Amazon Web Services (AWS), Microsoft and Google Cloud are dominant players in the cloud industry. But who comes out on top?
According to Synergy Research, the three companies now operate half of the world’s 600 hyperscale data centres.
Competition is fierce between them, particularly AWS and Microsoft. That rivalry intensified after the Pentagon ripped up its $10bn JEDI contract with Microsoft following years of litigation by AWS, which argued it had not been treated fairly by the Trump administration during the procurement process.
It’s clear to see why the tech giants have invested so heavily in cloud services. GlobalData forecasts estimate that the data centre market was worth $466bn in 2020 and that it will grow at a compound annual growth rate of 6.7% over the next decade to be worth $948bn by 2030.
Of course, cloud isn’t just data centres. Along with infrastructure as a service (IaaS), the term ‘cloud’ encompasses platform as a service (PaaS) and software as a service (SaaS).
Microsoft, AWS and Google all provide services in each of these subsets. But due to the sometimes opaque reporting techniques employed by the tech giants, making direct comparisons can be tricky.
When it comes to IaaS, research firm Canalysis found that AWS comes out on top, accounting for 31% of the market. Azure came in second with a 22% share while Google came in third to scoop up 8% of all cloud infrastructure spend.
In the most recent quarter, covering the three months to the end of June 2021, Microsoft was the largest cloud company by revenue. However, as we explain below it is a little more complicated than making a straight comparison due to the way it bundles in other services to its cloud segment.
But what is clear is that the cloud is becoming increasingly important to Microsoft’s business as a whole and accounts for a greater proportion of overall revenue than each of its rivals. Analysis by GlobalData’s thematic scorecards supports this, ranking Microsoft number one followed by AWS and Google Cloud.
Here’s Verdict’s breakdown of the cloud providers’ latest results.
Cloud revenue: $17.4bn
Cloud YoY revenue change: +30%
Cloud as a proportion of total revenue: 37.6%
Microsoft’s fourth-quarter results show once again that cloud is the fastest growing area for the tech giant, with revenues jumping by 30% year on year. It is also the largest source of revenue for the Redmond-headquartered company, trumping its two other segments – Productivity and Business Processes and Personal Computing – and accounting for 37.6% of total revenue.
In fact, at 30% year-on-year growth cloud revenue is outpacing overall growth at Microsoft (21%).
The key driver behind this growth is Azure, Microsoft’s golden egg that includes SaaS, PaaS and IaaS offerings. Azure revenues soared by 51% compared to the same quarter a year ago.
All things cloud at Microsoft are grouped under its “Intelligent Cloud” segment. Server products such as Azure and SQL Server, along with services such as Visual Studio and System Center all fall under this broad bracket.
Microsoft doesn’t break down revenues within Intelligent Cloud, which also includes consulting and enterprise services and developer platform GitHub. This makes it tricky to make a complete like-for-like comparison with its rivals, but Microsoft does provide some more granular revenue growth figures. Combined, server products and cloud services saw revenues increase by 33% year on year.
Further demonstrating Microsoft’s flexible definitions of cloud, the company said its “commercial cloud” revenue stood at $19.5bn this quarter. When asked for clarification of this term, Microsoft said it’s not a reporting segment but rather a term that includes “Office 365 commercial, Azure, Dynamics 365, the commercial portion of LinkedIn and other cloud properties”.
Blurred definitions or not, the results are a continuation of a two-year trend at Microsoft in which the company is making more and more money from cloud, while growth in personal computing falters.
Haris Anwar, senior analyst at uk.Investing.com, said Microsoft’s cloud business is showing “powerful momentum as companies switch to cloud computing”.
Microsoft is reaping the reward of its investments, much of it on cloud infrastructure. In the latest quarter it continued to build new data centres and in June added a new data centre region in Arizona, known as “West US 3”.
This expansion is set to continue, with Microsoft pledging to build 50 to 100 new data centres each year “for the foreseeable future” as it expands its Azure cloud footprint across the corners of the Earth. More data centres mean shorter distances for data packets to travel along undersea internet cables, which ultimately means lower latency for Azure customers.
As a further signal of its intent, Microsoft plans to invest $1bn over the next five years to build a new data centre in Malaysia.
Infrastructure is only part of the story when it comes to cloud. New software, services and features are required to lure over customers. Microsoft rolled out a swathe of new cloud products this quarter, including Azure Defender to provide security alerts; Azure Cosmos DB serverless to charge customers only for the resources their database operations consume; and tools to simplify Kubernetes cluster deployments, among others.
“With the shift to cloud still in its infancy, the market is set to see revenues continue to grow,” said Dan Davies, CTO at Maintel. “Microsoft is perfectly positioned, with its Azure and Office 365 offerings, to capitalise on this.”
But does Intelligent Cloud surpassing AWS’ revenue once again mean Microsoft can take the top spot in the cloud wars? Amy DeCarlo, principal analyst for security and data centre services at GlobalData doesn’t think so. She said that Microsoft including revenues from additional services within the Intelligent Cloud segment it skews the picture and in her view AWS remains in the top spot.
Cloud revenue: $14.81bn
Cloud YoY revenue change: +37%
Cloud as a proportion of total revenue: 13%
AWS has benefited from a first-mover advantage ever since it launched in 2006. It continues to profit from this today, bringing in $4.19bn in operating income for the three months ended 30 June.
Where Microsoft blurs the lines within its cloud segment, Amazon has an entirely separate cloud computing subsidiary that makes it much easier to keep track of its performance. AWS’ $14.81bn in revenue is, while lower than Microsoft’s Intelligent Cloud segment, directly from cloud-related activities. Of course, this isn’t limited to IaaS and PaaS – AWS also provides a suite of software tools to its customers.
At 13%, cloud contributed nearly three times less to the proportion of overall revenue at Amazon compared to the same metric at Microsoft. This is in large part due to the sheer scale of Amazon’s primary ecommerce business, which helped the Jeff Bezos-founded company bring in a total of $113bn compared with Microsoft’s $46bn. Perhaps more notable, though, is that AWS contributed 54% of Amazon’s total operating income.
In other words, cloud has become a core part of Microsoft’s business while for Amazon it is an additional revenue flow – albeit an extremely lucrative one.
Despite some slowdown in growth from the 40-50% rate it enjoyed a couple of years ago, growth remains healthy at 37% in its most recent quarter.
This has in part been bolstered by the pandemic accelerating digital transformation, including the move to the cloud. But AWS has continued to provide more value for its customers, including the expansion its cloud infrastructure. In May, it unveiled plans to build three new data centres in the UAE that will come online in 2022, and another region in Israel in 2023. It also plans to invest $3.04bn in new data centres in Spain.
In total, AWS now has 81 Availability Zones across 25 geographic regions – and there are plans for 21 more zones on the way.
During the quarter, AWS continued to snap up high-profile customers, including telecoms company Swisscom, luxury sports car maker Ferrari and the National Hockey League, among others.
The variety here reflects a broader trend – businesses of all shapes and sizes across multiple sectors are continuing to embrace the cloud. In turn, this means plenty more business for the likes of AWS to win.
Partnerships are important to AWS, making its cloud services the default choice in some cases through integrations. In Q2 it deepened its partnership with Salesforce to provide more integrations.
AWS is still considered by some to be the market leader in the cloud industry.
“Will it always be this way? Probably not, but for now I think AWS’ position is pretty secure,” said DeCarlo.
Cloud revenue: $4.63bn
Cloud as a proportion of total revenue: 7.5%
Cloud revenue growth: 54%
At 54% year-on-year growth, Google Cloud is the fastest growing of the three companies – albeit from a much lower base.
But with cloud accounting for just 7.5% of Alphabet’s revenue, it clearly reamains a search and advertising company first and foremost and there is no sign of that changing any time soon.
Despite launching in 2008 – just two years after AWS – Google Cloud continues to run at a loss. However, there were encouraging signs in its second-quarter results as it trimmed operating losses to $591m, a notable improvement on the $1.43bn haemorrhaged by the segment this time last year.
The segment includes its infrastructure, data and analytics platforms, along with collaboration tools such as Google Workspace. While Google Cloud does provide some IaaS, its primary revenues are from PaaS.
According to December figures, Google Cloud has 73 data Availability Zones across 24 regions.
Google has plans to expand into the following regions: Santiago, Chile; Doha, Qatar; Paris, France; Milan, Italy; Madrid, Spain; Turin, Italy.
“Google Cloud is back up to pre-pandemic growth rates, with revenue up 54% over the year, ahead of market growth, and with a number of marquee customers signing during the quarter,” said Martin Garner, COO, CCS Insight.
“Losses improved, though the division is clearly still early in a major investment phase as it tries to gain on the bigger competitors. Google Cloud is positioned mainly on its strengths in security, AI and machine learning, as well as Workspace and – like other cloud providers – it is increasingly pushing vertical solutions to address the needs of key sectors better.”
Perhaps the biggest question is can Google Cloud ever catch up with its rivals?
“I think Google will improve its position, but I don’t see it ever being able to overtake Microsoft or AWS, at least not in the next five years,” said DeCarlo. “It got a very late start in the enterprise market and had a poor initial partner and sales strategy. It has improved on the latter issues, but it has never made up the ground lost initially.”