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#1 Microsoft vs. #2 Amazon: Numbers Prove Who Rules the Cloud

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For reasons I can’t fully fathom, many folks in and around the tech business continue to believe—mistakenly—that Amazon is the king of the enterprise cloud, when in fact Microsoft’s cloud business is significantly larger than Amazon’s and is growing more rapidly.

Those aren’t opinions, they’re not estimates, and they’re not interpretations: those are facts. So why do so many people in the tech industry and particularly in the media continue to either ignore, misinterpret, or just refuse to believe those facts?

And let me say I have nothing but great respect and admiration for AWS and its ongoing record of excellent performance—just yesterday, I named AWS leader Andy Jassy as my Cloud Wars CEO of the Year for 2018.

In 2018, Microsoft reported revenue of $32.2 billion for its enterprise-cloud business, and Amazon Web Services reported revenue of $25.66 billion for its enterprise-cloud business—and below, I’ve included screenshots from the official publicly available financial documents filed by both companies with the SEC.

By my math, Microsoft’s $32.2 billion is 25.5% larger than AWS’s $25.66 billion. So again—why the confusion?

I suspect that some people believe that all of Amazon’s cloud revenue comes from “real” cloud services, and that at least some of Microsoft’s cloud revenue comes from cloud services that those folks deem to be—for whatever bizarre reason—”not really” enterprise cloud, or not serious enterprise cloud.

That’s a load of nonsense, and it’s time to blow it apart once and for all because the truth matters, particularly in an industry that represents one of the greatest growth markets the tech world has ever seen.

Here’s a screen capture from a slide that Microsoft released to the public on Jan. 30 as part of its formal disclosure of its financial results for the three months ending Dec. 31, 2018, which for Microsoft was Q2 of its fiscal year 2019.

via Microsoft

You can find this slide, and the entire presentation of which it’s a part, on the Microsoft Investor Relations website; this particular slide is #5. The fourth line down is called “Commercial Cloud Revenue (in billions),” and if you follow that across, you’ll see that the last four revenue figures in that line represent the four quarters running from Jan. 1, 2018 through Dec. 31, 2018, even though in terms of Microsoft’s fiscal year, they represent Q3 of fiscal year 2018 through Q2 of fiscal 2019. Either way, those final four figures represent calendar 2018.

By quarter, those revenue figures—and skip over the first one of $6.1 billion, which is from calendar 2017—are $6.8 billion for the three months ending March 31, $7.9 billion for the three months ending June 30, $8.5 billion for the three months ending Sept. 30, and $9.0 billion for the three months ending Dec. 31. Add those up, and the total is $32.2 billion—and that represents the revenue from Microsoft’s enterprise-cloud business (what it calls its “commercial clouds”) for 2018.

Now over to Amazon: go to this page in Amazon investor relations and scroll down past all the textual narrative—there’s quite a lot of it—until you come to the beginning of a series of financial statements. In that series, the fourth financial statement is headed “ Inc. Segment Information.” Within that statement, the first subheading is North America, the second is International, and the third is AWS. And here’s a screenshot for the relevant “Net sales” line under AWS:

The relevant number for our purposes is the one on the far right, which represents the revenue figure for calendar 2018: $25.655 billion, which I have rounded up to $25.66 billion. (The first three figures in that line represent revenue for Q4 2017 ($5.113 billion), Q4 2018 ($7.430 billion), and then calendar 2017 ($17.459 billion).

So those are the figures from each company’s investor-relations pages—and again I ask, why the confusion?

Let me offer a few ideas on that. I don’t believe in any of these, but they seem to be the rationale behind the thinking that tries to convince us that $32.2 billion in enterprise-cloud revenue is not bigger than $25.66 billion in enterprise-cloud revenue.

  • Microsoft includes Office 365 Commercial in its revenue figure, and Office 365 Commercial, according to these dubious theories, “isn’t really cloud”;
  • Microsoft includes the commercial portion of LinkedIn in its revenue figure, and even the commercial portion of LinkedIn “isn’t really cloud”; and
  • Microsoft includes its Dynamics 365 SaaS apps in its revenue figure, and, uh, um, well, see, er, SaaS apps “aren’t really cloud.”

As best as I can tell, the doubters doubt for this reason: Amazon is the king of the cloud, and therefore the “real cloud” is defined solely by what AWS does or does not sell. If AWS doesn’t sell it, then it “isn’t really cloud.”

And that type of tortured logic somehow leads to the doubters/deniers into believing that the only Microsoft cloud revenue that’s equivalent to Amazon’s cloud revenue is Azure. And that is nonsense.

Because in the Cloud Wars, the ultimate arbiters and decision-makers are business customers that want to move as much of their IT estates to the cloud as is feasible, reasonable and productive. And if that means Office 365 Commercial, then in the minds of business customers, that sure as hell is cloud.

If that means Dynamics 365 SaaS apps, then in the minds of business customers, that sure as hell is cloud.

If that means the booming commercial portion of LinkedIn can help companies recruit talent more effectively and market and sell products more precisely, then in the minds of business customers, that sure as hell is cloud.

By the logic employed by the deniers,—with annual cloud revenue expected to reach $16 billion by the end of this year and with a market cap of $123 billion, which is as big as the market cap of both IBM and SAP—“isn’t really a cloud company” because, by their phony and misguided inside-the-bubble reasoning, Salesforce doesn’t sell what Amazon sells, and anything that Amazon doesn’t sell isn’t really cloud.

There are many reasons that such phony logic needs to be exposed and swept aside, and the biggest of all is this: the ultimate judges of what is or isn’t cloud are business customers. No matter how successful Amazon continues to be in the cloud, those business customers are voting overwhelmingly for Microsoft as the #1 cloud vendor in the world.

(Disclosure: At the time of this writing, Microsoft was a client of Evans Strategic Communications LLC.)

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