Andy Jassy, chief executive officer of $35 billion Amazon Web Services (AWS), has been selling cloud computing since the early 2000s. In 2019, the leader in cloud services grew revenues by an astonishing 36% over 2018. At re:Invent 2020, AWS’ annual event that began on Monday night (Pacific time), Jassy noted how AWS is now the fifth largest IT services company in the world.
Still, there was a passive acknowledgement from Jassy of how Covid-19 has exacerbated the fight of the cloud service providers. “A lot of people sometimes get confused when they try to compare different companies,” he said. “Year-over-year (y-o-y) growth rate only matters as it relates to the base revenue. You can have a higher y-o-y growth rate if you’re having a much lower base of revenue.”
What’s eating Andy?
The Google Cloud numbers in the two quarters post Covid-19. Alphabet Inc.’s Google Cloud generated revenues of $6.4 billion in the two financial quarters since the pandemic enforced lockdowns in various parts of the world. Over the previous year, Google Cloud thus clocked a scorching 42% growth rate.
In the same period, AWS amassed $22.4 billion at 29% over the previous year.
For Google and Microsoft -- which we’ll come to in a bit -- the global pandemic opened up a whole new set of use cases as employees began to work from home. Use of Google Meet or Hangout and Microsoft Teams has gone up exponentially, hosted by their respective cloud services units.
Google Meet saw a peak in Q3 of 235 million daily meeting participants and more than 7.5 billion daily video call minutes.
In the earnings call for the quarter ending September 2020, Alphabet CEO Sundar Pichai weighed in on three trends driving cloud adoption of Google Cloud on the enterprise side.
Trend one -- providing a foundation for data processing and analytics. BigQuery, which provides real-time and predictive analytics, is winning retailers like Best Buy, helping them create better experiences for shoppers. Google’s differentiated AI/ML-based industry specific solutions is leading to significant wins with brands such as Unilever, Amwell and Reckitt Benckiser.
“Additionally, we’re working with government agencies like the US Navy to modernise maintenance operations for vessels and facilities,” Pichai said. “We’re also partnering with the Defense Innovation Unit, part of the US Department of Defense, to help military doctors with cancer detection research. And recently, we signed an enterprise agreement with the U.S. Department of Energy to help scale research efforts and innovate across national labs and field sites.”
Trend two -- enterprise customers seeking to drive efficiencies and lower IT costs via cloud. “This is helping us win large data center and IT transformation deals, like Nokia, which recently announced it is migrating and modernizing approximately 30 datacentres across 12 countries onto Google Cloud,” Pichai told analysts.
And three, the future of work. Google Workspace, which brings together its communication and collaboration, is helping organisations like shipping company, Ocean Network Express, improve collaboration and productivity for their employees.
In product areas, the most sizable headcount increases are again and again in Google Cloud, for both technical and sales roles, according to Ruth Porat, CFO of Alphabet and Google.
So what’s AWS got?
An established brand in cloud services. Even before the Novel Coronavirus had been declared a global pandemic, hospital networks, pharmaceutical companies, and research labs began using AWS to care for patients, explore treatments, and mitigate the impacts of Covid-19 in other ways.
“Academic institutions around the world are transitioning from in-person to virtual classrooms and are running on AWS to help ensure continuity of learning. And governments are leveraging AWS as a secure platform to build out new capabilities in their efforts to end this pandemic,” Amazon chief Jeff Bezos told shareholders in the 2019 annual report.
But the real battle is from…
Satya Nadella’s Microsoft. Its Intelligent Cloud segment closed 2020, year ending 30 June, at $48.4 billion! Jassy said AWS is at a revenue run rate of $46 billion so far.
In the past two financial quarters, Microsoft Intelligent Cloud has generated $26.4 billion, compared to AWS’ $22.4 billion in the same period.
Nadella had sensed the opportunity in April this year, when he told investor analysts: “As COVID-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months.”
Cloud-adoption cycles are indeed shrinking. Jassy said so at Re:invent 2020.
The last $10 billion has come in 12 months to reach $46 billion revenue run rate, he said. “It took us 123 months to get to be a $10-billion business; 23 months to go from $10 billion to $20 billion; 13 months to go from $20 billion to $30 billion.”
While the total IT spend on cloud is still in single digits—4% according to Jassy—he said there’s a lot of growth ahead. The pandemic has accelerated cloud adoption by several years, Jassy told a global audience of 400,000 people who had logged into re:Invent 2020. “Enterprises we have been talking with – (which were) dipping their toes in water, with not that much movement – have gone from talking to having a real plan.”
But where AWS owns the developer community’s cloud adoption in the start-up economy, Nadella seems to have an edge in conversations with enterprises from the old guard. “Even in industries that have been impacted economically, getting to the new efficient frontier of cloud economics is one way for them to, in fact, do better as they get into recovery, right?” He told analysts in June 2020. Here, Microsoft has accelerated getting to the “efficient frontier,” so that enterprises can recover faster from the pandemic woes. “What we want to be able to stay focused on is, quarter-over-quarter, consumption growth by adding value to customers’ digital transformation projects.”
With inputs from Vignesh Ananthraj