The cloud wars are seriously heating up

Copyright – The Washington Post – February 2 2016 – By Hayley Tsukayama

Most consumers may not realize it, but there’s a furious battle playing out right behind the products they use every day.

The idea of “the cloud” is still amorphous to most people — just some nebulous place off of their computer, where some of their files live. But for businesses, the ongoing move to the cloud is something for which it’s worth staying up at night. The logistical headaches of deciding what files can be moved up to that big storage space in the sky, what programs they can run off-site, or which business functions can be trusted to an outside company are important for firms that must balance accessibility, security and immediacy.

And for the industry’s largest companies, that means a huge business opportunity — and that has sparked heavy competition among companies looking to manage the tech needs of the next decade’s enterprise market. Just look at the most recent set of company earnings.

On Thursday Amazon reported very strong numbers for its cloud service Amazon Web Services (AWS). The platform powers high-profile services for Netflix, Airbnb and NASA. (Amazon chief executive Jeffrey Bezos is the owner of The Washington Post.)

The firm reported $687 million in operating income on $2.4 billion in revenue for AWS, making it a comparatively more profitable venture than the part of the firm that includes its retail arm. That has come even as it aggressively slashed prices to generate new business. Chief financial officer Brian Olsavsky said that AWS revenue for the year was on track to be “just short” of $10 billion by the end of its fourth quarter.

Amazon’s interest in the cloud also seems to be extending further into its own products for businesses and consumers. On the earnings call, for example, Olsavsky mentioned that the firm’s Echo — the standalone digital assistant and speaker — is a representation of how the cloud business fits into a broader plan.

“The brains of Echo are in the AWS cloud,” Olsavsky noted. Echo launched in late 2014, and Amazon is continually adding features to it.

Then there’s cloud computing rival Microsoft. Cloud services were again the main focus of discussion for Microsoft chief executive Satya Nadella in the company’s Thursday earnings call, as the executive continues to try to breathe new life into a tech stalwart most associated with Windows and Office.

The company reported much progress with Azure, an AWS rival. Azure is Microsoft’s cloud computing business designed to handle modern mobile and cloud-based business needs. While Microsoft does not break out specifically how much money Azure makes, it reported that Azure had grown 140 percent in the past year. Its cloud services overall, which include traditional server businesses such as Exchange, brought in $6.3 billion in revenue in the fourth quarter, a 5 percent improvement over the same period last year.

Even without hard numbers on Azure, the growth there seemed to encourage analysts and investors who have been looking for proof of Microsoft’s assertion that the future of its business is improving its cloud services.

“With many of the mature tech stalwarts on the ‘innovation treadmill,’ Nadella has instead helped navigate Microsoft toward the cloud quicker and more successfully than its peers,” said Daniel Ives, an analyst with FBR Capital Markets in a note to investors. “And it clearly was on display for all to see this quarter.”

One advantage that Microsoft is looking to leverage is its long-running relationships with the business community, building on decades of trust to move into the next era. The company has already signed on major customers such as GE Healthcare and NBC News Digital in the past to manage some of its online programs; it would make sense to expand relationships with those customers already familiar with the way Microsoft does business as it introduces new products.

And the tech giant upped its efforts in the cloud wars by recently announcing a new product, Azure Stack, which gives companies the option to combine the resources of a public cloud with a private one — used only by a single organization. That model could appeal to many businesses, analysts said, who may want to use cloud services but have reservations about giving up all of their private data centers.

“The reality for large organizations is that they will live in a hybrid world for some time to come, and Microsoft is very well positioned to help them with the journey,” said Gartner research vice president Merv Adrian. “Azure Stack will play a sizable role there.”

Time will tell how successful Azure Stack may be, but analysts are definitely encouraged by where Microsoft is heading.

Finally, it is of course worth mentioning that this is more than a two-horse race. Even among the most influential tech titans, Microsoft and Amazon are not alone: Google is also gunning for a piece of the pie, as are firms such asIBM and Oracle, both as a way to court businesses and to get a hand in managing and running all the new connected devices that consumers will pick up in the next few years.

In the latest earnings call for Google’s new parent company, Alphabet, executives were eager to talk about its growing efforts in the space as one of its most important emerging businesses.

While Google also does not break out the revenue for its cloud business on its own, Google chief executive Sundar Pichai took a moment to highlight the company’s attention to the area. Pichai said that having run Google’s own services for so long gives the company the experience to handle other businesses’ operations. And he named cloud as being as important for the firm’s future as a focus on digital media, mobile, virtual reality and the expansion of the availability of Internet service.

“Public cloud services are a natural place for us, so we established a business unit late last year to take full advantage of the opportunity,” he said.  “As you know, Google pioneered the cloud at scale… And we are now able to bring this to bear just as the movement to the cloud has reached a tipping point.”

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