Cloud Computing Market Competition Intensifies

Companies Hold More Clout

Amazon (AMZN) and Microsoft (MSFT) have long dominated the cloud-computing market, but this is slowly changing. With rivals going after the two incumbents, companies are realizing they have more power. As a result they are splitting up contracts among more than one cloud provider and demanding better pricing, which is spurring competition and providing opportunities for the likes of Oracle (ORCL), Alphabet’s Google (GOOGL), and International Business Machines (IBM).

Take Experian (EXPGY), the credit rating company, for example. It has been using Amazon Web Services since 2014 but also tapped Microsoft, Google, and Oracle for some of its cloud computing needs. AT&T (T) is also spreading its business among more than one cloud vendor.

Cloud Computing Demand Surges

Companies’ newfound leverage with the cloud providers comes as spending on cloud services is growing at double-digit rates. In 2021 it hit $59.2 billion—up 32% year-over-year. It is forecasted to reach $106.8 billion next year. The pandemic drove increased adoption last year as companies shifted to remote workforces amid restrictions.

It is not only corporate customers which are spreading their cloud computing needs across multiple vendors. The government, which has been known to ink long-term deals with single vendors, is rethinking that strategy as it modernizes its aging systems. Take the Pentagon’s $10 billion, ten-year contract it originally awarded to Microsoft. Earlier this month it scrapped that contract and gave it to multiple vendors.

Amazon, Microsoft Still the Leaders

Amazon and Microsoft are seeing increased competition but the two remain the undisputed leaders in the cloud market. Even if the contract is spread among several vendors, Amazon and Microsoft typically still get a slice. When Amazon reports second-quarter earnings later this week, Wall Street expects its cloud unit to see 30% growth compared to last year. Microsoft’s Azure cloud business is expected to see 40% quarterly sales growth.

The cloud computing market has changed over the years. While Amazon and Microsoft are still in the lead, rivals are circling. It will be interesting to see how the industry shakes out as demand for cloud computing services explodes.

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