Some Thoughts About the Recent Cloud Earnings

Last week was earnings week fro most of the cloud leaders and the reports brought more of the same and some interesting surprises. The biggest highlights of the earning season were the continuous dominance of AWS as well as the fast pace of growth of Azure and Google Cloud. Beyond the numbers, and the speculation of Wall Street analysts , there are some interesting things we can learn reading between the lines in the earning announcements.

AWS Continues Dominating

AWS reported revenues of $3.66 billion and $890 million operating income. Those numbers represent a 42.6% growth year-over-year and an astonishing 89% of Amazon’s total operating income. Both numbers are pretty impressive.

If we consider that AWS currently owns over 60% of the market and it is forecasted to be a $14 billion business this year, we can appreciate how remarkable a 42.6% growth rate is. Most software businesses of that size facing formidable competitors such as Microsoft or Google would be lucky to post a 25–30% growth. AWS continues dominance is making it hard for the competition to capture meaningful market share in new areas of the cloud market.

India Matters for AWS

India (not China) is a vital element of AWS’ growth strategy and one that is likely to face tough competition. During the recent earnings call, Amazon highlighted India as one of the factors that is likely to drive a lot of new growth for AWS in the near future. Differently from China in which Alibaba Cloud dominates the cloud market. India doesn’t have a local incumbent. Additionally, the large community of AWS system integrators based in India can streamline and influence the adoption of AWS.

Azure Growth Rate is Impressive but the Questions About the Numbers Remain

Microsoft announced that Azure revenue grew an impressive 93% year-over-year. The Redmon giant doesn’t disclose Azure specific revenue numbers and it reports it as part of its Intelligent Cloud that also includes products such as Office365, Dynamics 365 and Windows Server. The Intelligence Cloud suite reported revenues of $6.76 billion which represent an 11% year-over-year growth.

Azure’s growth is certainly impressive in such as competitive space but I also believe some sectors of the market might have overreacted to the numbers. Without getting into a lot of speculation, if we factor in the fact that Office365's revenue is a multiple larger than Azure’s and use some of the Office365 revenue numbers forecasted by analysts in the past, we might arrive to some numbers for Azure that are still drastically smaller compared to AWS.

Where is Azure Winning?

Azure’s remarkable growth is catalyzed by two X factors: the best hybrid-cloud story in the market and the growth of Office365. Both factors are indirect drivers of Azure licenses in areas on which AWS doesn’t have a strong story.

Google Cloud Might Surprise Us

Google posted quarterly revenues of $3 billion for its “Other” category which includes Google Cloud, G-Suite, Pixel phones and other non-ad businesses. The head of Google Cloud Diane Green bullishly predicted that their platform will surpass AWS by 2022. Considering AWS market share and growth rate, Google Cloud quarterly revenue must be close to $1.5 billion for that prediction to be take seriously.

Written by

CEO of IntoTheBlock, Chief Scientist at Invector Labs, Guest lecturer at Columbia University, Angel Investor, Author, Speaker.

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