(Note: After an award-winning career in the media business covering the tech industry, Bob Evans was VP of Strategic Communications at SAP in 2011, and Chief Communications Officer at Oracle from 2012 to 2016. He now runs his own firm, Evans Strategic Communications LLC.)
CLOUD WARS — Microsoft has a good chance of becoming the first tech vendor to reach $7 billion in quarterly commercial-cloud revenue when it releases earnings on July 19 while Amazon could very well hit $6 billion in AWS revenue when its numbers come out later in the month.
With the enterprise-cloud market surging, let me put a little context around the magnitude of Microsoft’s likely achievement: if Microsoft is able to match the commercial-cloud growth rates it’s generated for the past four quarters of at least 56%, just that quarterly figure of $7 billion would make Microsoft’s enterprise cloud business one of the largest in the world—bigger than every other cloud vendor except Amazon, IBM and Salesforce.com.
Amazon, like Microsoft, has also pulled off the stunning achievement of having the growth rate of its cloud business continue to rise even as that cloud business gets significantly larger.
Last quarter, Amazon’s cloud revenue jumped 49% to $5.44 billion from the year-earlier’s $3.66 billion—a remarkable accomplishment.
A year ago, Amazon reported Q2 cloud revenue of $4.1 billion. If Amazon can sustain the whopping 49% growth rate for AWS that it generated in Q1, then its current Q2 revenue will come in between $6.0 billion and $6.1 billion.
But in spite of that recent gravity-defying performance from Amazon, Microsoft has been growing its commercial-cloud business even faster—and, off a larger base. For the same 3 months ending March 31, Microsoft’s commercial-cloud revenue soared 58% to $6.0 billion from the year-earlier’s $3.8 billion.
So later this month, we’ll get to see if the world’s two largest and most-influential cloud vendors will continue to increase their leads over all other competitors by continuing to grow at hyperscale despite having built very large businesses that create challenging comparables.
Over the past 4 quarters, Microsoft’s commercial-cloud revenue has grown at rates of 56%, 56%, 56% and 58%. In its fiscal fourth quarter a year ago—Microsoft’s fiscal year ends June 30—Microsoft’s cloud revenue reached $4.5 billion. So if the company can manage to sustain that 56% growth rate, its fiscal Q4 commercial-cloud revenue will reach $7.02 billion. And if Microsoft’s commercial cloud can match the 58% growth rate it achieved 3 months ago for its fiscal Q3, that total will rise to $7.11 billion.
Now, I can understand if you might be asking what is the point of all this speculation. I believe it’s important because, as the largest and most-influential enterprise-cloud vendors in the world, Microsoft and Amazon serve as leading-edge indicators for the health and vitality of a tech-industry boom that has triggered one of the greatest growth markets this business has ever seen.
For business leaders still evaluating whether it’s time to go all-in on the cloud, these stunning growth numbers should serve as indicators that the enterprise cloud has moved far beyond a promising possibility to a full-fledged engine of business transformation. It will be hard for the CEO and CFO of a global corporation to pooh-pooh the cloud as a mainstream business tool when the two leaders of the cloud industry are each on track to generate in the neighborhood of $25 billion in cloud revenue during calendar 2018.
But is it prudent to expect Microsoft to be able to maintain its torrid growth in the cloud and hit $7 billion for the quarter? I’m estimating that it will do exactly that—and here’s why:
- The ravenous appetite among businesses to undertake and complete digital transformation is playing perfectly into the philosophy of Microsoft CEO Satya Nadella, whose early and unwavering perspectives on the need for the cloud to reach every element of customers’ “digital estates” has been an enormous factor behind Microsoft’s emergence as the world’s pre-eminent cloud provider for businesses.
- Azure is now becoming widely accepted as an industrial-strength platform for running some of the world’s largest and most-demanding workloads.
- Microsoft’s rapid buildout of extensive IoT, AI and blockchain capabilities for Azure is putting it in the pole position for those transformative new technologies.
- While Microsoft’s SaaS business with Dynamics 365 is not on par with the massive cloud apps businesses of Salesforce or Oracle, Dynamics 365 revenue over the past 4 several quarters has grown at a minimum of 67%–and the acquisition of LinkedIn is giving Microsoft extensive new capabilities and potential in SaaS.
- The huge success of Office 365 is extending Microsoft’s long-running franchise well into the cloud-centered future and reflects Nadella’s “digital estate” philosophy mentioned above. I have to laugh at the silly notions expressed by some of Microsoft’s competitors and various pundits who say that Office 365 isn’t “real” cloud—they sputter and fume that “if you take Office 365 revenue out, AWS is much bigger than Microsoft’s cloud business.” That’s a weak argument on several levels, but here’s why it’s particularly lame: because business customers across the globe are finding great benefit in having Office 365 as part of their fast-growing cloud environments and are deriving great business value from it. To me, that is the ultimate definition of the cloud: driving business value for customers.
The Cloud Wars are not for the faint of heart, and as I’ve said many times before, the real winners in the Cloud Wars are the businesses gaining huge new capabilities from the incessant bare-knuckle competition to create superior cloud products and services that drive growth, innovation and transformation.
As businesses jump to the cloud to accelerate innovation and engage more intimately with customers, my Cloud Wars series analyze the major cloud vendors from the perspective of business customers.