Public Cloud Market To Hit $1 Trillion By 2026: Here’s Why

‘The public cloud market will consolidate its dominance of IT by 2026. But getting there will be quite a ride,’ says Forrester principal anaylyst Lee Sustar.

The massive public cloud market will balloon to $1 trillion by 2026, more than doubling the current $446 billion market in 2022 thanks to an annual growth rate of more than 20 percent over the next four years, according to a new report by Forrester.

“The public cloud market will consolidate its dominance of IT by 2026,” said Lee Sustar, principal analyst at Forrester, in a recent blog post. “But getting there will be quite a ride.”

The public cloud market has experienced nearly a decade of 30-plus percent annual growth rate led by Amazon Web Services, Alibaba, Google Cloud and Microsoft.

In fact, IT research firm Forrester noted in its new market report that AWS has been responsible for keeping parent company Amazon in the black in recent quarters, while parent company Alphabet is allowing Google Cloud to run at a large operating loss as cloud revenue continues to increase.

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Forrester estimates that cloud infrastructure services will account for nearly $500 billion in revenue in 2026 as the cloud giants battle the commoditization of infrastructure.

Why Public Cloud Will Explode

“Even amid pandemic budget-tightening, the public cloud market accelerated, with many enterprises crediting their speedy adaptation to public cloud platforms,” said Sustar.

“In the years ahead, however, growth will be tougher, with or without a recession,” he said. “As competition among the four biggest public cloud providers intensifies, they are compelled to make massive investments in analytics, AI/ML [artificial intelligence and machine learning] and other differentiated premium services to stay in the top tier.”

Public cloud growth rates will continue to climb, in part due to data and analytics services that businesses of all shapes and sizes are demanding.

Businesses will look to cloud providers like AWS, Microsoft and Google Cloud to provide business outcomes gathered from data insight that will go beyond the traditional IT operations teams to reach data scientists.

As customers seek AI and ML for greater operating efficiency, database and analytics services revenue will rise threefold to $89 billion by 2026, Forrester predicted.

Cloud Infrastructure Differentiation For Higher-Priced Services

Right now, cloud hyperscalers are pouring billions each year into building new data centers on a global basis to prepare for more workloads to migrate to the cloud over the coming years.

Cloud infrastructure differentiation around instance types on lower-cost chips and purpose-built hardware will be a major sales driver as well.

“Core cloud infrastructure is increasingly standardized on the open-source Kubernetes project, driving the hyperscalers to innovate higher up the stack,” said Forrester’s Sustar. “Core infrastructure will continue to account for a major share of cloud revenue—but it is less a source of profit than a means to capture customers and move them to higher-priced services.”

Although the public cloud market is expected to hit $1 trillion by 2026, there are just four companies that have taken over the cloud infrastructure market.

Alibaba, AWS, Google And Microsoft On Top

Alibaba, AWS, Google Cloud and Microsoft own the lion’s share of the cloud infrastructure market due to the level of capital required to build out a global cloud footprint and customer base.

“The rest [of the cloud infrastructure companies] have effectively abandoned the effort to catch up, even if their marketing messages claim otherwise,” Sustar said.

In terms of cloud services, AWS is the worldwide market leader at 34 percent share as of the third quarter of 2022, according to data from Synergy Research Group.

Microsoft won 21 percent global share of the cloud services market, followed by Google Cloud at 11 percent share. Alibaba is the largest cloud player in China.

Many solution providers are bullish on cloud sales growth in 2023 and beyond.

Victor Raymond, CEO of Philadelphia-based Triumph Technology Solutions, said his AWS sales increased 500 percent in 2022 compared with 2021. He said the public cloud market is just getting started.

“Over the past three years, we’ve built a rocket ship while flying it. But if I really look at it, we’re just on the launch pad. We haven’t even taken off yet,” said Raymond. “We call the cloud the modern-day ‘gold rush.’ Even going into next year with financial uncertainty, the cloud is the place to be.”