CIOs want to know that they're betting on a winner, but they might already have enough data for Microsoft Azure without getting revenue numbers, too.
Microsoft is, by all estimates, a serious, up-and-coming challenger to AWS in the cloud wars. Or so we think. None of us actually knows because Microsoft, yet again, has failed to break out its Azure revenues, preferring instead to obscure Azure results by combining them in the much (much) bigger Office 365 cloud revenue. Some will argue that it doesn't matter, that "Other than horse race people, nobody cares." But it does matter, because it helps to justify enterprise investments in Azure. No one wants to cloud alone.
SEE: Microsoft Azure: An insider's guide (free PDF) (TechRepublic)
So what did Microsoft announce?
Not much. In its earnings report, Microsoft gave out just one revenue-related number for Azure: 73%. That's the growth rate. If you're wondering what that growth actually represents (73% growth on $1 in revenue? $1 billion in revenue? $10 billion?), well, you're out of luck. Microsoft buries its Azure revenues in a much larger pile of "Commercial Cloud" revenues that include Office 365 (which revenues, by the way, are doing swimmingly).
We know that Azure was growing at 98% a year ago, and that its growth rate keeps going down each quarter. This is normal. As revenue numbers get bigger, sustaining the same growth rate is basically impossible (unless you're AWS, which has kept growth above 40% despite now hitting a nearly $31 billion run-rate).
But what is the Azure number? While no one outside Microsoft knows, and the company seems content to keep them not knowing, analysts being analysts, they think they know. Hence we hear Stifel analysts argue that Azure revenue is "growing faster than AWS was at a similar size," despite the fact that Stifel analysts don't actually know what "size" Azure is, nor do they know what rate AWS was growing "at a similar size" because for the first nine years of its existence, Amazon didn't break out AWS numbers.
SEE: Cloud migration decision tool (Tech Pro Research)
We do know that Azure customers are mostly renewing their contracts, because Microsoft CFO Amy Hood mentioned this on the earnings call. Indeed, Hood stressed that Azure has seen a continued increase in the number of larger, long-term contracts, consistent with last quarter. We also know that Azure, once a drag on Microsoft's gross margin, is now contributing to gross margin improvements, with "significant improvement in Azure gross margin" yielding five points to take overall Commercial Cloud gross margin to 63%. Why does this matter to would-be tech buyers? Because those margin improvements derive from Microsoft improving hardware efficiencies, among other things, making it an even better cloud upon which to build.
Does it matter?
This brings us back to peer pressure. Or herd mentality. Or whatever negative or positive way you want to express the reality that CIOs (and developers) prefer to rally around a winner. This is the reason that Microsoft doesn't reveal Azure numbers, but also the reason to believe that the company will announce them as soon as possible. As Corey Quinn has suggested, revealing current numbers would likely show how wide the chasm is between AWS and Azure. Give it a few quarters, however, and the Azure numbers will likely show the company gaining as a real force.
SEE: Vendor comparison: Microsoft Azure, Amazon AWS, and Google Cloud (Tech Pro Research)
In the meantime, we wait. But it's not as if we wait without hints of the good things to come for Azure. When Credit Suisse polled IT executives as to which vendors will see the biggest increased spending over the next year, Microsoft topped that list by a healthy margin. (Seventy-four percent surveyed said that Microsoft will see the big increases in their spending.) Second on the list? AWS, with 62% of IT executives saying the cloud giant will see the biggest increase in spending.
As such, it's safe to assume that CIOs and developers already feel they're not alone in betting on Microsoft Azure. When those bets tally to revenue that nears AWS' largesse, it's a sure thing that Microsoft will start shouting its success from the rooftops. Why? Because that's what the winners in a market tend to do.
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