Microsoft’s cloud revenue was up 36% this quarter, Amazon’s was up 40%, and Google’s was up 45%. Obviously the cloud is doing well, and obviously Google is doing unusually well, measured by revenue growth. However, there’s a lot more to the cloud story, and what’s there could be very, very, important.
The problem with raw revenue growth as a measure of cloud success is that it presumes that everyone is targeting the same market, and that everyone is starting from a fairly equal base. If a cloud provider has significantly lower revenue, even small dollar gains will translate to big percentage gains, and since Google is the bottom of the cloud Top Three, that’s surely a factor here. If a cloud provider is targeting more startups than enterprises, as Amazon has consistently done, then they’ll do better when there’s a wave of interest in some new cloud-hosted application. That’s a factor here, too.
Amazon is the largest of the three providers, and has the advantage of name recognition, maturity of offerings, and both geographic and hosting scale. Their biggest negative is that they’ve been successful enough in their relationship with OTT companies that they’ve not pushed as hard in hybrid cloud as rival Microsoft. That’s limited their participation in the enterprise cloud market.
Microsoft, number two, has focused on the enterprise from the start, and so they benefited as companies turned to building cloud front-ends to legacy applications to respond to greater need for direct, online, sales and support. They’re often seen as the logical alternative to Amazon for enterprises, but much less so as a partner for OTT firms. Their Teams, LinkedIn, and Microsoft 365 offerings have been successful and profitable, and improve their overall cloud economy of scale.
Google has the best cloud technology out there, and they also have the potential to achieve both economy of scale and geographic scope that would at least match and very possibly exceed that of either of their rivals. They’ve also taken steps, in the most recent quarter, to eliminate some technical disadvantages they’ve suffered in the past, and most significantly, to tap into Microsoft’s enterprise opportunity base. Their cloud is built on much the same technology as their vast search and advertising base, giving them the potential for that scale/scope push I’ve noted.
Where does this leave us with respect to the future of these three giants, and of the cloud? I think that there are two forces/factors that are driving cloud computing. The first is the scope of the hybrid cloud opportunity, and the second is the edge computing opportunity. Both these opportunities are already in the sights of these three cloud providers, but neither are really locked up yet. There’s at least one decisive force that’s yet to be played out in both opportunities, and it’s not clear who sees that, much less who will exploit it best.
Hybrid cloud, despite Microsoft’s initial platform-as-a-service centricity, is really about creating a loose coupling between a cloud front-end GUI-centric component and legacy transaction processing. The truth is that this model of hybrid cloud doesn’t favor Microsoft because they really don’t have a data center incumbency. IBM, who’s been whiffing their swings on hybrid cloud despite having the best account position to control it, has all the right credentials for hybrid.
But if IBM whiffs, then who benefits? Answer, mostly Amazon and perhaps (with the right positioning) Google. Hybrid cloud, absent some specific framework (middleware, PaaS, or whatever you’d like to call it) to unify the zone between cloud and data center, is really making the cloud into a very sophisticated and loosely coupled GUI. Amazon’s social-media role means it has the tools to create “social front-end” technology. So does Google’s own search/ad business.
If the hybrid cloud remains a GUI glued on top of legacy applications, then the dynamic of the opportunity won’t change much over the next couple of years. All three providers would likely have a shot at the growing enterprise dependence on the cloud, and I’d expect to see all three benefit to a comparable degree from growth in enterprise hybrid cloud spending. Since I don’t think that it would be easy for any of the top three cloud providers to change the dynamic of the hybrid cloud opportunity, I don’t think that a direct assault on hybrid cloud will change the market in the near term.
How about an indirect assault? Edge computing, our second opportunity area, is emerging as an opportunity in itself, but also as an element in hybrid cloud.
The obvious question about “edge computing” is “Where’s the edge?” Since we’ve accepted the truth that edge computing is justified by applications that have significant latency sensitivity, the location of the edge can’t be any further out toward the source of events (which means the facility in which events are generated), nor further inward than the metro area where those facilities are found. The former position is what creates the symbiosis between hybrid cloud and edge computing, and the latter is what creates a new cloud revenue opportunity.
The great majority of edge applications relate to IoT, or M2M if you prefer. Because these applications represent a bridge between real-world activity and applications, they have to stay in sync with the real world or risk irrelevance at best or actual danger to people and property at worst. What the cloud providers have done is create extensions between cloud and premises edge, giving them a way of capturing the latter opportunity even before they’ve deployed any specialized edge computing resources within the cloud itself. Doing that requires a place to put them, of course, so there’s likely to be a delay in realizing any cloud-edge opportunity.
The non-user side of the edge is perhaps even more problematic. To bet on IoT to drive cloud-edge opportunity is to go beyond recklessness, financially speaking. That’s why there’s so much interest in telco cloud among the cloud providers (they were a major presence at the recent MWC in California). If 5G deployment, including O-RAN, creates an appetite for edge computing, and if it continues to drive partnerships between telcos and cloud providers, then might those deals culminate in real-estate-sharing practices? Some already have, and those practices could thus position assets that could eventually be harnessed for other edge applications, including IoT.
Even gaming and Facebook’s metaverse hopes could be incentives to drive edge deployment, but IoT, gaming, and metaverse all require an architectural model that also can be back-fitted to 5G in order to provide a safe balance between investment and return. Otherwise, new applications could be stalled by a lack of compatible facilities. Who provides those models? It could be a network vendor, a cloud software provider, a cloud provider, or maybe someone from left field; only time will tell.