If there’s one big lesson from a week of cloud-related earnings calls, it’s that the cloud computing market is on fire, and everyone is benefiting. “Everyone,” that is, if your name is Amazon Web Services (AWS), Microsoft, Google, or Alibaba. Each of these vendors mentioned hiring technical and sales resources to support their rapidly growing businesses, with Google CEO Sundar Pichai the most forthcoming, indicating that “the most sizable headcount additions were once again made in cloud for both technical [engineers and product managers] and sales roles.”
For everyone else, well, it may already be too late to compete, as recent Gartner data suggests. Oracle, probably first among the chasing pack, mustered a mere 20% growth on a tiny base, lumping it into Gartner’s “Other” category, well off the pace of the leaders.
Given the frenetic competition at the top of the heap, what, exactly, did we learn about the particular clouds?
Google has largely eschewed the opportunity to market a “run like Google” message, figuring it might scare off mainstream enterprises. No more. On Google’s earnings call, Pichai talked up how Google is taking its internal “state-of-the-art” machine learning and “get[ting] it to everyone.” Coupled with this, Google is finally seeing its efforts to make Google Cloud Platform (GCP) more enterprise-ready pay off, with “the number of deals worth over a $1 million across all cloud products more than [tripling] from 2016 to 2017.”
Of course, this also includes G Suite, which continues to be one of the problems with how Google reports its numbers: Google (and Microsoft) keep blending different businesses together to come up with a total cloud number. This makes it hard to do apples-to-apples comparisons between cloud vendors. GCP chief Diane Greene lamented that people have been “grossly underestimating” GCP’s revenue, suggesting that this was the reason the company finally put a number on its cloud business: $1 billion each quarter.
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She can complain all she wants, but the $1 billion number clarifies exactly nothing for those who want to get a read on the company’s GCP business. G Suite is a more mature product and likely accounts for the majority of Google’s cloud revenue.
Even so, Pichai said he “believes” that GCP “is the fastest growing major public cloud provider in the world,” but he didn’t provide any detail to verify this claim. Note that Gartner’s 2016 data actually has Alibaba outpacing GCP growth, though GCP is growing faster than Microsoft Azure or AWS by Gartner estimates.
Pichai is probably wrong in this claim, though not by much. While Alibaba didn’t talk much about its cloud business (mentioned just nine times), the company did mention that its cloud business grew 104% in the quarter to $522 million. As for where it’s focusing, the company stated it wants to expand its leading position in China.
Microsoft talked up its machine learning and artificial intelligence (A) capabilities, but even more than this its rallying cry seems to be hybrid cloud, which was mentioned multiple times on its earnings call (Google, Alibaba, and AWS combined to have exactly zero mentions of hybrid cloud on their respective calls). This approach is paying dividends: Though Microsoft, like Google, refuses to break out Azure revenue, the company did say its growth rate accelerated in the quarter to 98% growth year-over-year.
As with Google, Microsoft indicated growing strength in its cloud business. One way to get at this is through the increase in multi-year customer commitments to Azure that the company called out. Other signs of strength? Microsoft said “Azure again saw the most significant margin improvement this quarter” across its cloud products, suggesting that the cost of growing this business is going down even as interest goes up. Margin is also buoyed up by Azure premium services revenue growing more than 100% for the fourteenth consecutive quarter. Finally, one particular note of interest: Though the US is Azure’s top market, for IoT applications Microsoft is seeing advanced demand in Germany and Japan.
Amazon Web Services
And then there’s AWS, the reigning royalty in the cloud. Given that AWS is all that would-be contenders like Oracle can talk about at their various events, it’s ironic just how little Amazon talked about its “little” $20 billion business. In fact, Amazon talked less about its cloud business than any of its competitors, including Microsoft and Google. AWS was mentioned 17 times on the Amazon earnings call (not a whole lot more than its burgeoning advertising business, which was mentioned 13 times), compared to Azure getting mentioned 44 times on Microsoft’s and Google talking about GCP 28 times.
Again, this is ironic given that AWS is the gift that keeps on giving to Amazon, with AWS accelerating growth over the previous quarter to 45% (from 42%), putting the business at a $20 billion run rate, while also expanding operating margins by 100 basis points. On an annualized basis, AWS generates $5 billion in profit, or nearly all of Amazon’s operating income.
What’s driving the uptick in growth? While revenue growth is moving at a fast clip, Amazon’s CFO called out AWS’ “strong usage growth” as growing faster than revenue growth as “customers continue to add workloads and expand.” This suggests enterprises are investing more and more with AWS. This stems, in part, from AWS giving them more to invest in. The company added 1,400 new services and features in 2017. Innovation, in short, keeps fueling the AWS engine.
But, again, AWS isn’t the only cloud business that’s growing: It’s just the biggest, with no one else getting close yet. Given the opportunity, it’s perhaps not surprising just how much each of the big clouds is hiring like crazy. Amazon’s finance chief said AWS “continu[es] to again build on our tech teams and our sales teams” to drive adoption. Microsoft, for its part, was much the same: “We’ve been investing here both in engineering to land the differentiation that Satya just talked about in sales resources and then continuing to invest in technical sales resources that can help our customers be successful in these deployments.” And Google, as mentioned above, called out its cloud business as the top spot for headcount additions.
We are in the midst of a cloudy Gold Rush. Amazon is taking home the biggest treasure chest to date, and that doesn’t seem like it’s going to change anytime soon. But it’s worth noting that Microsoft, Google, and Alibaba also keep booming. The cloudy rich, in sum, keep getting richer, pulling market share from the also rans, but not yet taking much from AWS.