Coming off the first quarter of 2020, entrenched in the coronavirus pandemic, the cloud service provider market performance didn't shudder. It didn't blink.
Spending on cloud infrastructure services worldwide was up 34% over Q1 2019, reaching $31 billion, according to Canalys research. Amazon Web Services and Microsoft continue to dominate, accounting for 32% and 17% of the market, respectively.
The big three, including Alphabet's Google, had strong cloud performance, even as other parts of the business faced contraction:
AWS was up 33% year-over-year, reporting $10.2 billion in net sales in Q1 2020, according to the earnings report released last week. Amazon plans to spend $4 billion in operating profit "on COVID-related expenses getting products to customers and keeping employees safe."
Revenue for Microsoft's Azure grew 59% year-over-year, buoying the Intelligent Cloud segment, which grew 27% to $12.3 billion, according to FY20 Q3 earnings, released last week. Across the company "COVID-19 had minimal net impact" on the company's revenue.
Google Cloud, which includes Google Cloud Platform and G Suite, had revenue of $2.8 billion, up 52% year-over-year, according to Q1 2020 earnings. The performance was "driven by significant growth at GCP," Ruth Porat, CFO of Alphabet and Google, said during the earnings call last week.
Market performance was "phenomenal" on the cloud side, Steve Hall, president, ISG EMEA and partner, Digital Advisory Services, told CIO Dive.
Put another way, Q1 cloud earnings were "exactly what was expected if COVID didn't happen," said Dave Bartoletti, VP, principal analyst at Forrester, in an interview with CIO Dive. "It's a good time to be a cloud provider."
All providers reported strength through the beginning of March, but did start to see slowness. Q1 2020 earnings were still in the "golden phase" where earnings were not yet impacted by a full quarter of lockdown, Bartolleti said.
Some of the providers may have seen short-term impacts because of contractions in the hospitality, transport and other industries heavily affected by the coronavirus pandemic.
"Quite honestly, from an enterprise perspective, that's good," Hall said. "There's been a little bit of pull back in some industries," and it shows the ability to ramp use up and down.
It highlights the promise of the cloud. Companies can scale infrastructure use based on demand. In retail, the weekend encompassing Black Friday and Cyber Monday sees online traffic skyrocket. The cloud's flex capacity allows companies to maintain uptime, but reduce resource use when traffic abates.
The same flex capacity is applicable to stay-at-home orders. In the travel and hospitality sector, Airbnb is forecasting its 2020 revenue will be less than half of 2019.
With fewer demands on its website, the company requires less capacity — it provides a feasible area to cut costs.
Google has "overall momentum" in its cloud segment, even though some deals remain on track, they are taking "a bit longer" to win, Sundar Pichai, CEO of Alphabet and Google, said during the earnings call.
"So I would say time to closing some larger deals are impacted," Pichai said. "But the companies, if anything, all the way at a CEO level are thinking about the shift to digital in a deeper way."
If spending contracts for companies, it's not expected to have an adverse effect on the major CSPs.
With large cash portfolios, all major providers are going to survive in a downturn, Hall said. "I would love to give a contrarian view, but it's all upside."
Some customers may struggle to pay cloud bills, particularly in areas that are hard hit, such as fintech. Startups make up a small percentage of AWS, which has historically catered to early-stage companies. But any revenue lost from customers won't have a material impact.
That's not to say CSPs won't see an impact, but projections are surrounded by "ifs," particularly on the implementation side.
Forrester expects cloud infrastructure services to see continued growth and is not modifying projections for the segment. But on the demand side, tech consulting and system integration services could decline 5-10%, depending when lockdowns lift.
It's an issue of supply and demand. While there is a ready supply of cloud service providers, many companies are delaying new project spending, which will impact the services industry.
Enterprises have relatively strong cloud footprints, but smaller businesses that haven't necessarily leveraged the cloud as much are "going to be in survival mode with technology companies," Bartoletti said. But it's not cloud spending that's the problem — it's core services.
Coming out of the coronavirus crisis, if the leading CSPs continue to have strong returns and maintain uptime, it will drive future adoption.
If a company struggled with business resiliency during the crisis, once recovery is in sight, more CIOs and boards will look at business resiliency, making more decisions to move to the public cloud, Hall said.
CIOs are going to look at what worked "and the cloud worked. It worked exceptionally well," he said.