Don’t be fooled: Microsoft’s cloud business is not bigger than that of Amazon’s AWS, although that’s the immediate implication.
Whether it’s better is another matter, and that could be what helps tip the balance Redmond’s way in this neck-and-neck business.
More ReadingEmbarrassed Amazon admits to actually MAKING MONEY as cloud biz bloomsMicrosoft's magic hurts: Nadella signals 'tough choices' on the wayPsst. Want a cheap cloud, VM? Google has one. But there's a catchIBM trades cold comfort for hot air in Microsoft-AWS slugfestNetSuite's leap over to Azure cloud - a shot to the pills for AWS?
Amazon used the occasion of its first-quarter results on Thursday to finally, clearly report how much money it makes from AWS. It was the day Microsoft announced its third-fiscal quarter too.
Cloud, with server and the Surface computer, were the only bright spot in the Windows’ results, as people continued to resist buying Windows PCs.
Overall, Microsoft would seem to be the bigger of the two cloud companies.
The company makes comparisons difficult, because it reports cloud in two different business units that also include income from other products.
However, take the top line and you have: a $2.28 billion in Microsoft's devices and consumer other unit, that’s home to Office 365 Home and Personal but also Xbox games and online ads.
Commercial other unit was $2.76 billion – this unit includes Azure and Office 365 for business and online Dynamics CRM online and enterprise services.
Microsoft’s two units grew 16 and 45 per cent respectively year on year and cloud accounted for a quarter of Microsoft’s total revenue of $21.73 billion for the three months.
Switch to AWS, and the numbers are teeny tiny: $1.57 billion – up 49 per cent, but just seven per cent of Amazon’s overall money.
Just don’t get carried away: remember Microsoft has obfuscated its cloud business by combining it with money from other products in those two units.
Also, Amazon comes at this as a purely infrastructure-as-a-business, while Microsoft is offering this with Azure plus software-as-a-service with Office 365.
You need to therefore take Office 365 out of the mix and compare Azure to AWS. Here, the race is cheek by jowl.
At last count, Microsoft in 2013 claimed Azure was a one-billion-dollar business but that statement was, yet again, an exercise in obfuscation, including revenue from software sold to partners to run cloud services on Windows and SQL Server. Also, it was impossible to check the figure.
Those pesky customer numbers
What of customer numbers? AWS reckons in 2015 it has “more than” one million active EC2 customers; in 2013, Microsoft had claimed 200,000 Azure customers but it has said nothing since and there was nothing Thursday; a telling sign Microsoft doesn’t want you to really know what it's got.
What we’re left with, then, is an Azure business likely short of $2 billion, if you subtract the rest of the commercial other unit’s gumbo.
And before you say it, forget anything you might have heard about “run rate.” Microsoft’s chief executive Sataya Nadella last quarter in January claimed a run rate of $5.5 billion for Microsoft’s cloud. However, run rate is an exercise in extrapolated maths — today’s earnings projected into the future, they do not measure actual revenue.
Also, much of that is coming from the Office 365 side of life, especially in business, which Microsoft has been hurling into customer accounts.
Right, let's talk costs. What's being spent by Microsoft and Amazon on AWS tell another story, too: it's a tale of two companies clearly at different points in the data centre growth cycle.
The amount Microsoft is spending on data centres is growing while Amazon is cutting back on AWS – presumably, having passed build-out critical mass.
Microsoft said in the last quarter it spent $189 million on data centres and other online infrastructure, an increase year on year of 13 per cent. Amazon, meanwhile, cut its infrastructure bill by 19 per cent but still managed to out spent Microsoft's $871 million on “property and equipment.”
Then we have Google – also announcing its first-quarter on Thursday – and IBM, the on-prem giant limbering up to become a cloud service provider.
Google spent up to $2.9 billion on data centre construction and facilities – a number that also includes development of products and spend on equipment.
IBM last year committed to spend $1.2 billion on 15 data centres – new facilities and upgrading centers owned by SofLayer, who it acquired.
Taking a step back, Amazon does have more room to grow. Despite a plethora of feature updates, it’s AWS that’s been pushing the envelope. Amazon claimed 516 new features and services launches on AWS in 2014 alone.
But, and here’s the interesting part, Microsoft has the greater scope to improve – adding more features to try to catch up and beat AWS.
That said, Microsoft is offering customers a cloud that’s potentially easier to consume than AWS – a fact that could prove easier in terms of onramping new customers.
AWS is, proudly for Amazon, an infrastructure and it'll take some expertise to weave together. You need Amazon gurus, third parties or your own experts. Or you rely on a partner running on top of AWS to abstract out the complexity and who serves as the service that you engage with.
Microsoft is making Azure easier to consume and build for a group of customer’s who are its bread and butter — business and enterprise developers.
What happens next will be interesting: how far AWS can a) grow that business customer base that’s belonged to Microsoft through its current strategy or by making AWS easier to consume, or b) squeeze growth from partners who shield the customer from AWS’s underlying complexity.
As to raw money — revenue and profit — that will be a wrestling match of our times.
At present, both Microsoft and AWS are in a land grab using low price. Amazon claims 48 price cuts over eight of AWS’ nine-year life; Microsoft has cut prices, too, but never succeed in undercutting AWS. It's been like watching BA try to beat EasyJet on ticket price.
AWS denies its price cuts are a product of competitive pressure and dismisses claims it will raise prices once it’s got you by the short and curlies in the future.
Microsoft is chucking Azure and Office 365 into enterprise accounts at shockingly discounted prices simply as part of massive deals.
Whether both continue to cut is unclear, and also unclear is when Microsoft stops chucking its cloud in with enterprise licences and starts upping prices.
Then, finally, we might see Microsoft overtake AWS and put Bezos’ firm in its rear-view mirror. ®