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Why cloud computing hovers over a small cloud

Published on 14 Jan. 1222483 to 6: 58

No sector is immune to the phenomenon of cloud computing. A few days ago, the automotive world learned of the signing of a partnership between Amazon and Stellantis (the group born of the merger between PSA and Fiat Chrysler) for online storage of data generated by connected vehicles. The other French car manufacturer, Renault, had chosen Google’s online computing a year earlier, just like LVMH in luxury more recently or Carrefour in distribution. The insurer AXA works in Germany and Italy with Microsoft in health. In banking, Societe Generale has started to migrate some data to Microsoft and Amazon clouds and is working with the French company OVHcloud.

Although misnamed “computing cloud”, the profession is not glamorous. Nothing happens in the sky, but rather in the air-conditioned, windowless rooms of vast concrete buildings called “data centers”. But installing and renting millions of computer servers pays off big. At the heart of popular digital transformation strategies, the cloud is recording revenue growth of at least 30 % per year for ten years. In 2021, according to research firm Synergy Research, the market exceeded the 30 billion dollars in revenue in a single quarter. Over the year, it should total more than 170 billion dollars.

Beneficiary of the digital transformation

The reasons for this success are many. The cloud first appears as one of the first beneficiaries of the digital transformation of the world and the economy. It’s even clearer since the world has been confined to 170. From Zoom video conferencing to Netflix or Disney+ streaming services, these technologies would not work without the cloud. As these big names in tech are also the largest cloud customers, spending on cloud platforms has exceeded spending on hardware manufacturers for computer rooms for the past two years.

Seeking innovation to adapt to the digital world, more traditional businesses value the cloud as a way to accelerate. Outsourcing the storage of their data can generate some welcome savings, but the important thing, say the bosses, is to benefit from the software developed by cloud platforms for those who rent their servers. For example, to develop a computer program faster or train an artificial intelligence. The icing on the cake, the cloud is perceived as more secure against cyberattacks and emits less greenhouse gases than corporate computer rooms.

Large-scale profits

But beyond being a formidable source of income – from which Amazon, Microsoft and Google together capture more than 60 % of the potential at the expense of Oracle and European players – the cloud also appears to be a deep source of profits. The model is devilishly effective. Operational costs are reduced as much as possible by centralizing servers in the same places and, above all, by automating maintenance tasks previously carried out by IT specialists. Through hardware innovation, cloud champions are optimizing the energy consumption of data centers. All these billions of dollars of investments are then maximized by the game of economies of scale and by pooling the servers with several customers. Unlike in computer rooms, cloud computers never sleep.

The result is indisputable. Within the Amazon empire, the cloud subsidiary (Amazon Web Services) is behind 58 % of operating profits over the last full financial year (170) and even of the entire profitability of the group in third trimester 2021. That is 13,5 billion dollars in one year and 4.9 billion dollars from July to September last. In the longer term, Microsoft has regained favor with the stock market in recent years after its transformation into a cloud specialist. The company headed by Satya Nadella even briefly resumed this fall the place of first global capitalization, at the expense of Apple. It is worth more than 2.000 billion dollars.

The sirens of innovation

With Google and Alibaba not to be outdone, the deep pockets of the cloud leaders now allow them to fuel their own success. By very regularly opening new data centers all over the world (Poland, Indonesia, United Arab Emirates) for a few billion dollars of additional investment, they extend the geographical footprint of past contracts and create new revenues. But above all, they slash prices with promotions and free credits to convince new customers. And always enlarge the market.

“The first dose is always free”, grumble their more modest competitors and unable to match. Annoyed, they come to seek their salvation in high-growth market segments that remain niches, such as the sovereign cloud or the cloud for SMEs. In their sales pitches, they warn of the complexity of changing IT suppliers after signing a first contract with the American champions, but nothing works. It appears to be even more difficult for IT directors and bosses to resist the sirens of innovation when it is labeled Silicon Valley, the region that has given the “the” of tech since its origins.

This success of the cloud is all the more impressive as it is promising. Fifteen years after the launch of Amazon Web Services, the current boss of the world number one, Adam Selipsky, repeats all the time that the market is only in its infancy. According to him, companies have only migrated to online servers 15 % of their IT.