Amazon CEO Jeff Bezos promised last year that public cloud titan Amazon Web Services would achieve $10 billion in sales for 2016, reaching that milestone faster than Amazon itself did. As it turns out, that was an understatement.
Amazon Web Services topped $12 billion in sales for the year, up 55 percent from the same period last year. That’s enough to make the Amazon division a significant company on its own, although Amazon execs including AWS CEO Andy Jassy have said repeatedly that no spinoff is in the works. Amazon has an inherent interest in keeping AWS in the fold, given its reliable contribution to the company’s bottom line.
Amazon’s results help to complete a picture of the public cloud market for 2016. A new report from Synergy Research Group shows Amazon maintaining more than 40 percent market share amid a big jump in the overall size of the market. The global public cloud market reached a run rate of more than $36 billion a year, extrapolating from Synergy’s estimate of $9 billion in the fourth quarter.
The next three competitors, Microsoft, Google and IBM, were able to boost their collective market share by 5 percentage points in the fourth quarter, reaching a combined 23 percent of the global market for Infrastructure as a Service and Platform as a Service, according to Synergy. The research firm cited “particularly strong growth at Microsoft and Google.”
But rather than chipping away at Amazon’s lead, growth by Microsoft and Google came at the expense of smaller players in the market.
“The next ten cloud providers in the ranking have slipped off the pace a little, though this group does include Alibaba and Oracle who continue to grow at impressive rates,” say Synergy analysts in a summary of their report. “There is then a very long tail of small-to-medium sized cloud service providers, whose collective market share has now dropped to just 18%.”
Synergy notes, “The cloud providers and rankings are very different in the managed private cloud, where IBM continues to lead while Rackspace and traditional IT service providers feature more prominently than they do in public cloud.”
In its earnings report for the December quarter, Microsoft reached an annualized commercial cloud run rate of more than $14 billion, driven in part by its Azure cloud computing division, although direct comparisons to AWS are difficult because Microsoft includes cloud applications such as Office 365 in that number.
In a call with analysts after the earnings release, CEO Satya Nadella repeated his earlier vow that the company will reach $20 billion in annualized cloud revenue by the company’s fiscal 2018, which ends June 30, 2018.
Microsoft’s “Intelligent Cloud” segment posted revenue of $6.86 billion, up 8 percent, and operating income of $2.39 billion.
Google doesn’t break out its cloud numbers or run rate, but Google CEO Sundar Pichai said its cloud business “is on a terrific upswing.”
“In 2016 we made huge strides building out our product offerings across all areas of Google Cloud Platform,” said Pichai on an earnings conference call with analysts. “We routinely hear from customers that we have now moved well beyond table stakes, and we have truly differentiated offerings in four key areas: data analytics and machine learning, security and privacy, tools for application development and the ability to create connected business platforms, leveraging our recent acquisition of Apigee.”
Google had a high-profile cloud customer win this month, securing a five-year, $2 billion contract with Snapchat parent Snap Inc.
Another way to look at public cloud numbers: Even with the growth by Microsoft, Google and IBM, Amazon’s market share is still more than those three closest rivals combined.
That’s confirmed by research firm Canalys, although its numbers show a tighter race. Canalys says AWS reached 33.8 percent market share based on revenue in the fourth quarter, compared to 30.8 percent for Microsoft, Google and IBM combined.
That’s the top line, but the companies are spending big to build out their data centers and cloud infrastructure around the world, as summarized by Canalys in its report:
Continuing demand is driving the adoption of cloud infrastructure services, which accelerated the cloud data center expansion among key service providers in Q4 2016. AWS launched 11 new availability zones globally in 2016, four of which were established in Canada and the UK in this quarter. IBM also opened its new data center in the UK, bringing its total cloud data centers to 50 worldwide. Microsoft strengthened its cloud capacity in Western Europe, with new facilities in the UK and Germany. Google and Oracle set up their first infrastructure in Japan and China respectively, aiming at expanding their footprint in the Asia Pacific region. Alibaba also unveiled the availability of its four new data centers in Australia, Japan, Germany and the United Arab Emirates, highlighting its ambition to drive the presence outside of China.
Meanwhile the price wars continue. On a conference call with reporters last week, Amazon CFO Brian Olsavsky noted that Amazon made seven AWS price reductions during Q4 — which is one reason the division’s quarterly operating income grew by just 60 percent year-over-year, down from triple-digit growth rates in quarters past.
“That’s part of our business model,” Olsavsky explained in response to GeekWire’s question on the call. “We‘re constantly balancing innovation, lower prices and also taking costs out through greater efficiencies in infrastructure.”
And for now, at least, it looks like that approach is still working. Amazon Web Services’ annual run rate is now $14 billion.
Olsavsky also noted that Amazon has a “very balanced group” of AWS customers, from startups to small-and-medium-sized businesses, all the way to large enterprise and the public sector. Amazon just today inked a deal with entertainment and ticketing giant Live Nation, which picked AWS as its public cloud infrastructure provider and will move its global IT infrastructure to the AWS Cloud.
Other customers include Netflix, Under Armour, Kellogg’s, Adobe, Comcast, Airbnb, GE, and many others.