AWS may have had a 7-year head start in cloud, but now it has real competition. Why that’s a good thing.
Boom. Boom. Boom. That’s the sound of Google (Alphabet), Microsoft and Amazon reporting their earnings this past week and, specifically, their cloud earnings, all of which were big. If I had to tl;dr it, I’d just write “there is a huge amount of money being spent on cloud computing.” Or maybe I’d point to Jordan Novet’s excellent chart, showing 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. Here’s why.
Big and getting bigger
First, the numbers. Well, as close to the numbers as we can get, because only AWS cleanly breaks out its revenue. To be fair, this isn’t quite true. While Microsoft and Google muddy their cloud revenue with things like Office 365 and Google Apps revenues, AWS also includes such revenue in its overall number … but has comparatively little to muddy the total with. It’s not really Microsoft’s and Google’s fault that they have significant other sources of cloud revenue, though it arguably is their fault that they delayed investing in infrastructure-as-a-service, given AWS several years to build up momentum.
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At any rate, the numbers. They’re big.
- AWS generated $18.4 billion in (quarterly) revenue, growing 37% and representing a $74 billion run-rate;
- Microsoft’s Intelligent Cloud segment, which includes Azure, SQL Server, Windows Server, and enterprise services, saw $19.05 billion in revenue, with Azure growing 46% (no idea of run-rate because Microsoft doesn’t break out Azure, and some of the cloud services don’t seem to be all cloud like Windows Server…); and
- Google Cloud (which also includes Google Workspace) earned $5.82 billion in cloud revenue, growing 44% and representing a $23 billion run-rate.
AWS tends not to offer much detail in its earnings calls, though it did say it spent roughly $24 billion in capital expenditures “primarily” for AWS (think: data centers). Charles Fitzgerald keeps tabs on the clouds’ CapEx spend and let’s just say each of the big three is spending “a lot.” AWS also reported that long-term contracts for AWS were up 66%, netting an $88.9 billion balance. Meanwhile, Microsoft CEO Satya Nadella was happy to announce that the number of $100 million Azure deals had doubled that quarter. (This could, of course, mean that there had been one deal but now there were two, or it could mean that there were 10 and now there were 20. No details were offered.) Google, this time, didn’t add much color to its cloud earnings.
Big numbers, all around, and spending gobs of cash to keep that cash flowing in.
But I said back in 2019: however much we may want to keep score on today’s cloud revenue or market share numbers, the real focus should be on the future. Public cloud is still a drop in the IT spending ocean: roughly 6% of the overall pie. It’s growing, yes, and growing fast, double yes. But most IT spending, most of the time, remains rooted in private data centers. Aspirationally, everything is in the cloud. Realistically, however, it’s still on terra firma.
That’s is why it’s good for AWS that there’s growth in every major cloud.
A market of one?
As good as it was for AWS to have a head start on the cloud market, there’s no point in having a market of one. That’s not interesting for customers and, frankly, it’s not interesting for the vendor.
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Early on, once AWS had sold to the early adopters, there was hard work required to get mainstream enterprises into the cloud. AWS did excellent work pulling in these customers but, guess who has even more credibility with this crowd? Microsoft. Historically, as Piper Jaffray and other surveys would suggest, Microsoft was the enterprise vendor “most important” or “most indispensable” to CIOs. I haven’t seen more recent data than 2016, and would assume that AWS has steadily climbed in CIO esteem, but it remains true that Microsoft introducing Azure helped many IT executives get over their cloud inhibitions.
It’s also true that Google, a relative newcomer to the enterprise, helps those same IT executives to imagine new frontiers of innovation in data science and more. While Google isn’t the only cloud churning out great machine learning/artificial intelligence/data science services, Google is unique in how it has open-sourced some of its best technology to make its ways standards for the industry, as Brookings Institute fellow Alex Engler has written. I’m sure some of my former AWS colleagues would argue that AWS services might be better in this or that way, but that’s not the point: to win over more enterprises, it’s better to have a community pitching new, innovative approaches to business, rather than simply one.
As then AWS CEO (and current Amazon CEO) 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 head start, and existing lead, almost certainly felt and feels good. But for AWS to remain customer-obsessed, it needed competitors that would help to grow and improve the market. We have that now, and it’s 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 views expressed herein are mine alone.