Every cloud vendor is targeting AWS, but they don't seem to be landing any blows. Does it matter, given the low-hanging fruit elsewhere in the market?
The cloud natives are getting restless. After years of Amazon Web Services (AWS) domination, rival cloud providers are finally putting up real resistance, with Microsoft, Alibaba, and Google each reporting roughly 100% revenue growth in their respective earnings reports. AWS, operating at much higher scale (roughly $20 billion run rate), reported 45% growth, a tick up from its last quarter of 42% growth.
In other words, the cloudy rich keep getting richer, dropping the also rans off the pace line. But AWS is getting richest of all, and there still doesn't seem to be a sign of that changing anytime soon. Even so, the market is expanding at such a rate that the big cloud vendors seem to have no impediments to grow massive businesses, even if it's not at AWS's expense.
Let's hide the budget ball
According to KeyBanc analysis, AWS is dropping market share even as Microsoft Azure and Google Cloud gain. By its estimates, AWS slipped six percentage points, from 68% market share in Q3 2016 to 62% in Q3 2017. In the same period, Microsoft Azure climbed from 16% to 20%, while Google moved up to 10% from 12%. Good for them, bad for AWS, right?
For one thing, not everyone comes up with the same market share data. Gartner, for example, shows AWS increasing share over the same period of time that KeyBanc has it falling. It's not surprising that they'd differ, as getting at the real revenue data is impossible. Of the major cloud vendors, only AWS breaks out its actual IaaS/PaaS revenues. Microsoft and Google bury theirs in larger catch-all categories, so estimates as to actual revenue are just that: Guesses. AWS may have lost market share to its competitors, but we don't actually know for certain.
SEE: Cloud migration decision tool (Tech Pro Research)
Google CEO Sundar Pichai says Google's cloud revenue now tops $1 billion each quarter, but that "cloud" number includes G Suite, which almost certainly makes up the majority. That $1 billion number was a first for Google and was reported, in Google Cloud chief Diane Greene's words, because people were "grossly underestimating" its cloud revenue and it's "proud" of the number. If it's so proud, maybe it should report the number standalone rather than hiding it.
By adding together Google's G Suite and Google Cloud revenues into one big $1 billion number, Google clarified exactly nothing. Estimates for G Suite revenue run as low as $100 million each quarter (back in 2015) to $1.5 billion each quarter (tallied in 2017). Is the real number closer to $100 million or $1 billion? No one knows, though Gartner pegged total Google Cloud revenue at $500 million in 2016, which Google doubled in 2017. So that would mean roughly $250-300 million of its total cloud revenue could be for Google Cloud. If so, that's great, but it would be even better if Google offered real clarity instead of fake clarity.
Not that Microsoft is any better in its reporting. Microsoft's Intelligent Cloud business includes infrastructure, productivity, and other business services. Most of the $5.3 billion it booked is not the kind of cloud revenue AWS generates.
Predator or prey?
Even though it's true that the other big clouds are growing revenue faster than AWS, they're doing so on much, much smaller bases. As Dremio CMO Kelly Stirman styled it: "Running 100% further when you're at 2 miles is a lot easier than when you're at 20." Over time, the growth rates for every big cloud vendor have fallen, as CNBC's Jordan Novet illustrated in a tweet. Not only is it easier to generate outsized growth rates on smaller revenue bases, but it also doesn't mean these companies are catching up with the leader.
SEE: All of Amazon's 2017 operating income comes from AWS (ZDNet)
It's far more likely that Microsoft, Google, and Alibaba are taking share from IBM, Oracle, Rackspace, and other second-tier clouds than from AWS. As the cloud market has revved up, a clear demarcation has emerged between the cloud-haves and the cloud-have nots. A vast wasteland now separates them, such that "second-tier" is actually too generous—as Gartner's data indicates, everyone except Rackspace is a rounding error besides AWS, Microsoft, Google, and Alibaba.
Which is unfortunate, really, because the opportunity is massive. Amazon now pays for almost its entire business with the profits from AWS. Microsoft is being reborn through Azure. Google and Alibaba, though still a small part of their parent companies' overall businesses, represent diversification and momentum that each company needs. AWS remains the undisputed leader, and a still relatively unchallenged one. But for each of these big-four cloud giants, they're so far able to win, and win big in every case, by marauding the also-rans for market share. Eventually they'll collide in serious ways, but for now growth opportunities are legion...if you're one of the dominant vendors.
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