The cloud-computing market continued to thrive in the first quarter, benefiting from the increasing number of organizations that are migrating their workloads to digital formats during the pandemic.
All major cloud providers reported year-over-year revenue growth for their respective platforms and touted the growing level of long-term commitments from both existing and new customers.
Amazon Web Services Inc., which is widely considered the global cloud market leader, saw year-over-year revenue grow 32% to $13.50 billion in the first quarter, accelerating from 28% growth in the fourth quarter of 2020. AWS accounted for 12% of parent company Amazon.com Inc.'s $108.52 billion first-quarter revenue and nearly 47% of the company's overall operating income of $8.87 billion.
"During COVID, we've seen many enterprises decide that they no longer want to manage their own technology infrastructure," Amazon CFO Brian Olsavsky said during the company's recent earnings call. "They see that partnering with AWS and moving to the cloud gives them better cost, better capability and better speed of innovation. We expect this trend to continue as we move into the post-pandemic recovery."
AWS' closest competitor, Microsoft Corp.'s Azure cloud computing service, reported a 50% year-over-year increase in revenues in the March quarter. Microsoft's intelligent cloud segment, which includes Azure as well as the company's server products, saw quarterly revenue grow 23% over the prior year to $15.12 billion, with server products and cloud services revenue up 26%.
Microsoft CFO Amy Hood attributed the better-than-anticipated growth for Azure to continued strength in the company's consumption-based business and to larger long-term contracts, which drove a 39% year-over-year increase in quarterly bookings.
Melanie Posey, research director for the cloud and managed services transformation at S&P Global Market Intelligence's 451 Research unit, said Microsoft is building sector-specific offerings for organizations that help connect siloed data, enable employee collaboration, and meet security and compliance needs to address business challenges that were exacerbated by the coronavirus pandemic.
"Over the past few years, Microsoft has become less product-focused and more customer engagement-focused, combining technologies across the cloud, datacenter, desktop, device and application arenas to create unified digital approaches and enable digital business outcomes," Posey said. "Not surprisingly, Azure serves as an underlying building block and the connective tissue for both Microsoft's vertical initiatives and its company-wide technology integration efforts."
International Business Machines Corp., which Posey said is the most direct competitor to Microsoft in its approach to industry-specific cloud offerings, saw its total cloud revenue, which draws from various IBM business units, grow 21% to $6.5 billion in the first quarter. The company's cloud and cognitive software segment, which includes Red Hat, was up 3.8% to $5.44 billion.
Jean Atelsek, an analyst in the cloud transformation and digital economics unit at 451 Research, said about 75% of IT workloads have yet to be modernized, indicating a lot of pent-up demand for whichever provider or vendor businesses trust to help them update their IT foundations.
"This next phase isn't going to be easy. Cloud providers and their partners are moving from a labor-intensive, boots-on-the-ground approach to a model that focuses on intelligent automation, but the transition requires considerable expertise and custom work," Atelsek said. "IBM arguably has an advantage here with its Global Business Services unit, but it still needs to evolve to meet this opportunity."
Meanwhile, Google Cloud, which parent company Alphabet Inc. broke out into a separate reporting segment for the first time in the December 2020 quarter, grew its revenues to $4.05 billion in the first quarter of 2021, up 45.7% from $2.78 billion a year earlier.
Although Google Cloud lags its competitors in market share, it continues to pin hopes on its artificial intelligence and machine learning acumen to win over companies that want to leap into data-driven business decision-making and automated AI, Atelsek said.
Oracle Corp., whose most recent quarter ended Feb. 28, reported revenue of $7.25 billion for its cloud services and license support segment, the company's largest business. That represented growth of 4.6% year over year, compared to 4.4% in the previous quarter.
"Recurring revenue as a percentage of total revenue now represents 72% of total company revenue, and we anticipate this trend to continue as cloud services grow," Oracle CEO Safra Catz said during a company earnings call.
