Cloud money printer go brrr

The Big Story

Cashing in on the year of the cloud

The amount of money generated over the last five years by the companies defining the era of cloud computing is staggering. But that was the easy money; the next five years should be very different.

Last Thursday's newsletter unpacked Microsoft's results, and how the company decided to kick off 2021 by embracing the idea that it is the "most comprehensive" cloud company. That claim is based on its legacy position on enterprise software budgets that are converting to cloud services, both on the infrastructure side with Azure and on the SaaS side with Office 365 and Dynamics. In truth, apples-to-apples comparisons across the Big Three are tricky — though not impossible — because all three companies are coming at the "cloud" market with different arrays of products and services.

So let's take a look at how AWS and Google Cloud stacked up against Microsoft during the fourth quarter and during 2020 in general, a year that (hopefully) will never be duplicated as the greatest forcing function ever for cloud computing.

First up is AWS, which reported $12.7 billion in fourth-quarter revenue, up 28% compared to last year, and $45.4 billion in 2020 revenue, up about 30% compared to 2019.

• When you look at a chart of AWS revenue growth over the last decade or so, there's no question that growth has slowed over time. Still, there aren't a lot of enterprise tech companies doing $45 billion a year in revenue and growing faster.
• One exception is Microsoft, which just recorded a "commercial cloud revenue" figure of $16.7 billion for the last quarter, up 34% from the same time a year before. Microsoft reports earnings on a different fiscal-year schedule than most companies, but is on pace to record $66.8 billion from enterprise customers during its 2021 fiscal year, which ends in June.
• The more apt comparison between the two companies would be AWS revenue against Azure revenue, but Microsoft refuses to disclose that number. Back-of-the-envelope math suggests the figure is about half of AWS revenue, although Microsoft is gaining share.
• The question is whether making a perfect comparison really matters: AWS did not have a legacy data center-based enterprise business to convert to the cloud and so started from scratch, yet it's obvious that Microsoft has managed to not only hold on to the lion's share of the old-timers — which was never a given — but also grow organically by refocusing its product and sales organizations on the cloud.

On the other hand, there's Google Cloud, which reported operating profit for the first time on Tuesday after disclosing only revenue during the last several quarters.

• Alphabet is losing a surprising amount of money on Google Cloud: The group posted an operating loss of $1.2 billion in the fourth quarter, and $5.6 billion in 2020, about a 17% decrease on the full year compared to 2019.
• Meanwhile, revenue from Google Cloud (which includes both Google Cloud Platform and Google Workspace) grew faster than either AWS or Microsoft, at $3.8 billion for the quarter and $13 billion for the year, up 46% compared to 2019.
• Yet, at $13.5 billion, AWS' operating income during 2020 was a little more than Google Cloud revenue for the year. Microsoft doesn't disclose the actual operating profit figure for its commercial cloud business but reported gross margins of 71% in the last quarter; that's good.
• During Alphabet's earnings call, CFO Ruth Porat commented on Google Cloud's lack of profitability: "Cloud's operating loss reflects that we have meaningfully built out our organization ahead of revenues, as we've discussed in prior quarters, with respect to the substantial investments in our go-to-market organization as well as engineering and technical infrastructure."
• And if Google Cloud revenue keeps growing at a 46% clip, it will generate a profit soon enough.

It's kind of amazing to look back at where AWS, Microsoft and Google were in 2015, the first full year of Satya Nadella's tenure as Microsoft's CEO.

• AWS recorded $7.9 billion in revenue for all of 2015, and Microsoft's commercial cloud revenue for its 2015 fiscal year was on a $8 billion pace.
• Meanwhile, Google Cloud was still lumped in Alphabet's "Other Bets" category, which in total generated only $448 million in revenue during 2015.
• And just for fun, in 2015 IBM recorded $82 billion in revenue, while Oracle recorded $38.2 billion. IBM reported $73.6 billion in 2020, while analysts expect Oracle to report $40.1 billion for its 2021 fiscal year.

But competition for cloud business is only set to get tougher over the next few years. So, despite its growth, Google Cloud's quest for profitability might be a little harder than it would like — and it might not be a cakewalk for any of the big three.

• Whoever takes over as the AWS CEO (more on that below) will have a big job filling Andy Jassy's shoes as the only leader AWS has ever known, and it's not a stretch to assume technical recruiters at rival companies are putting together their call sheets in case things don't work out perfectly.
• Microsoft is in an excellent position as the AWS alternative — complete with a matching set of software for business wonks — but needs to make sure it shores up its infrastructure after a couple of shaky years amid strong growth.
• The Information reported this week that under CEO Thomas Kurian, Google Cloud introduced what's known as an "enterprise agreement" contract structure, a more customer-friendly way of packaging everything Google has to offer in a single contract structure that most enterprise companies (including AWS and Microsoft) already offer.

AWS has had a great run, and Microsoft and Google have refocused their companies around the challenge it has presented. But the next AWS might just be waiting its turn.

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This Week On Protocol | Enterprise

Movin' up: The big news of the week, month and year so far in enterprise tech was the CEO transition at Amazon, which will see Jassy taking over as leader of the ginormous Amazon operation. Regular readers of this newsletter already know a lot about the president of the Bill Parcells Fan Club, but I took a look back at Jassy's accomplishments at AWS just in case.

Next up: I reached out to several contacts inside and outside AWS for their thoughts on who might be the next CEO, and the answers were almost unanimous: Matt Garman, the current head of sales for the company. Garman is a member of Amazon's senior leadership team and has also managed engineering teams, giving him the inside track to be only the second CEO in AWS history.

Five Questions For...

Amanda Silver, corporate vice president of product for developer tools, Microsoft

What was your first tech job?

Converting signal processing software to using C++ STL at Los Alamos National Labs.

Pick one piece of consumer or business software (that isn't sold by your company) that you can't live without.

This year, given that our team is now entirely distributed, we've become heavy users of Mural for facilitating brainstorming and structured design sprints. It really helps us organize our thoughts. What I love about it is that it's better than what we used to do in physical off-sites: We used to use sticky notes and our insights would disappear after the off-site. With Mural, our process is captured digitally and therefore archived and can be shared more broadly than just with those who were there for the initial collaboration.

What was the first computer that made you realize the power of computing and connectivity?

As a physicist, my dad had Apollos, Suns and IBM stations at home for most of my childhood. My first program was written in Basic when I was about 8. I think I wrote an infinite loop that said "I love you" until my dad taught me the hotkeys to interrupt the terminal execution. My dad has played a huge role in supporting my path toward a career in tech; he's my strongest ally.

What was the biggest reason for the success of cloud computing over the past decade?

It started with cost savings in terms of operations. But by pooling compute, storage, networking resources and more, we can lower the barriers to entry for everyone — for new startups creating new businesses, for developers looking to learn about things that previously required specialized hardware like machine learning or IoT, and we can share our collective knowledge so that humanity can collaborate more quickly via things like open source on everything from advancing the state of the art in database technology to health applications like defeating COVID-19.

What will be the biggest challenge for cloud computing over the coming decade?

The biggest challenge right now is ensuring that tech is generally a force for good … Whether it's ensuring that we are building responsible AI [or] ensuring there is access to tech for people from all walks of life, to ensuring that digital literacy doesn't become the great divide that exacerbates inequality.

Around the Cloud

• Just when it seemed like SolarWinds was inching its way outof the Big Hack spotlight, The Wall Street Journal reported that the company's Office 365 email system was compromised for up to nine months without being detected.
• And there's more: Not only was there the SolarWinds hack we already knew about, the one attributed to the Russians, but hackers working on behalf of the Chinese government are also believed to have infiltrated the company through a completely different flaw in its software.
• The fallout from the breach continues to reverberate throughout the government, and there's so little confidence in the current electronic systems that courts are requiring lawyers to print out sensitive documents and submit them by hand.
• Box entered the e-signature business, paying $55 million for SignRequest in order to give its customers a Box-managed signature verification tool in addition to the third-party ones that already integrate with its storage services.
• Andy Jassy saw fit to email AWS employees about a Bloomberg article on Amazon's fledgling video game-development efforts, which, truth be told, didn't break a lot of new ground compared to a similar article Protocol published last August.
• Line up, quantum computing enthusiasts (or those who imagine themselves to be): You can now give Microsoft's Azure Quantum service a try, which uses quantum machines built by Honeywell and IonQ.
• Don't worry, Google Cloud: It took Alibaba 11 years to turn a profit from cloud computing.
• Here's another semi-regular reminder that one of the biggest factors behind the growth of Microsoft Teams is the fact that Microsoft is ending support for Skype for Business — which had way more users than you might have thought — later this year.
• Twitter acquired DriveScale, a storage technology startup, and it's a little unclear what the social-media company has in mind.
• The open-source community is still buzzing about Elastic's decision to change the license on the Elasticsearch and Kibana projects, and the company unveiled a new version of its Elastic License that it believes clears up some of the confusion.