AWS may have had a 7-year head start in the cloud, but now it has real competition. Why that’s a good thing.
Tree. Tree. Tree. That’s the sound of Google (Alphabet), Microsoft and Amazon reporting their earnings last week and especially their cloud earnings, which were all big. If I had to say it, I’d just write “a huge amount of money is being spent on cloud computing.” Or maybe I would point out Jordan Novet excellent map, which shows the relative growth rates of the major cloud vendors over time. Some might look at all this cloud money and think, “This can’t be good for AWS,” because the once undisputed cloud leader now has real competition.
But the fact that other clouds are doing well is actually good for AWS, not bad. This is why.
Big and getting bigger
First the numbers. Well, as close to the numbers as we can get, because only AWS breaks its revenue cleanly. To be fair, this is not entirely true. While Microsoft and Google cloud their cloud revenues with things like Office 365 and Google Apps revenues, AWS also includes such revenues in the total number… but has relatively little to cloud the total. It’s not really Microsoft and Google’s fault that they have significant other sources of cloud revenue, although arguably it’s their fault that they have delayed investing in infrastructure-as-a-service as AWS has several years to spare. had to build momentum.
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The numbers anyway. They are big.
- AWS generated $18.4 billion in revenue and quarterly revenue, growing 37% and running at $74 billion;
- Microsoft’s Intelligent Cloud segment, which includes Azure, SQL Server, Windows Server, and enterprise services, saw revenue of $19.05 billion, with Azure growing 46% (no idea run rate as Microsoft Azure isn’t breaking out) , and some of the cloud services don’t all seem to be cloud-like like Windows Server…); and
- Google Cloud (which also includes Google Workspace) earned $5.82 billion in cloud revenue, growing 44% and running at $23 billion.
AWS tends not to give much detail in its earnings calls, although it did say it has spent about $24 billion in capital expenditures “primarily” on AWS (think data centers). Charles Fitzgerald keeps tabs on the CapEx spending of the clouds and let’s say each of the big three spends “a lot”. AWS also reported that long-term contracts for AWS were up 66%, with a balance of $88.9 billion. Meanwhile, Microsoft CEO Satya Nadella was pleased to announce that the number of $100 million Azure deals had doubled that quarter. (Of course, this could mean there had been one deal, but now it was two, or it could mean there were 10 and now 20. No details were offered.) Google didn’t add much color to its cloud revenues this time around. .
Huge numbers everywhere, and spending gobs of money just to keep that money flowing in.
But I said back in 2019: As much as we want to score on current cloud revenue or market share, the real focus must be on the future. Public cloud is still a drop in the ocean of IT spending: about 6% of the total pie. It grows, yes, and grows fast, doubly yes. But most IT spending tends to remain rooted in private data centers. Aspirations, everything is in the cloud. Realistically, though, it’s still on solid ground.
That’s why it’s good for AWS that every major cloud has growth.
A market of one?
As good as it was for AWS to have an edge in the cloud market, there’s no point in having one. That is not interesting for customers and frankly not for the seller.
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In the beginning, once AWS was sold to early adopters, it took a lot of hard work to get mainstream enterprises into the cloud. AWS has done a great job bringing in these customers, but guess who else has more credibility with this crowd? Microsoft. Historically, as Piper Jaffray and other studies suggest, Microsoft has been the supplier of enterprises”most important‘ or ‘most indispensable’ for CIOs. I have not seen more recent data than 2016and would assume that AWS has steadily risen in CIO esteem, but it remains true that with the introduction of Azure, Microsoft has helped many IT executives overcome their cloud inhibitions.
It’s also true that Google, a relative newcomer to the business, is helping those same IT executives envision new frontiers for innovation in data science and more. While Google isn’t the only cloud to deliver great machine learning/artificial intelligence/data science services, Google is unique in the way it does some of its best technology to make its ways industry standard, as Brookings Institute colleague Alex Engler has done written† I’m sure some of my former AWS colleagues would argue that AWS services could somehow be better, but that’s not the point: to win over more enterprises, it’s better to have a community that presents new, innovative approaches to business, rather than just one.
Like then CEO of AWS (and current CEO of Amazon) Andy Jassy reminisced in 2017“I don’t think in our wildest dreams we ever thought we’d have a six to seven year head start” in cloud. That lead, and the existing lead, almost certainly felt and feels right. But to keep AWS customer-obsessed, it needed competitors that would help it grow and improve the market. Now we have, and it’s just as good for AWS as it is for Microsoft, Google, Alibaba, and more.
Disclosure: I work for MongoDB (and used to work for AWS), but the opinions expressed herein are only mine†