Dive Brief:
- Microsoft captured one-quarter of the global cloud market for the first time in Q1, as its share of revenue from enterprise cloud spend expanded, according to a Synergy Research Group analysis.
- The software company's cloud division has steadily gained market share since Q1 2020, when it was at 18%. Yet, it took only a 0.2 percentage point increase quarter over quarter to reach 25%, John Dinsdale, Synergy Research Group chief analyst and research director, said.
- Enterprises poured more than $76 billion into cloud in Q1, as cloud-based AI services helped grow the market by 21% year over year. “We now have a $300 billion market,” Dinsdale said in the report. “We are forecasting that it will double in size over the next four years.”
Dive Insight:
As cloud market expansion regained momentum last year, the technology’s three biggest global players all saw year-over-year revenue growth resume in inverse proportion to market share.
Microsoft reported $35.1 billion in cloud revenue, a 23% increase compared to the first three months of 2023. AWS and Google Cloud saw revenues grow 17% and 28%, respectively.
Microsoft’s market share increase did not come at the expense of its biggest cloud competitors. The hyperscaler balance of power held steady during the first three months of the year as AWS held on to its dominant 31% share of the expanding market and Google Cloud retained 11%, according to the analysis.
“As Microsoft and Google market shares increase, AWS has actually held pretty steady,” Dinsdale said. “It is the aggregate of all of the medium and small cloud providers who have lost market share.”
Cloud cuts across Microsoft’s expansive enterprise portfolio, from Office and Dynamics SaaS solutions to Azure public cloud. But the software giant’s multibillion dollar alliance with ChatGPT creator OpenAI focused attention on Azure OpenAI Service as generative AI opportunities and capabilities proliferated last year.
“Azure has become a port of call for pretty much anybody who is doing an AI project,” CEO Satya Nadella said during the company’s earnings call last week, noting that “more than 65% of the Fortune 500 now use Azure OpenAI service.”
Nadella acknowledged AI is a major force driving new business to its public cloud infrastructure. The company estimated the technology accounted for a little less than one-third of quarterly cloud revenue growth, CFO Amy Hood said during the call.
Microsoft earned the bulk of its cloud revenue growth the old-fashioned way, through enterprise workload migrations.
“This is not just all an AI story,” Nadella said. “We also saw an acceleration of revenue from migrations to Azure.”
The company reported a 31% year-over-year increase in Azure and other cloud services revenue on the quarter.
“Companies are still going from on-prem to cloud,” Hood said. “Some of that, which I know isn’t as exciting as talking about all the AI projects, is still really foundational work to allow companies to take advantage of the cost savings.”
