanwhile, in an effort to improve profitability, Google Cloud announced an initiative to extend the life cycle of some of its servers and networking equipment to six years to reduce depreciation costs in future quarters.
