Last month saw a number of number of the tech giants provide their most recent quarterly earnings. For both Amazon and Microsoft, their cloud activities gained a lot of headlines and column-inches in both the technical and business press. Although adopting different growth and technology strategy, their cloud computing offerings represent a significant engine of growth going forward, and is becoming an area of ever-more intense competition. Here we take a brief look at how they compare and what the outlook is.
After many years of obfuscation, Amazon finally disclosed the financials of AWS, its cloud business and they are striking. Representing $1.56 billion revenue for the quarter, the growth rate of the business is approximately 50%/year increasing from $4.6 billion in 2014 to reach $6.2 billion in 2015. Moreover, unlike the rest of the Amazon online retail operations, this is at a fairly healthy operating margin of 17%. This growth rate highlights the success of Amazon’s business and also gives some insight into the extent of rapid roll-out of infrastructure necessary to support this growth. What is interesting is that Amazon had approximately 1.4m servers at the end of 2014, meaning a revenue of $3,317 per server per year.
It is impossible to exaggerate the impact Amazon has had on the entire tech industry. The scalable, cost efficient infrastructure offered by Amazon has greatly reduced the risk for new business models, allowing startups to experiment with new services with little infrastructure outlay. It is therefore no surprise, that some of the more innovative services to emerge from Silicon Valley, including DropBox, Netfix, AirBnB and Pinterest have done so off the back of AWS. Over the past few years, the AWS offering has expanded to span the whole “as a Service” spectrum, including Platform, Infrastructure and Software. They include the EC2 Elastic Compute cloud, effectively a hosted infrastructure service, a whole host of storage solutions, the CloudFront and CloudWatch content delivery services, a range of database, networking, analytics, operations and deployment services as well as its enterprise offerings Workspaces and WorkDocs. For a summary of these services, look here.
Microsoft announced its earnings on the same day, but was not as candid as Amazon on the performance of Azure, its cloud proposition. In an earnings report that beat analysts’ expectations, Microsoft announced that its cloud business now represents $6.3 billion revenue, an increase of a rather astonishing 106% over the past year. Although Microsoft Azure’s cloud platform is a direct competitor of AWS, a significant proportion of its revenues are driven through its enterprise software solutions such as Office 365 (also a strong consumer offering) and its Dynamics CRM solution. Like AWS, the Microsoft data center estate is powered by in excess of 1 million servers. However, unlike Amazon, the Microsoft cloud offering is largely focusing on its Platform and Software service elements, including its vast array of enterprise services, advanced analytics, machine learning services, and most recently, a comprehensive platform for the Internet of Things. This strategy is very similar to IBM’s approach, which involves creating a vast array of data and analytics offerings within its BlueMix Platform-as-a-Service proposition.
So how do they compare?
In terms of market share and revenue, Synergy Research Group puts cloud infrastructure revenue (Infrastructure, Platform and Hybrid) of the top five players at around $12 billion / year, of which Amazon represents as much revenue as the next four players combined, giving it a clear lead in terms of scale.
This is reflected in the leading position given AWS by Gartner in its Infrastructure as a Service Magic quadrant, though Microsoft is hot on its heels. However, the demand its infrastructure may be taking its toll on the AWS performance, as a recent benchmarking exercise by cloud startup Nasuni shows Azure having a significant edge across most performance and reliability metrics.
So what does the future hold? It’s worth taking a step back and consider how we have got to the point where Amazon and Microsoft are battling on the same turf for the crown of cloud supremacy. Amazon’s journey started by realising that the vast, scalable infrastructure it built to support its online retail empire could itself be offered to other companies. Microsoft, on the other hand, resorted to cloud services in response to the existential threat posed to its business by the decline in the PC market which has long sustained its Windows and Office cash cows. These different heritages are reflected in the differing competitive strategies, which are both successful. While Amazon is exploiting its scale to provide the biggest, most efficient infrastructure service, Microsoft is focusing on platform services, upon which it aims to provide greater differentiation, and consequently larger margins. These strategies are working well for both companies, and it is likely that these two companies will continue to lead the field, with only IBM and Google having the scale of ambition, commitment or resources to join this quartet at the peak of the Cloud world. The one joker in the pack is Apple. Just as it opened up its proprietary phone operating system to launch the fabulously successful app ecosystem, it may well be capable of doing the same in cloud space. Whether it wishes to do so is a completely different question though.