Microsoft Now the No. 2 Cloud Supplier: Gartner

Amazon.com Inc.’s (AMZN) cloud services may be the leader in the market, but Microsoft Corp. (MSFT) is closing in, ending 2017 in the No. 2 position.

That’s according to market research firm Gartner, which reported this week that the worldwide infrastructure as a service (IaaS) market increased 29.5% last year, hitting $23.5 billion. That’s up from $18.2 billion in 2016. Amazon was in first place, followed by Microsoft, Alibaba Group Inc. (BABA), Alphabet Inc.'s (GOOGL) Google and International Business Machines Inc. (IBM).

Mote Companies Moving More Toward Cloud

With more companies moving their infrastructure and computing to the cloud, they are allocating more of their IT dollars to the leading cloud players. Currently cloud IT spending accounts for more than 20% of total IT budgets for companies that use the cloud, found Gartner, noting that many companies are now using the cloud for production environments and for business critical operations.   

"The top four providers have strong IaaS offerings and saw healthy growth as IaaS adoption is being fully embraced by mainstream organizations and as cloud availability expands into new regions and countries," said Sid Nag, research director at Gartner in a press release announcing the results for the year. Gartner noted that Amazon, Microsoft, Alibaba and Google accounted for about 73% of the total infrastructure as a service market last year. (See also: Google, Microsoft Go After the Oil Market: WSJ.)

Microsoft Growing Faster Than Amazon

For all of 2017, Gartner found Amazon had cloud revenue of $12.2 billion, which was up 25% from 2016. Growth for the Seattle-based e-commerce giant was driven by customers moving from traditional data centers to the cloud and also using Amazon Web Services (AWS) for digital business projects. Meanwhile, Microsoft had cloud revenue of more than $3.1 billion in 2017, up 98.2% from 2016. While Microsoft’s overall share is less than its No. 1 rival, its growth rate is much higher. Alibaba was in third place with cloud revenue growth of 63%, noted Gartner.

The strong showing out of the cloud market continued into 2018, with another researcher, Synergy Research Group, reporting this week that cloud infrastructure services revenue increased 50% in the second quarter compared to the year-ago period. The same growth rate was seen in the first quarter of 2018 and is higher than the 2017 growth. (See also: Microsoft Could Make a Big Cloud Buy: BMO.)

Microsoft has been chipping away at Amazon’s dominance in the cloud computing market for some time. For its fiscal fourth quarter, which Microsoft reported earlier this month, its Azure cloud product recorded revenue growth of 89%. In an effort to notch up its challenge to AWSx, Walmart Inc. (WMT) announced earlier in July that it inked a five-year deal with Microsoft to use its Azure and 365 cloud services.