Amazon, Microsoft See Sharp Revenue Gains in Cloud
Amazon and Microsoft are showing the industry how central their public-cloud businesses are to their current and future operations.
Both companies announced quarterly earnings over the past several days that saw significant revenue gains for their respective cloud businesses as they compete in a fast-growing and crowded market that also includes such players as Google and IBM.
Amazon Web Services and Microsoft Azure are the world’s largest cloud providers, with AWS holding a dominant 34 percent market share, according to analysts at Synergy Research Group. Microsoft comes in at No. 2, at about 15 percent. During the last three months of 2018, AWS garnered $7.4 billion in revenue, a 45 percent increase over the same period the year before.
For its part, Microsoft says the company’s Azure revenue jumped 76 percent. While Microsoft doesn’t break out Azure revenue, analysts at Canalys estimated the company’s public cloud unit generated $4 billion in the fourth quarter. For both companies, analysts say the sharp increases in cloud revenue are an indication of what’s to come as more enterprises migrate their applications and data from central data centers and into the cloud and work to make their businesses more digital.
“Particularly for AWS and Azure, cloud is the future of its businesses,” Patrick Moorhead, principal analyst with Moor Insights and Strategy, told Channel Futures. “While the majority of IT is still traditional, the biggest growth is in the public cloud; hence, the growth we are seeing from Amazon, Microsoft and IBM.”
Daniel Liu, research analyst at Canalys, noted that the trend up in cloud revenue for AWS and Azure will continue into this year as more businesses adopt multicloud and hybrid cloud strategies.
“AWS maintained momentum due to traction from its enterprise customers, while Microsoft’s progress benefits from its longstanding hybrid IT initiatives, taken up by its existing large base of on-premises customers,” Liu said.
He also pointed out that both companies continue to invest heavily in data-center infrastructure. AWS has 60 cloud infrastructure locations around the world – with another 12 under construction in such regions as Europe, the Middle East, Asia and Africa – which helped fuel Amazon’s $26 billion in capital expenditures in 2018. Microsoft, with 54 cloud regions and another 10 being built in Western Europe and Africa, spent $14 billion in capital expenditures last year, according to Canalys.
During a conference call to discuss Amazon’s fourth-quarter numbers, CFO Brian Olsavsky talked about the challenge of balancing pricing, expansion, hiring new people to build products and meet demands, and building out the infrastructure.
“We’ve said quite openly that [profit margin] is going to bounce around,” Olsavsky said, according to a transcript in Seeking Alpha. “What we do is create great value for the customer on one end and then work to minimize our cost of infrastructure, and we’re getting more and more creative around getting efficiency up and getting our cost of acquisition down.”
“What’s happening in the economy is every company is becoming a digital company, and essentially what used to be COGS [cost of goods sold] and operating expense is all going digital,” said Microsoft CEO Satya Nadella, in another conference call. “From a mix of services, it starts always with … infrastructure, so this is the edge and the cloud, the infrastructure being used as compute. In fact, you could say the measure of a company going digital is …