The pandemic period has been a boon for the trio of companies that dominate cloud computing. Now as the economy enters another tumultuous phase, Amazon.com Inc., Microsoft Corp. and Google appear poised to extend their strength.
The three companies accounted for 65% of the $53 billion in global cloud-service spending in the first quarter of the year, according to Synergy Research Group, up from 52% of global sales four years ago.
And their control of the crucial, rapidly growing market is expected to continue as their size makes them better able to keep investing and attract clients seeking stability in turbulent times, executives and analysts say.
Though well established, the cloud units of Amazon, Microsoft, and Alphabet Inc.'s Google have been expanding like startups, with sales growing by more than 30% year over year in recent quarters while smaller cloud services have seen their market share drop as more cloud spending migrates to the largest platforms, according to Synergy.
The pandemic drove spending broadly on the remote computing services known as the cloud as more of life and work shifted online. The top cloud players have consolidated their dominance in part because of the economics of the industry, which requires massive investments in servers and the facilities that house them, analysts say.
The bigger those networks of server farms get, the lower the average costs for building and running them, giving an edge to the three companies. They also gain advantages in their ability to develop homegrown chips, software and other technology for the cloud.
"We've been investing pretty significantly in this business for 15 years, and it's not something that's easy to catch up to," said Matt Garman, senior vice president of sales and marketing at Amazon Web Services, the e-commerce giant's cloud-computing unit.
Meanwhile, smaller companies in the sector are expected to face a more challenging fundraising environment, analysts say, as sliding stock prices mean investors are less willing to take big risks.
In addition, they say, customers are looking to consolidate their spending and are more likely to pick and stick with the biggest players that often offer more reliability and a broader set of features.
Travel software company Sabre Corp. has decided to do more on the cloud, a move it says saves money and provides more flexibility for its business.
It has increasingly done more through Google's cloud, as using one cloud provider helps simplify the technology for its engineers and other employees.
Google's capacity to analyze large amounts of data and its large menu of capabilities allow Sabre to focus spending on one vendor, saving it time and effort of juggling too many, said Joe DiFonzo, Sabre's chief information officer.
"We're going from managing hundreds and hundreds of individual third-party software relationships to centering on using more and more Google Cloud," he said.
Mr. DiFonzo estimates that while Google most recently accounted for about 28% of the company's spending on cloud services, it will take up 65% of Sabre's cloud budget by year-end.
Combined revenue from cloud services at the top three companies grew more than 33% last year and is expected to grow close to 29% this year, according to analysts surveyed by FactSet.
"The big three really are running away with the game," said Synergy chief analyst John Dinsdale.
As other tech sectors are staring at postpandemic slowdowns, demand for cloud services has stayed strong, said Thomas Kurian, chief executive of Google Cloud, whose global market share has increased from 1.5% in 2015 to 7.1% in 2021, according to Gartner Inc.
"We still see significant demand and interest from customers around the world in virtually every industry," he said.
In recent years, some new and older cloud companies have grown their businesses by providing software and services to help customers interact with the cloud.
However, the three companies' dominance in hosting the cloud means the other cloud companies usually still have to work with them -- and it positions the three to offer competing products later.
Box Inc. chief executive Aaron Levie says the heft of the big three companies helps drive down prices for Box, but it also indicates their control of the market.
"You have these players that have economies of scale, and scale begets more scale," he said.
Box sells cloud-based content-management and collaboration software, making it a user of as well as a competitor to the big three cloud companies.
Snowflake Inc. is one of the cloud-service providers that have risen quickly in recent years but faces growing competition from the cloud platforms it uses.
The company's annual sales doubled for each of its past two fiscal years but the company expects growth to slow to 66% this year.
Snowflake, which helps customers analyze business data across different clouds, has accused Google of trying to undercut its sales by pushing its competitive data analytics product, BigQuery.
"Google is not an open platform," said Michael Scarpelli, chief financial officer at Snowflake, at an event earlier this year. "They don't like to partner very well, especially if they feel threatened."
Google said it has proven it can work well with competitors and some customers are choosing its product over Snowflake's because it is better.
Other software startups have accused Amazon of developing competing cloud software. Amazon has said it is just reacting to its customers' needs.
Cloud platform newcomers such as startup Sushi Cloud LLC are attempting to break through by focusing on niche areas like making running artificial intelligence software in the cloud cheaper.
Others such as Cloudflare Inc. are trying to appeal to customers by offering low fees to shift data out of their clouds. The top cloud companies often make it expensive to move data.
"The unfortunate reality is the big three aren't going anywhere, they're going to continue to grow," said Sushi Cloud chief operating officer Shauna O'Flaherty. "I just hope that there is more room for challenger companies to emerge and not be intimidated."
