The COVID-19 pandemic has significantly impacted the cloud service market due to a shift in enterprise and consumer behaviors. This has led to hyperscalers like Amazon Web Services (AWS), Google, and Alibaba to start building and designing their own equipment and forcing traditional data-center vendors out to the edge to reclaim market share, according to a recent Dell’Oro Group report. 

The report projects that data center server spending will grow at an 11% compound annual growth rate over the next five years, comprising nearly half of all market capex by 2025. The attach rate of accelerated servers is also forecast to grow at a 13% CAGR over the same time frame.

Dell’Oro Group Research Director Baron Fung explained that hyperscalers make up a big portion of the overall IT market, with the 10 largest cloud-service providers, including AWS, Google, and Alibaba, accounting for up to 40% of global data center spending, and “some of these companies can have really tremendous weight on the ecosystem.”

The report noted that some providers  have deployed accelerated servers using internally developed artificial intelligence (AI) chips, while other cloud providers and enterprises have commonly deployed solutions based on graphics processing units (GPUs) and FPGAs.

Fung explained that this model has also spilled over into those cloud providers also building their own servers and networking equipment to better fit their needs while “moving away from the traditional model in which users are buying equipment from companies like Dell and [Hewlett Packard Enterprise]. ... It's really disrupting the vendor landscape.”

AWS has advanced further than most in developing data center chips, and Fung said the company is reportedly looking into developing networking chips and continuing to scale. He added that the cloud giant has millions of servers and “it makes sense to start building your own chips and equipment.”

However, original equipment manufacturers (OEMs) like HPE and Dell last year lost cloud market share. Fung explained that “their market is shrinking because a lot of the enterprise data centers are moving gradually to the cloud.”

Those vendors are trying to offset that loss with more feature-rich solutions to drive revenue including support for hybrid-cloud and multicloud services, as well as their own compute and storage platforms, Fung said. Dell’s Apex and HPE GreenLake are also pay-per-use models those vendors are using to deploy racks of servers at customer locations.

“Traditional providers are also looking at new markets like edge computing,” Fung said, as almost all the major OEMs have set edge computing as their top three initiatives for future expansion.

This market is currently without any established set of vendors or defined solutions and offers OEMs an opportunity, but the hyperscalers are also moving into the space. Fung noted specifically that Amazon has increased the scale of its edge deployments and continues to build more retail locations as an extension of its network.

He forecasts that edge computing will post strong growth over the next five years with triple-digit growth from a small base in some sectors. But, in order to maintain that growth, Fung suggested that “it's important for the community to come together to establish some standards.” 

More importantly, the market needs to develop services that drive demand. “We need to see demand from end users, either in the enterprise or consumers, to find value in these new applications,” Fung said, including multicloud gaming, industrial automation, and autonomous driving. According to the report, these applications are latency-sensitive, requiring multi-access edge compute (MEC) nodes to be situated with the sensors at the network edge.