Key takeaways

• Incumbents drove GenAI-based enhancements: There was substantial GenAI integration activity in the cloud tech sector, with major players enhancing capabilities in automation, developer productivity, and resource optimization. Leading the charge, incumbents Amazon and Red Hat introduced GenAI-driven solutions for cloud-native application development. Disruptors like Docker, GitLab, Mulesoft, and LogicMonitor advanced their developer-focused tools, with an AI emphasis. In Edge Computing, Intel and NVIDIA released new hardware products designed to support the increasing GenAI workloads in both cloud and edge computing environments.

• GenAI innovations extended into partnerships: Cloud tech saw 16 significant partnerships in Q4, mainly from Edge Computing (8) and Cloud-native Tech (7). Incumbents initiated most of the partnerships, concentrating on GenAI-driven innovation. Google and Microsoft strategically enhanced their cloud infrastructure to manage the increasing demand for cloud-based AI workloads. Concurrently, Intel focused on refining its hardware performance to meet the industry’s growing needs.

• Broadcom wrapped up VMware acquisition in an eventful quarter: The M&A landscape was dynamic; the highlight was Broadcom's USD 61 billion acquisition of VMware to enhance private and hybrid cloud environments. Other notable deals included Cisco's acquisition of Isovalent for cloud-native networking, SAP's acquisition of LeanIX for enterprise architecture management, and Dell's strategic purchase of Cloudify to advance its cloud management offerings.

• Modest year ended with funding surge: Cloud tech raised USD 1 billion across 18 rounds in Q4, a 65% YoY and 41% QoQ increase. Edge Computing dominated funding, with USD 677 million (a ~74% share), while Cloud-native Tech raised USD 223 million (~24%). Particularly noteworthy was the focus on growth-stage companies, with DataBank (USD 533 million), ScyllaDB (USD USD 43 million), and Pulumi (USD 41 million) securing funds. Nevertheless, full-year funding for 2023 (USD 3.3 billion) fell short of the high watermarks of 2022 (USD 6.6 billion) and 2021 (USD 5.5 billion).

• GenAI rapidly emerging as a focal point in the cloud tech space: Cloud tech will play a vital role in GenAI implementation and success within the current distributed computing landscape. We expect both disruptors and incumbents in Cloud-native Tech to actively engage with GenAI. This involvement will likely manifest in two ways—first, through the incorporation of GenAI-based features such as automation, optimization, developer productivity, support, and data management, and, second, by providing the necessary tools to facilitate GenAI-based applications and optimizing their usefulness.
• Edge data centers, strategically positioned close to end users, are expected to become integral in supporting AI applications and managing intensive data processing demands. This surge in AI infrastructure needs could drive innovation and expedite the development and operation of edge data centers, ensuring they can effectively support the burgeoning GenAI landscape. Concurrently, as cloud computing usage escalates, there will be a corresponding increase in the demand for cloud optimization tools. Companies will be looking to reduce waste and maximize the use of their computing resources, making these tools increasingly crucial in the GenAI-driven computing era.

Product updates: Incumbents led the way in GenAI-based enhancements

Analyst Take: Cloud platforms, created to expedite software development and swift integration of new infrastructure services, are already beginning to provide support for GenAI applications and LLMs. Major tech players like Google, Amazon, Microsoft, and Red Hat are leading the way in incorporating GenAI-based features into their offerings, including automation, developer productivity, and resource optimization. Additionally, cloud-native tool providers such as Docker, GitLab, and Mulesoft are actively advancing their developer-centric tools by using GenAI. Parallel to these software advancements, hardware giants like Intel and NVIDIA have been unveiling new products, accommodating the growing GenAI workloads in cloud and edge computing environments.

Notable product updates by type in Q4

Refer to Appendix 1 for the full list of notable product updates in Cloud Tech

Source: Compiled by SPEEDA Edge based on multiple sources

• Cloud tech-GenAI integration took center stage. Numerous disruptors and incumbents persistently incorporated GenAI technologies into their product offerings, spanning automation and optimization, developer productivity and support, and data management and analysis.

• There were several notable product innovations from incumbents in the Cloud-native Tech space, including updates from Amazon (AWS), Google, Microsoft, RedHat, and VMware.
  • Amazon announced the general availability of Amazon Elastic Block Store (Amazon EBS) Snapshots Archive with AWS Backup, providing efficient data backup and recovery solutions. Additionally, the Amazon Managed Service for Prometheus collector enabled automatic and agentless discovery and collection of Prometheus metrics from Amazon Elastic Kubernetes Service (Amazon EKS). Lastly, Amazon made available Amazon Relational Database Service (Amazon RDS) for Db2, offering a fully managed Db2 database engine running on AWS infrastructure for seamless database management.
  • Google Cloud made several significant announcements, including the general availability of Artifact Registry remote and virtual repositories, GKE Enterprise, and Memorystore for Redis Cluster with a 99.99% SLA (service level agreement). Additionally, it introduced Cloud Deploy with pipeline automation and Cloud Run Jobs support, synthetic monitoring, and the Multi-cluster Gateway controller for GKE, providing unified Application Load Balancer deployment for GKE clusters using the Kubernetes Gateway API.
  • Microsoft and Oracle jointly announced the general availability of Oracle Database on the Azure platform. Additionally, the Microsoft Azure Incubations Team launched Radius, a new open application platform for the cloud.
  • Red Hat launched the new versions of the Enterprise Linux Platform and simplified and expanded application development with new capabilities in Red Hat OpenShift. VMware unveiled new developer, data, and security services for sovereign clouds. Mulesoft’s Anypoint Studio 7.16 was announced with updates and improvements, including the introduction of Anypoint Code Builder for Desktop. Additionally, Suse announced the availability of Rancher Prime 2.0, enhancing customers' ability to manage heterogeneous, multi-cloud Kubernetes deployments securely and at scale.

• Notable Cloud-native Tech innovations from disruptors included key contributions from Docker, NGINX, and Qumulo Pulumi.
  • Docker, Inc. introduced Docker Scout for identifying and remediating vulnerabilities, Docker Debug for faster debugging, and a revamped Docker Build for faster image creation. 
  • Qumulo announced Global Namespace, a software solution that scales to exabytes anywhere unstructured data is needed and seamless integration with AWS-based Qumulo file storage. Additionally, Qumulo announced its latest version of Azure Native Qumulo as part of Qumulo's Scale Anywhere™ platform for the hybrid enterprise. 
  • NGINX announced NGINX Gateway Fabric Version 1.0, a unified application delivery fabric designed to streamline and simplify app, service, and API connectivity in Kubernetes.
  • Pulumi introduced Pulumi ESC, a new product that managed and tamed secrets and configuration complexity across all cloud infrastructure and application environments. It also announced the general availability of Pulumi Deployments, a fully managed platform designed to simplify and accelerate the user journey from code to cloud. Additionally, Logz.io added a cloud-native APM tool to its observability platform, while Grafana Labs included Kubernetes support, and Honeycomb extended its observability platform to include Kubernetes environments.

• Amazon spearheaded the advancements in the Cloud Optimization Tools sector, primarily through enhancements to its CloudWatch product.
  • Amazon announced new features, including the Cost Optimization Hub for easier cost savings identification, Amazon CloudWatch Application Signals for automated application instrumentation, and myApplications for streamlined application management. Additionally, Amazon CloudWatch enables metric consolidation from various sources and new log class Infrequent Access offers cost-effective log consolidation for less frequently accessed logs.
  • Meanwhile, Google Cloud introduced Storage Autoclass to simplify the challenge of cost optimization for object storage by helping companies choose the suitable storage class for their data and avoid unexpected cost spikes.
  • CAST AI, which specializes in optimizing the management of IT infrastructure, unveiled a new tool called Automated Workload Rightsizing. The service optimizes Kubernetes workloads for efficiency and better cost management.

• There were limited updates in the industry; AWS continued to dominate the field.
  • Amazon unveiled two serverless innovations in addition to Redshift Serverless during AWS re:Invent in November 2023. First, Amazon Aurora Limitless Database, which automatically scales beyond a single database's write limits, simplifying application scaling. Second, Amazon ElastiCache Serverless, which enables the creation of highly available caches within minutes, auto-scaling vertically and horizontally.  
  • Additionally, Amazon introduced two other notable serverless innovations, including the Vector engine for Amazon OpenSearch Serverless, which provides robust data analysis and management capabilities, and Amazon Redshift with the MaxRPU feature, which improved compute cost control and scalability in Redshift Serverless, enabling dynamic adjustment to workload patterns for enhanced price performance.

• Incumbent product advancements in Edge Computing focused on hardware-related innovations.
  • In the realm of processors, AMD broadened its Ryzen Embedded processor family to cater to high-performance requirements in industrial automation, machine vision, and edge applications. Meanwhile, NVIDIA introduced the NVIDIA HGX H200, which is based on the NVIDIA Hopper architecture, emphasizing enhanced computing capabilities. Intel launched the 5th-Gen Xeon Processors, facilitating the deployment of AI capabilities across cloud, network, and edge use cases. 
  • On the software and hardware fronts, Scale Computing made strides with innovations in its edge computing products, introducing Scale Computing Fleet Manager (SC//Fleet Manager) and the HE100 product family. Siemens is expanding its Industrial Edge ecosystem with new hardware, software, cloud services, more devices, and low-code integration, aiming to bolster its industrial edge offerings.
  • Red Hat launched Red Hat Device Edge, an enterprise-ready platform for resource-constrained device edge environments. It integrated the MicroShift project, used an edge-optimized OS based on Red Hat Enterprise Linux, and included the Red Hat Ansible Automation Platform for simplified device management.

• Among disruptors, the focus of product innovations revolved around edge cloud platforms and high-performance cloud solutions.
  • Under the platform innovations category, IOTech introduced Edge Central, an open-edge data platform; Stratus Technologies launched the Stratus ztC Endurance platform, focusing on sustainable operations; and Edgeworx unveiled the Edgeworx Cloud, an enterprise-grade edge computing platform.
  • StackPath's Dedicated Hosts and NVIDIA GPU-Accelerated Instances provide customers with dedicated resources for improved edge compute performance. Macrometa's PhotonIQ suite enhances digital experiences in various sectors with faster and more efficient edge services. 
  • On the hardware side, Ventana launched Veyron V2, which offers high-performance RISC-V processors, enhancing edge computing capabilities. Meanwhile, SiMa.ai's ML System-on-a-Chip (MLSoC) Development Kit and Palette software accelerate Edge ML model development, enabling rapid proof-of-concept use cases.

Partnerships: Product innovations centered around GenAI also extended into partnerships

Analyst Take: Incumbents predominantly initiated partnerships, focusing on AI-based innovation. Incumbents Google and Microsoft actively positioned their cloud infrastructure to handle the surge in cloud-based AI workloads. Meanwhile, Intel concentrated on optimizing its hardware performance to cater to the industry's rising demands. 

• There were 16 partnerships across the cloud tech space in Q4 2023, with Cloud-native Tech (7) and Edge Computing (8) leading the way. Product collaborations were the goal of all (15) but one partnership.

Notable Cloud Tech partnerships in Q4

Refer Appendix 2 for the full list of notable partnerships in Cloud Tech

Source: Compiled by SPEEDA Edge based on multiple sources

• Incumbents led the way in partnerships, as tech giants Amazon, Google Cloud, IBM, VMware, and Cisco collaborated on products.
  • Amazon expanded Amazon RDS to include IBM's Db2, offering a fully managed Db2 database engine on AWS infrastructure. 
  • VMware and Google Cloud also announced a plan for a PostgreSQL-compatible database solution for both traditional and GenAI applications on the VMware Cloud Foundation, focusing on versatile database solutions.
  • Google Cloud and HashiCorp extended their partnership, advancing product offerings with GenAI and enhancing cloud infrastructure capabilities. 
  • Teleport announced a strategic collaboration with Amazon to simplify infrastructure access, aiming to improve cloud management and operational efficiency.
  • Meanwhile, orchestration and management company Kong formed a joint venture with Japan Cloud to accelerate expansion in Japan. 

• Incumbent-disruptor partnerships (seven) dominated the Edge Computing industry. Notable partnerships included the following:
  • Siemens and AWS collaborated to launch AWS IoT SiteWise Edge on Siemens Industrial Edge Marketplace, aiming to simplify IT/OT convergence. Mangata Networks partnered with Microsoft to develop an AI-enabled edge cloud product connected via satellite. 
  • SiMa.ai joined forces with Supermicro, integrating SiMa.ai’s MLSoC with Supermicro's compact edge server for enhanced ML capabilities at the edge.
  • Netskope and BT partnered to offer Netskope’s secure service edge (SSE) capabilities to BT's global customers. Telstra International and Netskope expanded their partnership to deliver a global secure access service edge (SASE) solution. Meanwhile, Vertiv and Intel collaborated on a liquid cooling solution for Intel's upcoming Gaudi3 AI accelerator, addressing the need for advanced computing infrastructure.

• We did not note any noteworthy partnerships in these industries during the quarter.

M&A: Broadcom’s acquisition of VMware headlined a busy quarter

• Broadcom’s USD 61 billion acquisition of VMware was the highlight. 
  • Broadcom completed its USD 61 billion acquisition of cloud software company VMware. The focus post-acquisition is on enhancing private and hybrid cloud environments, leveraging the synergy between Broadcom's hardware and VMware's software, especially in edge computing. 
• Incumbents Cisco, SAP, and Dell saw notable M&A activity.
  • Cisco announced its intention to acquire Isovalent, a company specializing in cloud-native networking and security, for an undisclosed amount. The acquisition is expected to be closed in the third quarter of Cisco's 2024 fiscal year. Cisco's plan reportedly involves integrating Isovalent’s capabilities into its AI-driven Cisco Security Cloud, focusing on hybrid cloud security.
  • SAP SE completed the acquisition of LeanIX, a leader in enterprise architecture management (EAM). This acquisition was to enhance SAP's transformation suite, helping customers navigate changes and improve business processes. It will provide a foundation for AI-enabled transformation.
  • Dell acquired Israeli cloud management startup Cloudify in a deal estimated at USD 70 million–100 million. The acquisition is part of Dell's strategy to enhance its edge offerings. Cloudify specializes in automating the IT infrastructure setup process, allowing updates across multiple cloud and data center platforms.
• Disruptors were particularly active in making deals to enhance their product offerings.
  • Docker, Inc. acquired AtomicJar, a company known for a cloud service based on the open-source Testcontainers framework. The acquisition, of an undisclosed sum, was to enhance Docker's developer productivity tools. Docker plans to integrate AtomicJar's functional testing capabilities with its existing security testing tool, DockerScout, to provide a more comprehensive development and testing environment.
  • Wiz, a cybersecurity company, acquired Raftt, known for its cloud-native platform for developer collaboration, marking Wiz's first acquisition. The terms of the
  • purchase were not disclosed. This acquisition was part of Wiz's strategy to enhance its platform, making it more attractive and functional for both security and development teams.
  • Grafana Labs, known for its observability platform, acquired Asserts.ai, a technology designed to assist users in understanding their observability data. The terms of the acquisition were not disclosed. Grafana plans to integrate Asserts.ai’s technology to extend observability into the application layer and provide more contextualized analytics.
  • Vertiv, a provider of critical digital infrastructure solutions, announced the acquisition of CoolTera Ltd., a UK-based company specializing in liquid cooling infrastructure for data centers. This acquisition enhances Vertiv's thermal management portfolio, especially in high-density cooling solutions vital for AI at scale. CoolTera's expertise in engineering and customer service in liquid cooling technologies will bolster Vertiv's capabilities in supporting global data center customers and AI deployment.

Funding: Modest year for cloud tech ends with funding surge

Analyst Take: Cloud tech companies (in all industries except Serverless Computing) experienced a rebound in funding in Q4, with increases in both the amount of funds raised and the number of funding rounds, despite an overall decline in VC investments. Particularly noteworthy was the focus on growth-stage companies, with DataBank (USD 533 million), ScyllaDB (USD 43 million), and Pulumi (USD 41 million) securing funds. Despite the improvement during the quarter, total funds raised in 2023 (USD 3.3 billion) severely lagged the highs of 2022 (USD 6.6 billion) and 2021 (USD 5.5 billion). The 2021 and 2022 VC funding surge was driven by pandemic-induced digital transformation (cloud migration), low interest rates, and increased global liquidity. New technologies and globalized venture capital also contributed. The 2023 slowdown reflects market adjustment, economic factors, changing sentiment, and re-evaluated investment strategies in a shifting global landscape.

Cloud Tech Q4 2023 funding summary

• Cloud tech companies raised USD 919.0 million across 18 funding rounds in Q4 2023 (+64.6% YoY and +40.9% QoQ). Investments in Edge Computing continued to dominate (73.7% of total cloud tech funds raised), largely in line with historical trends (a ~65% share of total cloud tech funding on average across the past eight quarters), mainly due to the industry’s capital-heavy nature (data centers).

• Edge Computing and Cloud-native Tech led the funding landscape, securing USD 677 million (+47.5% QoQ) across five funding rounds and USD 223 million (+450.3% QoQ) across nine funding rounds, respectively. The Cloud Optimization Tools industry posted a slight recovery, raising USD 57 million across three rounds, following the zero-funded Q3 2023, but remained significantly off from the 2022 levels. Meanwhile, funding for the Serverless Computing industry was down both QoQ (68.5%) and YoY (34.7%), raising USD 48 million across three rounds.

• The average funding round size (USD 51.0 million) saw a substantial 82.9% YoY increase in Q4 2023 but was down 6.0% QoQ. Meanwhile, there was a small increase YoY (1.0%) and QoQ (3.9%) in the median funding round size to USD 21.3 million. This was broadly in line with the median funding round sizes across the previous eight quarters (USD 21.0 million). The median size normalizes the influence of large funding rounds, such as EdgeConneX (USD 1.7 billion) and Databank (USD 1.5 billion) in Q3 2022.

• Growth-stage funding remained dominant (~71% of all funds raised), with seven funding rounds (Series C or later) in Q4 2023, averaging USD 90 million in size. The growth funding received in Q4 2023 was significantly higher than the previous quarter and even larger compared with the same period in 2022.
• The majority of these growth-stage funding rounds, five in total, were from the Cloud-native Tech industry, while the remaining growth-stage rounds (two) were from Edge Computing. 

• Funding for the Edge Computing industry rose significantly, with a 152.0% increase YoY and a 47.5% increase QoQ, raising USD 677 million across six funding rounds. Funds raised across all stages were higher (QoQ) during Q4 2023.
• The industry's median funding round size experienced a notable increase compared with the previous quarter, rising from USD 49.0 million to USD 66.0 million, significantly higher than the median funding round size across the previous eight quarters (USD 27 million). The quarter was characterized by large venture funding (USD 188 million) and debt funding (USD 345.0 million) rounds by Databank. Other noteworthy deals included Armada with USD 55.0 million and Edgio with USD 66.0 million.

• Funding for the Cloud-native Tech industry saw a substantial increase, with a 189.4% increase YoY and a 450.6% increase QoQ, raising USD 223 million across nine funding rounds. Funds raised across all stages were higher (QoQ) during Q4 2023, with a substantial rise in growth funding (USD 143 million or 64.2% of Cloud-native Tech funding).
• The median funding round size experienced a notable increase compared with the previous quarter, rising from USD 3.1 million to USD 17.0 million, but was significantly lower than the median funding round size across the previous eight quarters (USD 23.75 million). Notable funding rounds included USD 43.0 million raised by ScyllaDB, USD 39 million in mixed funds raised by Graylog, and USD 23 million in mixed funds raised by Kloudfuse.

• There was a substantial drop in funding, with a 34.7% fall YoY and a 68.5% decline QoQ, raising USD 48 million across two funding rounds. There was no early-stage funding during the quarter, in contrast to Q3 2023 (USD 149.5 million) and Q4 2022 (USD 35 million). 
• Its two funding rounds were Pulumi securing USD 41.0 million and Koyeb obtaining USD 7.0 million.

• It was a mixed quarter in terms of funding, raising USD 48 million. This was notably high compared with the funding shortage in Q3 2023, but it marked a 59.3% decrease YoY. Funding was limited to early and other funding stages; it is worth noting that there has been no growth-stage funding in the industry since Q2 2022.
• In Q4 2023, the median funding round size for Cloud Optimization Tools was USD 12.0 million, an increase from USD 4.3 million in Q2 2023. This was also higher than the median funding round size across the previous eight quarters (USD 9.75 million). Notable funding rounds included USD 12.0 million raised by Ternary and USD 35 million raised by CAST AI.

Appendix

Appendix 1: Cloud Tech product updates

Appendix 2: Cloud Tech partnerships

Appendix 3: New Cloud Tech startups added in Q4 2023

Appendix 4: Cloud Tech funding rounds in Q4 2023