News & Insights for the AI Journey|Wednesday, November 20, 2019
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Spending Spree: Hyperscalers Bought $57B of IT in 2018, $10B+ by Google – But Is Cloud on Horizon? 

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Hyperscalers are the masters of the IT universe, gravitational centers of increasing pull in the emerging age of data-driven compute and AI.  In the high-stakes, winner-take-all world of the hyperscale elite, 11 companies spent more than $1 billion apiece on IT infrastructure in 2018, three spent more than $5 billion and one, Google, broke the $10 billion spend barrier.

According to HPC and hyperscale analyst firm Intersect360 Research, the worldwide hyperscale market totaled $57 billion in IT spending in 2018, a 30 percent expansion over 2017.

Investment at the high end of the hyperscale market is staggering, with the top 11 vendors accounting for 82 percent of spending last year. And while Addison Snell, Intersect360 CEO, said the hyperscale industry has “completed most of its initial expansion phase and will heretofore be predominantly driven by consolidation,” he expects the market to grow beyond $100 billion within five years.

But within growing hyperscaler power could lie the seeds of its own cutting-down-to-size imposed from the outside, according to Snell. More on this below

“The hyperscale market is important because of the extreme influence it has over the rest of IT,” said Snell, who told us Amazon is second in IT spending behind Google. “Hyperscale influences product development, shapes the workforce, and fuels major trends like AI. Not only has hyperscale continued to grow, but it also has continued to concentrate into the tier 1 vendors. The market power is so concentrated it affects major human issues on an international scale.”

Intersect360 firm defines hyperscalers as companies “with core business processes that are based on accessing, processing, and disseminating information through the internet,” including Web search, online retail, content hosting and distribution, social media, communication services, public cloud application services, pattern recognition, massively multiplayer online games, machine learning, artificial intelligence and cognitive computing.

Tier 1 hyperscalers – including Google, Amazon, Microsoft, Netflix, eBay, Facebook, Baidu and Tencent – are those that spend more than $1 billion a year on IT; tier 2 (of which Snell said there are hundreds): $100 million-$1 billion per year; tier 3: $1 million-$100 million a year.

While the growth of the hyperscale market is a continuation of trends in place for several years, Snell said he’s surprised by the extent to which tier 1 hyperscalers continue to consolidate and grow, led by Google.

“The biggest surprise to me is we had our first company that really got into a new category of its own, spending more than $10 billion in a single year,” he said. “It’s a case of a company in a category unto itself…. Other companies spending more than $5 billion now could also get up over that $10 billion mark and that’s really startling. When you consider a single, large supercomputer can be on the order of hundreds of millions of dollars, to look at companies now spending billions, that’s a tenfold increase on that every year. The amount of consolidation of power in these tier 1 companies is eye opening.”

Driving Google’s infrastructure expansion is, of course, data.

“Everybody is grabbing onto as much data as they can because of its potential value,” Snell said, “so it’s not only what things people search for or what maps they need, or what  they shop for, it’s also the aggregation of as much data as possible and as much data as is legal with regard to, say, mail services or keystrokes. If you’ve one of these apps on your phone or one of their web sites open in a browser on your laptop, you might be astonished by how much of your data is being gathered about your movements, your usage, your keystrokes by these companies in the background because you agreed to it in the end user license agreement. And that d fuels AI, which then fuels targeted advertising.”

Nothing seems to bar the growing power of tier 1 hyperscalers, well known for their clout in driving custom IT gear on a large-scale, acquiring the most promising tech start-ups and hiring top IT and data science talent at top salaries. Nothing that is, except growing public discomfiture with all that power.

According to Snell, it’s rare in human or economic history that so much power – including political impact – has been concentrated in so few companies.

“It has happened but not often," Snell said, "and this is the first time in the information age it’s happened to this extent. So there’s a question of whether this is sustainable in the long run, or will there eventually be some public or political shift in values or opinion that starts taking power away from these companies? Because as we’ve seen, some of the large social media companies now have the power to influence world politics, that’s really quite remarkable… We (Intersect360) don’t think that’s sustainable in the long run, we think in the next decade there will be some move by government or by public opinion that will sway power away from the tier 1’s.”

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