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Recently, the three major US cloud providers, Amazon, Microsoft, and Google (which I refer to as AMG), announced their revenue numbers. As per usual, they were impressive. The table below shows how each of them did:
As of last quarter, the three are running at nearly a $37 billion quarterly rate. Just as impressive is their growth rate of around 40%. Over the past two years, each experienced increased growth rates due to their customers responding to the pandemic. However, even with business conditions trending toward normal as pandemic restrictions taper off, the three have maintained their pandemic-era growth stats.
I do this AMG revenue analysis each quarter, and it’s instructive to look back over previous quarters’ results. For example, here is a corresponding chart from Q318:
In just 3.5 years, Amazon, Microsoft, and Google have tripled, quadrupled, and sextupled cloud revenues, respectively. Even allowing for pandemic-accelerated numbers, these growth figures are eye-popping.
Performing this comparison illustrates how we’ve become numb to how much AMG are growing. They are now on a $120B+ run rate, and at 40% growth, that means next year’s revenue number will be on the order of $170B.
The question remains, of course, if these growth rates are sustainable. Many people expect these numbers to drop significantly; I have heard industry observers predict that they expect AGM growth rates to drop to 15% going forward. What should we make of these reduced expectations?
First of all, 15% on the current revenue base is nothing to sneeze at. Second, I’m not sure what basis these observers have for their prediction. Certainly, when I’ve asked for evidence or plausible reasons, it’s been crickets. In any case, what one can say with certainty is that AMG have experienced sustained high growth rates for a decade plus and, at the moment, we aren’t seeing any reduction.
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Cloud Repatriation: More Smoke than Fire
Another ‘trend’ I’ve heard plenty about from industry pundits is the phenomenon of application repatriation — bringing applications back from AMG environments to on-premises private data centers.
The reason usually cited for repatriation is financial – that the customer has found that running applications in the cloud ends up being much more costly than anticipated, so much so that they choose to move them back to save money. I’ve also heard from some customers considering repatriation because of intellectual property concerns – they’re reluctant to place high value IP into cloud-based applications because the provider might obtain proprietary information from those applications and use it to compete with its customers.
Many of these pundits foresee a future in which large swathes of applications move back into corporate data centers. Just this morning I saw a survey of IT executives which claimed that in two year’s time, 12% of all applications currently residing in the cloud would move back home.
So, how real a phenomenon is repatriation?
Organizations have migrated applications from the cloud back on-prem. The phenomenon clearly exists, and one can find examples of repatriated applications.
Based on the results announced this quarter, one can say that, no matter how large the repatriation trend is, it’s swamped by the trend moving the other direction, from on-prem to the cloud. After all, if repatriation were to represent, say, 5% of all application deployment decisions, and AMG are growing at 40% net, then overall there must be 45% growth of new cloud deployments to subtract the 5% repatriation trend and end up at an overall 40% growth rate.
So, despite the fact that repatriation can definitely be found, it represents a tiny percentage of application deployment decisions, since the overwhelming flow toward the cloud can be easily seen in the net AMG growth rate.
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Cloud Future? More Up and To the Right!
As I noted above, AMG have been growing at 40% or more for over 10 years. And notwithstanding the educated guesses of industry pundits, nothing currently seems to be hindering the AMG growth rate.
But how about the future? What will next year’s growth rate be? And the year after? And the year after that?
In a phrase: more up and to the right.
In addition to the pandemic-driven digital transformation trend I remarked on earlier in the piece, another IT trend has come forward during the past couple of years: the mainstreaming of cloud adoption.
Enterprises of every stripe are developing plans to reduce their data center footprint via consolidation and evacuation. And the place all those applications will go? You guessed it: AMG. I’ve been amazed at how many enterprises are forming plans to go ‘all-in’ on public cloud. As I noted in a recent piece, there are several trillion dollars worth of enterprise IT spend poised to move to AMG. Such a huge number obviously can’t be achieved in one or two or even three years. It’s just too large a task.
But it does mean that there is virtually unlimited demand, and therefore, unlimited growth ahead of AMG. The growth bottleneck for AMG is likely to be capacity to take on so much demand, which should create some interesting dynamics as customers, desperate to complete data center evacuations, confront capacity-constrained cloud providers. Anyone who’s tried to hire a plumber or accountant recently knows what it’s like when nothing is available no matter how urgent the need.
Bottom line? Expect AMG to continue their astonishing growth for the foreseeable future.
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