Microsoft and Google pick up the pace

The cloud contenders

The second quarter of 2021 marked one year since COVID-19 neatly divided the business world into Before Pandemic and After Pandemic, a three-month period of lockdowns beginning in April 2020 that forced businesses to change the way they operate. It was also a time during which it became very clear that there was plenty of cloud computing business to go around.

A year later, Microsoft and Google are in a much stronger position than they were heading into the pandemic, thanks to the surge in demand for cloud services over the past year. While they both still trail AWS in the key infrastructure cloud services market by a sizable margin, they continue to grow that part of their business at a 50% clip.

The enterprise is a full-time business for Microsoft, while at Google it remains a fraction of the overall company. Still, both companies are clearly attracting business that even just a few years ago might have gone to AWS by default, which ups the competitive stakes for all three companies and, ideally, will give cloud buyers a stronger set of options.

Microsoft has been on a tear for several years now as it reprioritized the business customer and embraced cloud computing. Nothing changed during this last quarter, but a few things stood out.

• Azure growth actually accelerated compared to Microsoft's fourth fiscal quarter of 2020, from 47% last year to 51% this year.
• Sales of Windows Server software jumped 16% after a year of flat growth thanks to what Microsoft called "hybrid and premium solutions," which will be an interesting figure to watch as rumblings that on-premises data-center spending is due for a revival continue to grow.
• CFO Amy Hood did not provide a specific number, but noted that the number of cloud deals valued at more than $10 million saw "significant growth," as cloud providers continue to sign big, long-term deals with enterprises that took their time moving to cloud services.
• Microsoft has $141 billion in "commercial remaining performance obligation," an accounting nerd's way of describing future revenue tied to enterprise deals that Microsoft has signed but still has to execute. More than half of that future revenue will be recognized in Microsoft's 2023 fiscal year.

Google Cloud is also growing faster than it was a year ago, recording a 54% jump in revenue to $4.6 billion after posting 43% growth during the second quarter of 2020.

• Google Cloud Platform — the company's infrastructure cloud services group — is growing faster than the overall division, which includes Google Workspace, CFO Ruth Porat told investors after the release of its numbers.
• Google Cloud is also making significant progress toward profitability after surprising investors with the size of its operating loss when it first revealed those numbers earlier this year, cutting its operating losses by more than half to $591 million.
• Companies spending money with Google Cloud are being drawn by security concerns amid the ransomware explosion and demand for data-analysis tools like BigQuery and Google Workspace, CEO Sundar Pichai said on the same earnings call.
• It's tough to tell if it actually gained any cloud market share during the last quarter, but it seems pretty clear that Google Cloud is making progress under a kinder, gentler Thomas Kurian.

There's still plenty of expensive work to be done at both Microsoft and Google should they want to strengthen their hand against AWS.

• Microsoft invested $7.3 billion in capital expenditures during the quarter, up from $5.8 billion a year ago, and CEO Satya Nadella noted that the company opened data-center regions in 15 new countries last year.
• For its part, Google invested $5.5 billion in capital expenditures, most of which went toward new servers, Porat said. That's an increase from last year's second-quarter outlay of $4.84 billion.
• It's hard to directly compare capital expenditures across companies because the totals also include real estate projects separate from data-center construction, but they do underscore how difficult it is to maintain world-class computing infrastructure; there are only so many companies that have the cash and expertise required to play this game.
• AWS will report its own earnings later today, and it is expected to build on the $10.8 billion in revenue it recorded during last year's second quarter at or around the 30% clip it has been growing at over the past several years.

But there's little question that the momentum from a year's worth of business disruption caused by the pandemic continues to benefit enterprise tech vendors, especially when it comes to the Big Three.

• Amid a renewed surge in cases of COVID-19 around the world, however, a tepid economic forecast in some parts of the world could be the only thing that slows down the cloud providers.

— Tom Krazit

A MESSAGE FROM THOUSANDEYES

Outages aren't a matter of if, but when. According to data from ThousandEyes, global disruptions in March 2020 — when we saw remote work roll out at scale — were 63% higher than they were in January 2020.

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This Week On Protocol

Google's promise: Reputations matter. Just ask the Google Cloud folks who worked on its new Enterprise APIs policy. The new policy promises Google Cloud customers that the company will keep many of its cloud APIs available and stable as long as customers are actively using them, and will provide a year's worth of notice should it need to close or significantly alter one of those services.

Three's company: Tableau decided to promote three executives — Kedar Doshi, Kate Wright and Jim Joudrey — to replace new CEO Mark Nelson in his old job as vice president of product development, Protocol's Joe Williams reported. The moves come after former Tableau CEO Adam Selipsky left the company to replace Andy Jassy as CEO of AWS earlier this year.

Five Questions For...

Ed Meyercord, President and CEO, Extreme Networks

What was your first tech job?

My job was to be a grunt! I got a part-time job my senior year in high school at a home/small business computer parts and repair business that also ran user workshops. IBM PCs were brand new, and Apple had just launched Lisa. My job was to do whatever the owners asked, like packing and unpacking boxes, making deliveries, setting up the classroom, getting lunch, etc. And, in turn, I got to tinker around in their repair shop and audit classes.

What was the first computer that got you excited about technology?

Not sure if the Magnavox Odyssey counts as a computer, but the hours playing Pong on our TV as a kid had to be one of the first and most exciting. The original Mac was exciting as well. It was the first time I ever used a mouse and yes, there were games as well.

What's your favorite pastime that doesn't involve a screen?

Cruising around town on my new Vespa with my wife! I was going to say riding my Peloton, but there's a large screen on the handlebars. And golf, yoga, cooking, reading and gardening are too boring.

How can enterprise tech improve its current status around diversity, equity and inclusion?

By building a diverse culture organically with committed and engaged executive leadership. It starts at the top and grows from the bottom. Get the loud voices to listen and the soft voices to speak up. Empower passionate leaders to drive change without throwing corporate dollars at top-down programs.

What will be the greatest challenge for enterprise tech over the coming decade?

Delivering high-quality user experiences that are consistent, effortless and secure.

Around the Enterprise

ServiceNow revenue beat Wall Street expectations with a 31% gain during the second quarter, and it raised guidance for the full year.

AMD's stock hit a record high Wednesday after it posted a huge earnings beat that saw revenue from its data-center business triple.

Intel, which has been the victim of AMD's success, announced plans to build chips for Qualcomm and AWS as its renewed foundry strategy starts to take shape.

Nuclear watch dogs are using artificial intelligence to track worker movements at a secret facility in Iran in hopes of understanding how the country is expanding its nuclear efforts.

Linkerd, the open-source service-mesh rival to Google's Istio, reached the CNCF's "graduation" milestone, which generally signifies that a project has reached an enterprise-ready level of maturity.

Japanese quantum computing researchers will be able to use a new system from IBM for their work, the second time IBM has shipped a quantum computer to a lab outside its walls.

Eric Newcomer had a nice profile of Bessemer Venture Partners, well-known in the SaaS world for several prescient investments in influential enterprise software companies.

DataRobot raised $300 million and acquired Algorithmia to move further into the growing world of AI-enhanced infrastructure operations.

There's no space on the medal podium for this Italian broadcaster who read his computer's password out loud during live coverage of the Olympics.

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