Amazon’s $44B Spending on Webscale Infrastructure Drives 16% Market Growth

In 2017, Gartner predicted that 40% of enterprises worldwide would adopt webscale networking by 2020. Vindicating this forecast, the webscale sector witnessed year-on-year revenue growth of 16% in Q4 2020, bringing up total annual revenues to nearly $1.6 trillion. While webscale network operators (WNOs) invested about $122 billion in capital expenditure last year, Amazon led the pack by spending a staggering $14 billion in Q4 2020 .    

Amazon’s record spending on webscale network infrastructure solutions was $5.3 billion higher in Q4 2020 than the same period in the year before. This showcased the tech giant’s focus on targeting specific markets with customized cloud platforms and growing its e-commerce logistics and fulfillment capacities to attune to pandemic-induced lifestyle changes. Amazon’s CapEx of $11.3 billion in Q3 2020 accounted for 32% of the overall WNO sector CapEx.

In its fourth-quarter earnings call, Amazon said it spent a total of $44 billion towards its webscale network activities last year, 52% more than the amount it spent the previous year. Barring Amazon, the sector’s YoY increase in capital expenditure stalled at 14%, signifying the e-commerce giant’s dominance in the WNO industry.

According to MTN Consulting’s forecastOpens a new window , capital expenditure on webscale infrastructure will continue to post solid growth over the coming years, crossing the $200 billion mark by 2025. “The network/IT/software portion of CapEx will come in at roughly 50% in 2020, as it did in 2019, decline to 42% by 2023 as a spate of new data centers come on line, but grow back up to 50% by 2025 as more of CapEx is for server/capacity expansion of existing infrastructure,” said Matt Walker, CEO and chief analyst at MTN Consulting.

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“Within the technology part of CapEx, data centers and their components (networking, compute, storage, and power) will soak up the bulk of spending, but subsea cables and satellite networks will become increasingly important over the next 5 years.”

Being one of the top four players in webscale industry, Amazon has concentrated investments in massive, “hyperscale” data centers and undersea cable systems to support network traffic from online retail, video, and social media platforms as well as the cloud services. The company is also focusing on exploring outer space to provide connectivity. It recently received FCC’s approval for its satellite broadband initiative, Project Kuiper, to deploy and operate a constellation of 3,200+ low earth orbit (LEO) satellites.

Amazon, however, did not reveal details about its data center plans in its latest earnings call in February, possibly due to a change in management that involved AWS chief Andy Jassy taking over from Jeff Bezos as the company’s CEO.

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Of the 17 WNOs that MTN Consulting tracks, Alphabet is the second largest with a yearly CapEx of $23 billion as of Q3 2020. Besides servers and new data centers, Alphabet is also investing in subsea cables but may switch the bulk of its spending towards servers in 2021. 

Microsoft’s CapEx of $4.9 billion accounted for 14% of the webscale sector’s total CapEx in Q3 2020, and the company’s expenditure on webscale infrastructure in the same period grew by 45% YoY. The software giant recently announced seven new data center regions in Asia, Europe, and Latin America that may fuel further capital expenditure over the next few quarters.

Facebook’s Opens a new window CapEx was comparatively uniform in Q3 2020, totaling $3.7B, up about 4% from the year-before quarter. The tech conglomerate’s CapEx accounted for 11% of the industry’s totalCapEx in Q3, driven by investments in data centers, servers, office buildings, and network infrastructure. In the company’s Q4 earnings call, CFO David Wehner said, “We continue to expect 2021 capital expenditures to be in the range of $21 billion to $23 billion,” adding that several projects got delayed in 2020 due to the coronavirus pandemic.

Do you think the adoption of webscale solutions will increase in the coming years? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!