Enterprises are now contending the impact of cloud computing on all matters IT. The scalability and flexibility of cloud resources are crucial to CIOs, and the cloud has the potential to liberate IT teams from hit-or-miss capacity planning and future-proofing.
The race to grab the cloud mantle is heating up, and a sign of this was Eric Schmidt's recent speech in which he pushed companies to embrace the cloud.
"Just get to the cloud now," he said. "Just go there now. There's no time to waste anymore," Schmidt cautioned.
In addition, the IaaS (infrastructure-as-a-service) model means that IT can now be treated as operational expense that can be paid through monthly subscriptions rather than outright and expensive capital expenditure. That is why many organizations are now looking into shifting or integrating the cloud to their existing infrastructure.
Gartner projects that by 2020, $1 trillion dollars will be spent on this shift. Right now, the two biggest contenders are Amazon with AWS (Amazon Web Services) and Microsoft with Azure. According to a RightScale survey, AWS currently holds 57 percent of the public cloud market and Azure holds 34 percent. Google is also clawing its way to contention with Google Cloud taking 15 percent of the market. Other players are also getting into the mix with IBM coming in with 8 percent, Oracle with 3 percent, and DigitalOcean with 2 percent.
Despite the lead AWS seems to have, what is striking is that the year-on-year figures revealed that AWS failed to post any increase in 2017 compared to 2016. AWS adoption remained flat at 57 percent. In contrast, Azure posted a 14 percent jump. This prompts some speculation as to whether Amazon is losing its grip on the market. The recent outage that hit AWS last February and took down popular services such as Slack, Trello, and Medium proved that market leaders are not as bulletproof as the services claim to be.
The dominance of Amazon
Amazon is not shy in showcasing who uses AWS. Adobe, Netflix, Spotify, and Reddit are among their biggest users. They also have a collaboration with the government, most notably, with the CIA.
Most would credit AWS’ market leadership to being first in the market. AWS made a splash among developers when it was launched in 2006. This carries on until today with startups and fledgling projects flocking to AWS for their cloud needs. Amazon also strategically invested in putting up worldwide data centers and diversifying its cloud services to cover needs such as hosting, storage, and even security.
AWS is already showing its potential to dispel the long-standing belief that Amazon isn’t a profit machine. AWS posted a revenue of $8.7 billion across 3 quarters in 2016 – a 58 percent year-on-year growth for Amazon’s cloud computing arm. It is also the most profitable division for Amazon with an EBITDA (earnings before interest, taxes, depreciation, and amortization) of 31 percent compared to a company-wide EBITDA margin of 12 percent. Its spending and investments in previous years now seem to be paying off.
The resurgence of Microsoft
Microsoft is often criticized for coming late in the game. Over the years, Microsoft has relied on its dominance in enterprise and personal computing software. Windows and Office have long been Microsoft’s cash cows. However, numbers over the past two years reveal that Windows accounted for only 10 percent of their revenue. The server and cloud divisions have now emerged to be the new top revenue generators.
Among key moves was to start offering Office 365 as a cloud-based service back in 2011. Part of the reason was to ward off threats like Google Docs. But beyond that, it effectively served as a Microsoft’s awareness campaign that it was embracing the cloud revolution -- a bold step away from its traditional licensing models.
An ace up Microsoft’s sleeve is their deep entrenchment in business. For the longest time, enterprises relied on Microsoft’s products which include Windows, Office, Visual Studio, .Net Framework, and SQL Server.
For organizations that already that are heavily invested in Microsoft products and are looking to shift towards the cloud, Azure is simply the logical choice.
Like AWS, Azure has also found big name clientele that include NBC, GE, and 3M.
The rise of other players, PaaS, and SaaS
Even with these developments, neither Azure nor AWS could afford to be complacent. Other players such as Google and Microsoft’s long-time enterprise solutions competitors IBM and Oracle are also gunning for bigger market shares.
Serving specific computing needs also opened opportunities for other providers to offer PaaS (platforms-as-a-service) that include operating systems, environments, frameworks, and databases on top of the infrastructure layer. AWS and Azure both offer their own PaaS though other providers compete by focusing on specific uses such as ready to use frameworks like Ruby on Rails or MEAN. Some of these PaaS providers are not necessarily threats to the bigger players since they do rely on either Azure and AWS for the infrastructure. For example, cloud resource provider CloudShare has its own infrastructure and does not rely on AWS for its virtual IT lab services. What's more, the company provides tailored environments for training, sales demos/POCs and dev testing.
As it stands, Azure is the closest threat to AWS’ dominance and this heated competition has resulted in a price war. This is often indicative that the technology has matured to a point where competitors are now offering similar advantages. Thus, price is now being used as a differentiator. Just recently, Microsoft cut the price on Azure Virtual Machines by as much as 61 percent.
Why Microsoft stands a chance
As things stand, Microsoft still has to play catch up to AWS. It must continue to leverage existing relationships with enterprises and encourage clients to shift to the cloud. Offering Azure Stack to companies that are exploring a hybrid cloud setup is a positive step towards encouraging the shift as some organizations intend to retain part of their infrastructure on-premises.
Microsoft also needs to embrace and promote interoperability. Azure allows Linux distributions and other platforms to run on its virtual machines. However, perhaps in a move that avoids cannibalizing Windows and the .Net Framewok, Microsoft appears timid in promoting this. The general impression that Microsoft remains exclusive to its own platforms and software still lingers.
Another question with the battle for cloud dominance comes down to what features cloud service providers give to the client.
“For example CloudShare is tailored for Development & Testing, whereas Azure and AWS are built for Production. In CloudShare you can snapshot multi-machine environments and maintain network and memory state where you last left it, whereas in Azure and AWS you can snapshot the disk of individual machines, but you will have to manually reconfigure your environments if you ever revert,” says an article on CloudShare’s blog.
As the internet of things expands, demand for cloud resources are also expected to spike. Investments are required to for more data centers to cope with the rising demand. To do this, Microsoft may have to be willing to sacrifice some profitability and decreased margins -- something that Amazon had been willing to forgo to build its assets.
This article is published as part of the IDG Contributor Network. Want to Join?