2016 was a great year for the cloud industry as the top three companies - Amazon , Microsoft and IBM combined - raced past $30 billion dollars in annual revenues from their respective cloud services. Quarterly revenues for all these top cloud service providers have grown in strong double-digit rates in the last four quarters, often crossing the 50% year-over-year growth levels. To put that number in perspective, let’s take a closer look at the most recent quarterly cloud revenue numbers provided by the top three providers.
Amazon Web Services reported sales of $3.231 billion during the third quarter of 2016 compared to $2.05 billion a year earlier, a growth of 57.5%. Microsoft’s annualized cloud revenue run rate exceeded $13 billion during the first quarter 2017 compared to $8.2 billion a year earlier, a growth of 58.5%. IBM’s cloud as-a-service segment annual run rate reached $7.5 billion during the third quarter of 2016, a growth of 65% compared to last year.
That kind of growth coupled with multi-billion-dollar revenues is impressive, to say the least. What this clearly shows is the high demand for cloud solutions. Microsoft Azure, for example, has posted in excess of 100% growth over the past four quarters, and there is no indication of a slowdown in growth or revenues.
All three companies have firmly established themselves in the cloud market, and their revenue growth is a huge validation to the products that they have in hand. Amazon remains the lead player when it comes to the Infrastructure-as-a-Service segment, and the company keeps adding service after service to its list, while at the same time driving prices lower.
Microsoft now has a solid presence in the Software-as-a-Service segment, thanks to its business productivity suite led by strong double-digit growth in Office 365 adoption. During the first quarter of 2017, Office 365 commercial revenue grew by 54% in constant currency as Microsoft’s Office Consumer subscription base reached 24 million, up from 18.2 million a year ago. As more and more businesses use their SaaS products, it will fuel the growth of its IaaS offering as well.
IBM has clearly carved out its niche position within the cloud market, and its Analytics unit is already near $5 billion in quarterly revenues. No other company in the world makes that much money from analytics-driven products, and this goes to show that the company has found enterprise level takers for its Watson-powered unit. On the cloud deployment front, IBM has kept its focus on the hybrid cloud segment and that decision will pay off in the long run.
These are the three companies to watch over the next several years as cloud deployment grows around the world. For IBM and Microsoft, which are older companies than Amazon, cloud-based services are their second chance to reach the top of their industry segments. They were there before, but they now need cloud to take them there once again.
Though Oracle and Alphabet have entered the cloud race, they were both extremely late. The top three have a huge lead over them and have carved out their own niches within the cloud segment. As for Oracle and Alphabet, 2017 will be a make or break year in terms of cloud revenues because, if they allow the top three any more room, they will quickly run away with the market share. This is a critical period when most enterprise companies will be choosing their preferred cloud vendors, and if Alphabet and Oracle don’t feature as viable contenders, they are sure to lose in the long run.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
