Q1 Cloud Infrastructure Rundown: Market Blows Past $7 Billion

Total cloud infrastructure revenue eclipsed $7 billion in the first quarter of 2016 as the overall market expanded by 50 percent, according to a report released Friday by Synergy Research.

The "big four" providers -- AWS, Microsoft, IBM and Google -- grew faster than the market as a whole, while all other competitors, in aggregate, trailed the market with numbers that would be phenomenal in most other industries.

"This is a market that is so big and is growing so rapidly that companies can be growing by 10-30% per year and might feel good about themselves and yet they'd still be losing market share," John Dinsdale, Synergy's chief analyst and research director, wrote in the report.

[Related: Behind The Numbers: Synergy Research Breaks Down $110B Cloud Market]

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Synergy grouped Infrastructure-as-a-Service, Platform-as-a-Service, private and hybrid cloud vendors into four distinct tiers, each constituting roughly 20 percent to 30 percent of the market.

The highest tier, with 31 percent market share, has only a single occupant: Amazon Web Services is "dwarfing the chasing pack," Dinsdale said, growing at 57 percent year over year.

Three tech giants -- Microsoft, IBM and Google -- occupy the next tier.

"The big three followers," as described by Synergy, together control 22 percent of the cloud market. But those vendors are expanding their businesses far faster than anybody else, together posting 93 percent year-over-year growth in Q1.

Microsoft and Google both doubled their revenues in a year, "so they are at least slowly gaining some ground on the market leader," Dinsdale said.

Synergy clumped into its third tier the next 20 top cloud providers by size. Those include Alibaba, CenturyLink, Fujitsu, Hewlett Packard Enterprise, NTT, Oracle, Rackspace, Salesforce and VMware.

Together, those 20 companies held roughly 27 percent market share in the first quarter, and collectively they grew at 41 percent -- meaning most of them lost share in a market growing faster than 50 percent, Dinsdale noted.

The lowest tier, with just under 20 percent of the overall market, is made up of everyone else.

While many of those companies are regional and niche players, there are some innovative cloud providers in that pack that "still have aspirations to compete with the big four," Dinsdale told CRN. "But on some level, scale will be an issue for them."

Beyond market growth, ’the big question for them is whether or not they are building a sustainable and profitable business," Dinsdale noted in the report.

"This can be done by focusing on specific regions or specific services, but the bulk of the market demands huge scale, a broad footprint, very deep pockets and a long-term corporate focus,’ he said.

Dj Das, founder and CEO of Third Eye Consulting, a solution provider based in San Francisco that partners with AWS, Microsoft, Google and IBM, told CRN the opportunity is enormous for each of those four vendors.

"The good thing that's happening is all these companies are doing this one thing, and that is they are enabling enterprises to move to the cloud," Das told CRN. "The market is growing for everybody because those changes are starting to happen."

Based on conversations he's having with enterprise customers, Das believes the growth can continue for a long time. And there's been a drastic shift in mindset over the past five years in favor of cloud in Asia, he's seen on some recent engagements, which will fuel global growth.

Amazon definitely enjoys a first-mover advantage, Das said, with many popular software ecosystems designed to easily integrate with its platform.

But Amazon hasn't, of late, invested in improving its infrastructure at the same pace as some of the newer entrants, Das said. If the leader gets too comfortable, Microsoft or Google could leapfrog it several years down the road.