Earlier this year we asked the question “Is Azure Really Catching Up” and compared Azure vs. AWS growth. As the latest revenue figures have just been released, we felt it was time to again compare the two cloud computing giants to see if the gap between them is still closing or whether AWS has pulled further ahead.
Back in March, we published a comparison of Azure vs. AWS and asked the question “Is Azure Really Catching Up?” At the time, we were looking at figures from January 2018 which showed Azure growth of 98% and AWS growth of 45%. Our conclusion was, that if the two companies maintained their existing rates of growth, they would reach parity in the IaaS market by 2022.
Our Azure vs. AWS growth prediction came with the caveat that the global IaaS market would have to grow tenfold for the prediction to be realized. Not only would the global IaaS market have to grow at three times the rate of Gartner’s forecasts, it was also reliant on other cloud service providers failing to make an impact on the market leaders’ market shares.
*This comparison focuses on Iaas offerings and not PaaS offerings, for which Azure has a large presence.
What’s happened since March?
Since March, both companies released three sets of quarterly reports - in April, July, and October. These reports show that, while AWS’ revenue growth has remained steady, Azure’s revenue growth has slightly decelerated. Azure still leads the way in an Azure vs. AWS growth comparison; but, if this continues, the roles could be reversed by the middle of next year.
If we were to recalculate our Azure vs. AWS growth prediction based on just the latest set of figures, the point at which the two companies would reach parity in the global IaaS market would now not occur until 2027. We’re assuming unprecedented growth in the IaaS market, that other cloud service providers don’t encroach on market share, and that the rate of Azure growth remains constant.
Factors that may influence future growth statistics
Analysts have been predicting a fall in Azure’s growth rate for some time assuming that near-triple-digit, quarter-on-quarter growth is unsustainable (the rate of growth was actually 116% in 2017 Q1). There’s also an argument that the number of Microsoft’s existing enterprise customers - those most likely to adopt Azure’s hybrid solutions - is finite, and the company isn’t able to convert as many as previously.
This doesn’t quite explain why AWS’ growth rate has continued to remain steady. The analysts’ “law of large numbers” equally applies to the world’s largest IaaS provider - especially as AWS faces more direct open market competition than Azure from the likes of Alibaba and Google Cloud, due to Azure initially being developed to accommodate Microsoft products and Microsoft customers.
A more reasonable explanation is that AWS has closed a significant number of “performance obligation deals” - long-term contracts (think of ten-year Reserved Instances) as AWS customers “do cannonballs into the pool versus just dipping their toe in” according to Jefferies analyst Brent Thill. Gartner analyst Lydia Leong agrees. She told CNBC that clients were signing more deals and vastly larger deals with AWS.
Does an Azure vs. AWS growth comparison matter anyway?
In her interview with CNBC, Leong claims “the bulk of AWS deals for Gartner clients are in the range of $5 million to $15 million, with many deals now exceeding $30 million - which is significantly higher than Azure, which tend to be below $1M”. If AWS continues to attract larger “performance obligation deals” than Azure, and include prepayment revenues in its quarterly returns, the company’s growth rate is going to appear artificially high. It may be the case that, before the existing round of performance deals are renewed, we also see a deceleration of AWS’ growth in the IaaS market.
But does an Azure vs. AWS growth comparison matter anyway? Since both companies are able to increase their revenues, there’s money available for innovation and the development of new products and services - which is good news for end-user businesses. Businesses don’t have to choose between one cloud service provider and another when it’s possible to take the best products and services from each, and manage them with CloudHealth.