According to new data from the International Data Corporation‘s Worldwide Semiannual Public Cloud Services Tracker, worldwide revenue for the public cloud services market totaled $545.8 billion in 2022, an increase of 22.9% over 2021.Software-as-a-service applications continued to be the largest source of public cloud services revenue, accounting for more than 45% of the total in 2022. Infrastructure-as-a-service (IaaS) was the second largest revenue category with 21.2% of the total, while platform-as-a-service (PaaS) and software-as-a-service for system infrastructure software (SaaS – SIS) delivered 17% and 16.7% of overall revenue, respectively.

“Given the economic challenges of the past year, it’s easy to conclude that we are in a period where a focus on constraining new expenditures and optimizing the use of existing cloud assets will dominate CIOs’ priorities and shape the fortunes of IT providers for the next several years. It’s also a very wrong conclusion. The assessment and use of AI, triggered by generative AI, is starting to dominate the planning and long term investment agendas of businesses and cloud providers will play a significant role in the evaluation and adoption of AI enablement services,” Rick Villars, group vice president of worldwide research at IDC, said.

Spending with the leading providers of public cloud services further consolidated in 2022 with the combined revenue of the top five public cloud service providers – Microsoft, Amazon Web Services, Salesforce, Google and Oracle – capturing more than 41% of the worldwide total and growing 27.3% year over year. With offerings in all four deployment categories, Microsoft remained in the top position in the overall public cloud services market with 16.8% share in 2022, followed by Amazon Web Services with 13.5% share.

While the overall public cloud services market grew 22.9% year over year in 2022, revenue for foundational cloud services* that support digital-first strategies saw revenue growth of 28.8%. This highlights the increasing reliance of enterprises on a cloud innovation platform built around widely deployed compute services, data/AI services and app framework services to drive innovation. IDC expects spending on foundational cloud services (especially IaaS and PaaS elements) to continue growing at a higher rate than the overall cloud market as enterprises leverage cloud to accelerate their shift toward digital business.

“Cloud providers are making significant investments in high-performance infrastructure,” Dave McCarthy, research vice president of cloud and edge infrastructure services, said. “This serves two purposes. First, it unlocks the next wave of migration for enterprise applications that have previously remained on-premises. Second, it creates the foundation for new AI software that can be quickly deployed at scale. In both cases, these investments are resulting in market growth opportunities.”

“IDC research shows that most organizations rank their public cloud provider as their most strategic technology partner, with general agreement among IT leaders and business leaders,” Lara Greden, research director of PaaS at IDC, said. “When it comes to planning for PaaS developer and data services, organizations that haven’t yet begun their journeys in developing AI-enabled applications are beginning to prioritize them. Those that have started to adopt AI are finding themselves well positioned to evaluate further adoption of generative AI capabilities in an intelligent app-strategy.”

“SaaS – Applications remain the largest segment of the more than $547 billion cloud software market forecast by the end of 2023,” Frank Della Rosa, research vice president, SaaS, business platforms and industry cloud at IDC, said. “Changing market conditions, exponential increases in cloud spend and rapid cadence of supplier innovation help sustain double-digital growth. The next generation of SaaS applications will leverage advances in AI to deliver unprecedented performance improvements in personalization and customer experience, and operational efficiency while redefining functional markets across industries.”

While both the foundational cloud services market and the SaaS – Applications market are led by a small number of companies, there continues to be a healthy long tail of companies delivering cloud services around the globe. In the foundational cloud services market, the five leading companies account for three quarters of the market’s revenues with targeted use case-specific PaaS services or cross-cloud compute, data, or network governance services. The long tail is more pronounced in the SaaS– Applications market, where customers’ growing focus on specific outcomes ensures that nearly two thirds of the spending is captured outside the top five companies.