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The rapid rise of Microsoft Azure, aggressive moves by Google and an assortment of other developments in the cloud marketplace have raised questions about whether Amazon can maintain its dominant advantage over AWS competitors.
In January of 2016, Amazon announced that its AWS subsidiary generated $2.4 billion in revenue for the fourth quarter of 2015, a 69.37% year-over-year increase. Although the quarterly growth rate was lower than the prior quarter, when AWS posted a 78% jump, it is still a pretty impressive increase in real dollars from $2.08 billion in the third quarter of 2015. In total, AWS pulled in $7.88 billion in 2015.
However, some industry observers are suggesting that AWS' slowing growth rates are an indication that its days of cloud market domination may be coming to an end. They point to the recent success of AWS competitors. Microsoft Azure and the company's other cloud services, including Office 365, now represent a third of Microsoft's total revenue. Microsoft has reported it expects to generate $9.4 billion from its cloud services and will reach $20 billion in 2018.
Microsoft's growth in the cloud marketplace is even more extraordinary because it is part of a dramatic corporate turnaround over the past two years, since Satya Nadella became the company's CEO. Nadella shifted Microsoft's focus to cloud and mobile technology; he has structured Microsoft's new cloud capabilities to use its legacy on-premises systems and software in an attempt to give its customers more options than AWS' cloud-only approach. This strategy appeals to a major segment of the market, which wants to mix and match its on-premises and on-demand resources to create a hybrid computing environment.
Microsoft is also capitalizing on its vast independent software vendor partner ecosystem. And its even larger number of channel partners are ecstatic that the company has solidified its cloud strategy, setting itself to compete with AWS, Google Cloud Platform and a myriad of software as a service alternatives.
Google has also recognized that it must work harder to regain its position in the cloud market. Ironically, Google helped build the cloud marketplace with Google Apps, Google Engine and its other cloud offerings. Its search engine service delivery system has been built on the kind of white box server infrastructure that has been the model for delivering cloud services in a scalable, economical and elastic fashion. However, Google's quirky culture and lack of empathy for enterprise customers made selling more cloud services an afterthought in the rapidly growing market. The hiring of Diane Greene and additional investments in new cloud offerings has begun to reenergize Google's cloud business.
AWS on top as competition climbs the ranks
While Microsoft and Google are viewed as the biggest challengers to Amazon, IBM continues to make significant investments to keep pace with these AWS competitors and the shifting demands of its customers. IBM continues to rely on the SoftLayer infrastructure to power its offerings while buying a growing number of cloud applications and consulting companies to satisfy its customers' needs, including Bluewolf in March of 2016.
The entry of enterprises offering their own cloud services is also reshaping the competitive landscape. The most prominent example is GE, which launched its Predix cloud platform in 2015. At the same time, GE is building Predix to become a leading provider of cloud services for the Industrial Internet of Things, it is also migrating its internal data center operations to AWS. GE's CIO Jim Fowler said the company plans to reduce its 34 data centers down to four, and move the most sensitive data to AWS.
Apple's decision to migrate its iCloud storage services to the Google Cloud was also viewed as a blow to AWS, where Apple previously housed the bulk of its services. However, it is more likely that Apple's move is being driven by two other factors. First, it doesn't want to be overly reliant on AWS, which also happens to be a major competitor in the entertainment business. Second, as Apple begins building its own cloud service delivery system, it can learn how AWS and Google deliver their cloud services and incorporate best practices into Apple's systems and procedures.
As the cloud market matures, the competition inevitably intensifies. However, while AWS' growth rate may be declining because of the law of big numbers, its profits nearly tripled in 2015 -- jumping from $240 million in 2014 to $687 million -- despite growth from AWS competitors, continuing price cuts and hefty capital investments. So, it is way too early to bury AWS.
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