The public cloud landscape is dominated by AWS and Azure, but other providers like DigitalOcean also play significant roles. This article explores a comparative analysis of AWS, Azure, and other cloud providers, along with key insights from the latest market investigation by the UK Competition and Markets Authority (CMA).
We’ve read the 169 page report so you don’t have to, these are the key takeaways.
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Market Position and Share
AWS
Market Leader: AWS remains the largest UK provider of Infrastructure as a Service (IaaS). Its market share has declined slightly, but it still dominates the market.
Strengths: AWS is known for its broad range of capabilities, strong ecosystem, and high innovation levels. It has invested significantly in hardware to boost computing capabilities.
Weaknesses: AWS has been criticised for eroding customer relationships, particularly around contract renewals, and its relatively high costs, including egress fees. Its multi-cloud strategy is considered weak.
“AWS is identified as having strengths in areas such as: the breadth and depth of its capabilities; its strong ecosystem; its high level of innovation; its high brand awareness with customers; and its investments in hardware that has boosted compute capabilities.”
Azure
Strong Contender: Azure is the second-largest UK IaaS provider. Its market share has increased, indicating continued growth.
Comprehensive Offerings: Azure offers a large number of IaaS, Platform as a Service (PaaS), and Software as a Service (SaaS) services. Key revenue-generating products include compute and storage.
Growth and Investment: Microsoft has seen significant growth in its Intelligent Cloud segment, with a compound annual growth rate of 21% from 2017 to 2023. Azure’s global reach, with availability in over 70 regions, enhances its accessibility.
“Microsoft is gaining a substantial share of new business, while AWS’s share of revenue from new customers is relatively low compared to its overall market position.”
The Rest (Including DigitalOcean):
Niche Players: Providers like DigitalOcean cater to specific customer segments, primarily small and medium-sized businesses and developers who need simple, cost-effective cloud solutions.
Target Audience: DigitalOcean focuses on providing basic infrastructure at a lower cost. While not as comprehensive as AWS and Azure, it effectively serves its niche market.
“DigitalOcean caters primarily to small and medium-sized businesses and developers who need simple, cost-effective cloud solutions.”
Key Takeaways from the CMA Document
Switching and Multi-Cloud Strategies
The ease with which customers can switch providers or use multiple cloud providers (multi-cloud) significantly affects competition. When switching is easy, providers compete to attract and retain customers through varied offerings and innovation.
Customer behaviour varies, with some finding it easier to switch and adopt multi-cloud strategies, influencing how the competition unfolds in the market.
“The ability for customers to switch providers or use multiple cloud providers (multi-cloud) significantly affects competitive dynamics. If switching and multi-cloud are easy, competition focuses on attracting and retaining customers through various offerings and innovation.”
Factors Influencing Customer Choices
Providers like Google emphasise multi-cloud capabilities and innovative data analytics products to attract customers.
Key factors for customers include service quality, pricing (including discounts and cloud credits), data sovereignty, and the range of cloud infrastructure services.
The number and location of data centres are important due to data sovereignty and resiliency concerns. Ease of integration with existing technology and other public clouds is also a significant consideration for many customers.
“Most cloud providers identified price as a key parameter of competition for cloud services. Providers compete on this parameter by adjusting the prices customers face through discounts, credits, and free tiers.”
Market Share, Profit and Revenue
… a small number of high-spend customers are responsible for a significant proportion of providers’ UK revenue and a large number of low-spend customers are responsible for a small proportion of their revenue.
In particular, the top 10% of customers account for a very large majority of revenues and the top 1% account for over half of revenues.
Microsoft is gaining a substantial share of new business, while AWS’s share from new customers is relatively low compared to its overall market position. Google also shows strength in acquiring new customers but less so in retaining increased spend from existing customers.
AWS customers were increasing their cloud spend at a higher rate compared to other providers, although Microsoft closed the gap in recent years. Google’s share in this area is stable but lower than AWS and Microsoft.
“Microsoft made Microsoft Azure generally available in 2010, and Google made Google Cloud generally available in 2011. Since AWS launched its IaaS offering, the cloud services landscape has expanded significantly with various providers operating at both the IaaS and PaaS level.”
The EBIT margins for AWS have consistently been between 25% and 30% for the last eight financial years. The EBIT margins for Microsoft’s Intelligent Cloud business segment have consistently been between 33% and 44% for the last seven financial years.
AI and Cloud Competition
The UK’s demand for AI services is driving the need for accelerated compute capacity. Cloud providers are competing to secure specialized hardware necessary for AI workloads, which may present opportunities for smaller providers if they can access this hardware early and at scale.
Partnerships between large cloud providers and AI developers are critical, with companies like Microsoft securing significant agreements to supply Nvidia GPU compute capacity for AI projects.
“The demand for AI services is driving the need for accelerated compute capacity. Cloud providers are competing to secure specialised hardware necessary for AI workloads.”
Vertical Clouds
Gartner and KPMG identified the rise of what they termed as ‘industry cloud platforms’ or ‘vertical clouds’ as a key trend driving cloud spending.
Industry cloud platforms combine a provider’s IaaS, PaaS and SaaS capabilities into a whole-product offering which targets the industry-specific needs of customers.
Regulatory and Sector-Specific Considerations
“Changes in the regulatory landscape, such as new requirements for ‘Critical Third Parties in Financial Services,’ may impact market dynamics by potentially entrenching the market power of established providers.”
Concerns have also been raised about how public sector procurement practices might influence competition in the cloud market. This area is still under investigation to understand its full impact.
Pipe Ten and the Public Cloud
We offer our services for both AWS and Azure as they dominate the public cloud market, offering a broad range of services and significant capacity. Other providers, like DigitalOcean, provide valuable, cost-effective solutions for SME.
Understanding these dynamics is how we help our customers choose and manage the right provider based on their specific needs and priorities.
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Author: Carl Heaton
Carl is a founder of Pipe Ten and uses his role as Technical Director to drive the company’s vision to transform business online in delivering it’s mission to forge agile technical partnerships that accelerate web success. Carl boasts an illustrious career spanning over two decades, starting as a fledgling web developer in his teens, he swiftly ascended the ranks, honing his skills in architecting secure web application infrastructure. With his finger on the pulse of emerging web technologies, Carl has tracked and influenced the ever changing world of cyber security, internet governance, industry regulations and information security compliance ensuring Pipe Ten successfully achieved and maintain ISO/IEC 27001 certification.