What AWS and Azure’s cloud market growth says about IT
Amazon and Microsoft’s cloud market revenues continue to grow at a torrid pace, reflecting IT departments’ increased comfort and reliance on cloud computing services.
Azure revenue, which is counted among Microsoft’s Intelligent Cloud business division, grew 73% in Q1 2019. Intelligent Cloud sales rose 22% to $9.7 billion overall, though Microsoft doesn’t break out Azure revenue separately.
The spike in Azure sales resulted in part from Microsoft’s success signing longer-term, high-dollar contracts with customers. Azure’s consumption-based business was a key factor in the results, and offset slower growth in per-user sales, Microsoft executives said on a conference call Wednesday.
The rise in consumption-based product sales suggests that customers are confident about investing more of their IT budgets in platform-level Azure services, such as databases and storage, and they are using Azure to build the next generation of their systems.
More than 95% of the Fortune 500 now runs workloads on Azure, according to CEO Satya Nadella.
“We are seeing these Tier 1 workloads, which we never saw in the past,” Nadella said on the call. “If you think about it, in the client-server era, we never participated in the core of the digital infrastructure or financial services or in healthcare or in retail or in manufacturing.”
At the same time, the entire enterprise tech landscape has undergone a critical shift. “Digital technology today is not about tech companies doing innovation. It is about the rest of the world doing innovation with technology and Microsoft is uniquely in position to enable that,” he added.
In an era where mobile, constant connectivity and a vibrant consumer technology milieu rules, every modern enterprise has to, in some way, become a software company. It’s not enough anymore to buy an off-the-shelf application and tweak it to your internal and customers’ needs.
Yet Azure and other cloud computing providers shouldn’t be equated to a home-improvement store, where customers shop for lumber, wiring and nails; in a cloud context, these would be things like basic compute, network and storage for their projects.
The steady rollout of consumption-based, managed services on Azure in recent years has driven cloud market growth, but it also speaks to the increasingly sophisticated ways large customers use the cloud.
Amazon’s efficiencies could cut costs for AWS customers
Microsoft competitor AWS’ revenue grew 41% to $7.7 billion in Amazon’s first quarter of this year and the business unit is on track for an annual run rate of more than $30 billion. But analysts on the conference call noted that capital expenditures — which account for investments in areas such as data center infrastructure — were significantly lower than in the past.
AWS doesn’t expect demand to slow, according to Amazon CFO Brian Olsavsky. “I would point you back again to the investments that we made in 2016 and 2017,” he said on the conference call. “So we did front-load a lot of the investment both in fulfillment centers and also infrastructure.”
Amazon has also achieved “really impressive gains and efficiencies in both the warehouses and also the data centers,” he claimed. “And as we lower costs, we pass those along to customers, either through new rates or new deals that we have.”
For sure, AWS is the market share leader in cloud computing by a large measure, even in light of Azure’s rapid growth, and it got there in part by constantly cutting prices.
The cloud price war has waned of late, but Olsavsky’s comments indicate AWS will have more ability to beat rivals like Azure on pricing going forward. (Although you can bet Microsoft and Google seek the same types of efficiencies as they expand their global data center footprints.)
AWS has relied more on product innovation of late to win deals over cloud market competitors, but lower costs are always welcome among enterprise customers, whether they are new arrivals to AWS or existing ones in a position to negotiate better terms upon renewal.