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The COVID-19 pandemic was damaging for some companies and disastrous for others. The widespread economic damage, however, wasn't the fate of all. Industries that provided the tools for remote work and online services have skyrocketed in value, and cloud computing was one of the leaders.
There are plenty of players in the global cloud computing space now, but the two at the top are particularly interesting to watch. The two most prominent players, Amazon Web Services (AWS) and Microsoft Azure, dominated the market, combining to account for over half of the industry—with no signs of slowing down.
The global cloud computing market is valued at $330 billion in 2020. The pure valuation of the global cloud market is an astonishing number particularly when one considers that it was worth a mere $15 billion ten years ago. Nine out of ten companies have at least some of their workload in the cloud, and Cisco projects that 94 percent of workloads will be processed in the cloud by the end of 2021.
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The United States has the largest public cloud computing market, valued at $120.6 billion in 2020. The next highest country is China, at $10.5 billion, illustrating the degree to which US businesses have embraced virtual computing. One of the most astonishing statistics demonstrates how quickly the industry is growing. In 2019, the global market value was $272 billion and was projected to continue increasing with a compound annual growth rate of 18 percent.
One of the reasons for this transition from bare metal to the cloud is cybersecurity, which nearly two-thirds of organizations see as their greatest challenge. Both AWS and Azure have made this a centerpiece of their cloud strategy, and it's worked. When it comes to Infrastructure as a Service (IaaS), the public cloud will experience 60 percent fewer security incidents than traditional data centers in 2020, despite the widespread adoption of cloud computing. A full 95 percent of these will be caused by customers, illustrating that the security guards that cloud providers have put in place for their side of the cybersecurity responsibility are working well.
Amazon boasts an impressive lead over Azure. AWS holds 31% of the cloud market share. That’s 55 percent greater than Azure. When it comes to IaaS, Amazon Web Services leads the pack.
AWS recently reported its Q2 2020 earnings, and the numbers were staggering. AWS had a $10.8 billion revenue, an impressive growth compared to $8.3 billion in the same quarter last year. Amazon's cloud offering is becoming more and more central to their business model. While 12.1 percent of Amazon's total revenue came from AWS, an astonishing 64 percent of the retail behemoth's profits were generated by their IaaS, PaaS, and SaaS offerings. AWS profit margins approach 30 percent, blowing most other products and services Amazon offers out of the water.
Microsoft doesn’t report corporate earnings using the same breakdown Amazon does. Rather than publishing numbers outlining Azure’s revenue, the Windows provider’s statistics are limited to revenue growth over the previous quarter. Q2 2020 produced an impressive 47.2 percent growth rate over Q1, but this statistic is only relatively useful. In Q2 of 2019, the growth rate was 64 percent, seemingly indicating that 2020’s growth was slowing. Given the sheer size of Microsoft’s presence in this arena, however, that would be a misleading conclusion. As a whole, the company is doing very well — quarterly revenue was $38 billion, beating the $35.5 billion projection.
Although Amazon’s cloud market share is noticeably bigger than Azure’s, the year over year change indicates that might not last long. At the end of 2018, AWS had 33 percent of the market and Azure 15 percent. A scant 18 months later, AWS holds onto 31 percent while Microsoft’s cloud service has jumped to an impressive 20 percent. When it comes to SaaS, Microsoft’s Office 365, Dynamics, and multiple other products make it the hands-down industry frontrunner.
It’s certainly possible for Azure to surpass AWS in the cloud computing market share. AWS might have had a big lead for nearly a decade, but Azure is growing rapidly in the public sector, healthcare, and even among large tech companies.
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One of the reasons AWS has done so well for so long is that it started earlier than everyone else. Jeff Bezos, Amazon's CEO, said: "AWS had the unusual advantage of a seven-year head start before facing like-minded competition. As a result, the AWS services are by far the most evolved and most functionality-rich.” The former statement is undeniably true, while the latter is debatable when you begin to break down the overarching umbrella of “cloud computing” into various IaaS, PaaS, and SaaS options.
Amazon is well-known for its data storage and cloud computing services, but it has moved well beyond those. Artificial intelligence services, a stack deliberately made for analytics, and numerous purpose-built databases are just a few of AWS's expanded offerings. AWS CEO Andy Jassy has characterized the provider's culture as one of "relentless innovation," and their continued ability to evolve is undoubtedly evidence of that.
One statistic Amazon proudly promotes is that more than half (57%) of Windows Server installations in the cloud run on AWS, which is a bit of a blow to Microsoft's pride if nothing else. AWS has also partnered with Verizon in a deal that will lead to further development in 5G and edge computing use cases.
These are fairly well-known aspects of AWS’s rise to market leader. However, Microsoft is targeting the public sector and healthcare to build up its market share.
Microsoft’s cloud integration with a broader set of business tools made it the more appealing option for many corporations as they adopted remote working policies. Azure tends to be more prevalent with enterprise users, while Amazon is more popular among newcomers, attracting 52 percent of early-stage cloud users. One example of Microsoft’s ability to grab large clients is the Pentagon’s $10 billion JEDI contract, which was recently awarded to Azure—a decision Amazon is currently appealing.
Azure tends to be more popular with healthcare providers. The demand for telehealth services is skyrocketing. In the first two weeks after the federal government relaxed restrictions on remote medical interactions, the number of telehealth appointments increased tenfold. As the pandemic continues and remote medical visits become more common, it will be difficult—and likely, impossible—to turn this avenue off once the pandemic ends. Although in-person visits will certainly experience a resurgence, remote healthcare is here to stay, and grabbing market share at an early stage is critical for long-term growth in this profitable arena.
Speaking of early stages, although AWS tends to attract just over half of beginning cloud users, Azure isn’t far behind. Fully 41 percent of the market share in this burgeoning demographic belongs to Microsoft.
Not satisfied with second place, Azure is aggressively evolving in an effort to overtake AWS and dominate the world market. Microsoft CEO Satya Nadella recently summarized these efforts with an interim update on Azure's growth, stating,
"We have seen two years' worth of digital transformation in two months. From remote teamwork and to sales and customer service to critical cloud infrastructure and security, we are working alongside customers every day to help them stay open for business in a world of remote everything.”
Another impressive client Azure can boast is Salesforce, the global leader in Customer Relationship Management (CRM). Salesforce powers one in five of every CRM application in the world, more than double its next-closest competitor. The very nature of Salesforce’s business model means that this will undoubtedly drive more clients to Azure over the long haul.
It's difficult to say precisely what will happen in the next few years. Both AWS and Azure sport highly profitable business models, aggressive growth rates, and consistently innovative developments that continue to shape the business as we know it. Azure's growth over the last two years, combined with its SaaS predominance and ability to land enterprise clients, indicates that there's a high likelihood it will overtake Amazon Web Services as the world leader in cloud computing.
Whatever happens, cloud computing will become an even bigger part of IT infrastructure in the near future. If you haven’t yet joined the ranks of cloud professionals, then it’s time.
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