AWS vs Microsoft vs Google: Weighing up the financial results of the big cloud three

Amazon, Google and Microsoft have all posted favourable financial results this week, as enterprise appetites for cloud services show no signs of slowing, but what does this mean for suppliers outside of the big three?

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Amazon Web Services (AWS) experienced a resurgence in its revenue growth rate in the first quarter of 2018, propelled, in part, by its forays into machine learning and relational databases.

The cloud services giant has seen its growth rate steadily decrease from 78% in the third quarter of 2015 to around the 42-45% mark in recent quarters, with analysts describing it as an inevitable part of the company coming of age and scaling up.

The firm’s first-quarter results, however, saw its growth rate hit 49% as its quarterly revenue soared to $5.4bn, while parent Amazon.com reported revenue in the region of $51.04bn overall.

AWS posted an operating income of $1.4bn for the quarter, against the $1.9bn Amazon.com brought in, highlighting just how big a contribution its cloud business makes to the company as a whole now.

Amazon founder and CEO Jeff Bezos said the success of the retail giant’s cloud arm could be partially attributed to the firm’s unrelenting product release cycle. It rolled out 1,430 new features and services in 2017 alone.

“AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” said Bezos.

“As a result, the AWS services are by far the most evolved and most functionality-rich. AWS lets developers do more and be nimbler, and it continues to get even better every day. That’s why you’re seeing this remarkable acceleration in AWS growth, now for two quarters in a row.”

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In a further breakdown of its results, AWS said its efforts to lower the barriers for enterprises wanting to use machine learning and artificial intelligence services had resulted in a 250% rise in active users over the past year.

Meanwhile, its ongoing push to displace Oracle in the affections of enterprise database users is also picking up pace, the company said, with the user base for its Aurora relational database service more than doubling in size over the past year.

Remarking on the results, John Dinsdale, chief analyst and research director Synergy, said – given the size and scale that AWS now operates at – the resurgence in its revenue growth rate is significant.

Its competitors, Google and Microsoft, also posted their financial results this week, with the performance of their cloud operations emerging as particular high points for both firms, continued Dinsdale, but even that seems to be having little impact on AWS’s ongoing success in the market.

“As the cloud market continues to rapidly expand, AWS continues to control a third of the market, being larger than its next four competitors combined,” said Dinsdale. “It is particularly notable that growth at AWS has actually accelerated despite its scale. The rapid growth of Microsoft, Google and Alibaba is not causing any drop-off in AWS market share.”

Microsoft vs AWS

While AWS controls a larger portion of the public cloud market, Microsoft’s third-quarter financial results – published the same day as Amazon’s – revealed the software giant’s cloud revenue growth rate is markedly higher at 58%.

Total revenue from Microsoft’s commercial cloud products division hit $6bn, while its server products and cloud services business grew by 20% to $6.3bn, on the back of soaring demand for its Azure public cloud platform, which achieved a revenue growth rate of 93% on its own.

In a note to subscribers, Angela Eager, research director at IT analyst house TechMarketView, said the fact both AWS and Microsoft had reported such favourable quarterly numbers suggested enterprises were open to using services from more than one supplier.

“Azure’s rate of growth is marginally down from the previous quarter (98% – and fluctuations should be expected particularly at this level) but significantly exceeds that of Amazon Web Services which delivered a 49% increase,” said Eager.

“The sustained high levels of Azure growth underline the progress it is making, point to a narrowing of the gap to AWS, and suggest enterprises want a choice when it comes to cloud providers.”

Gazing over Google

On Monday 23 April, Google parent Alphabet released its first-quarter financial results for 2018, which saw the company bank an overall revenue of $31.1bn for the three months ending 31 March 2018 and achieve a net income of $9.4bn.

In the lead-up to the results being made public, speculation was rife about how the regulatory fallout from the Facebook-Cambridge Analytica scandal might affect Alphabet’s numbers and its future financial projections.

In response, Google CEO Sundar Pichai spent a fair amount of time during the firm’s first-quarter financial results conference call setting out how seriously the company takes the privacy concerns of its users, before going on to claim it began preparing for the incoming General Data Protection Regulation (GDPR) 18 months ago.

“We care about getting it right. We have long had a robust and strong privacy programme at Google,” he said.

Continuing momentum

Elsewhere on the call, transcribed by financial blogging site Seeking Alpha, Google chief financial officer Ruth Porat said the momentum behind its growing cloud business was continuing, with the firm signing “significantly larger” customers and “more strategic deals”.

To back this point, recent customer wins with aircraft manufacturer Airbus and Thailand’s Krung Thai Bank were flagged as examples.

“Our security capabilities, the easy-to-use advanced data analytics and machine leaning solutions, and the secure and industry-leading collaboration platform, G Suite, are winning customers over and Google Cloud is growing well,” she said.

How well is difficult to say, as Google does not separate out the contribution cloud makes to its overall financial results, making it difficult to provide much in the way of a side-by-side comparison of how its infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS) activities perform against its competitors.

Instead, Google classifies it as “other revenue” and, as such, lumps its numbers in with the monies generated by its hardware and Play application marketplace.

Year-over-year, though, the other revenue block grew by 36% and generated $4.4bn, up from $3.16bn in the first quarter of 2017.

The big three vs everyone else

As Google and Microsoft continue to report healthy growth rates and market share gains, their success is clearly not at the expense of AWS, said Synergy Research’s Dinsdale, as his firm’s data shows Amazon has retained a hold on 33% of the market for 12 successive quarters.

This suggests, while everyone focuses on the cloud rivalry going on between the big three, the real battle for survival in the cloud is being fought among the small to medium-sized operators.

“It is the small to medium-sized cloud operators who collectively have seen their market shares diminish,” said Dinsdale, as Synergy’s data suggests the top five providers now control nearly three-quarters of the cloud market.

“Cloud growth in the last two quarters has been quite exceptional. Normal market development cycles and the law of large numbers should result in growth rates that slowly diminish – and that is what we saw in late 2016 and through most of 2017,” he said.

“But the growth rate jumped by three percentage points in the fourth quarter, and by another five in the first quarter [2018. That is good news for the leading cloud providers, whose historically high levels of capex [capital expenditure] are helping to ensure that they are the main beneficiaries of that exceptional market growth.”

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