Driven by demand from remote workers and students as well as content streaming and online gaming, cloud services took in $40 billion in sales last quarter, says Canalys.
Cloud providers such as Amazon, Microsoft, and Google ended 2020 with a hefty boost in sales as more people sheltered at home due to the coronavirus lockdown.
In a report released Tuesday, research firm Canalys said that sales for the cloud services industry hit $39.9 billion last quarter. An increase of more than $3 billion over the third quarter and almost $10 billion from the final quarter in 2019, the gain represented the sector's biggest quarterly expansion in dollar terms.
Canalys attributed the surge to greater spending from customers in the midst of the COVID-19 lockdown as well as a larger contribution from channel partners to market and sell cloud services. Further, a gradual and renewed sense of confidence in the economy drove organizations to boost their investments toward digital transformation, including a shift toward cloud providers.
For all of 2020, total spending on cloud services jumped to $142 billion, a 33% increase from $107 billion in 2019. Despite an initial slowdown in digital transformation projects led by consultants, demand was higher than expected.
"The rate of digitalization, led by cloud, is gathering pace," Canalys research analyst Blake Murray said in a press release. "Companies are now more confident about releasing budgets for business transformation. Large projects that were postponed earlier in the year are being re-prioritized, led by application modernization, SAP migrations, and workplace transformation."
Demand for cloud services was strong across all business segments, especially healthcare, financial services, and pharmaceuticals, Murray added. But even industries most impacted by the pandemic, such as retail and manufacturing, have been redirecting their investments toward the cloud.
Small and midsized businesses (SMBs) also boosted cloud spending to maintain their operations and cut costs. While the rollout of the coronavirus vaccines should further increase business confidence, remote working and learning are here to stay. As such, a dependence on cloud services will continue. However, customers will become more aware of the security issues and other challenges in transitioning toward the cloud, Canalys said.
The boost in cloud services spending was also highlighted by research firm Synergy Research Group, which pegged fourth-quarter sales at $37 billion, $4 billion higher than the third quarter and 35% higher than the fourth quarter of 2019. With this increase, the cloud services market has taken just a little over two years to effectively double in size, Synergy Research said.
Among all cloud services providers, Amazon Web Services (AWS) continued to lead the pack, winning a 31% share of the market last quarter, according to Canalys. Following a mixed third quarter, AWS saw a revival in customer spending, leading to sales of more than $12 billion, a 28% gain from the same quarter in 2019. AWS has been investing in its global partner relationships with greater support for independent software vendors, new vertical partner capabilities, and further expansion to drive adoption among SMBs.
With fourth-quarter sales of almost $8 billion and a 20% market share, Microsoft Azure continued to play catch-up with AWS. Through annuity sales programs, customer success investments, and targeted incentives, Microsoft has tried to increase Azure's traction across all types of customers. The company has also benefited from higher demand for Teams, Windows Virtual Desktop, and other services running on Azure.
In third place was Google Cloud with a 7% share and sales of around $3 billion last quarter. The company has been pushing an open cloud strategy focused on independence, sustainability, and multicloud management. Google has also been busy building up a partner network with specific expertise in such areas as machine learning, analytics, and data management.
Smaller cloud providers have also been the beneficiaries of the higher demand.
"Amazon and Microsoft tend to overshadow the market, with Amazon's share staying at well over 30% and Microsoft growing its share from 10% to 20% over 16 quarters," John Dinsdale, a chief analyst at Synergy Research, said in a press release. "However, after excluding those two, the rest of the market is still growing by over 30% per year, pointing to growth opportunities for many of the smaller cloud providers."
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