Microsoft Corporation Becomes the Second-Largest Cloud Services Provider

It's official: Microsoft (NASDAQ: MSFT  ) is now the second-largest cloud services provider after Amazon (NASDAQ: AMZN  ) , pulling away from the chasing pack that included Google, IBM (NYSE: IBM  ) , and salesforce.com. In the first quarter of the current fiscal year, Microsoft had a blistering 154% year-over-year growth. The company's cloud services consist of IaaS, PaaS, and its hybrid cloud.

According to Synergy Research Group, Microsoft's cloud infrastructure grew almost 2.3 times faster than Amazon Web Services, or AWS, which recorded 67% growth. IBM's cloud service recorded the second-fastest growth with 80%, Google was fourth with 60%, while Salesforce's cloud grew 37%.

 

Source: Synergy Research Group

AWS, however, is still the overwhelming leader with 27% share of the market, which is more than the combined market share of Microsoft, IBM, Salesforce, and Google, which have 8%, 6.5%, 6%, and 4.5% share of the market, respectively. AWS' quarterly revenue now exceeds $1 billion, with most of it coming from cloud infrastructure services.

Microsoft has been relying on its powerful brand and marketing muscle to establish itself as a clear No. 2 behind Amazon. The recent pricing wars between Amazon, Microsoft, and Google saw the companies slash their cloud by huge margins.

Microsoft Azure made price cuts that matched AWS' cuts in many categories, and exceeded it in several others. The software giant chopped computing prices by 27%-35% and storage by 44%-65%. Additionally, Microsoft cut the pricing for Windows instances by 27% and memory-intensive Linux instances by 35%.

Microsoft also reported that it was lowering the prices of Block Blob storage by 65% for LRS, or locally redundant storage, and 44% for GRS, or geo-redundant storage.

With the drastic price cuts, Microsoft is now in an excellent position to challenge AWS' leadership in cloud services. Although Microsoft's cloud is still less than one-third the size of AWS, it would take only 6-7 years to catch up, in terms of size, assuming that it grows at a rate of 80% for the next 7 years and AWS grows at only 50%. Faster growth for Microsoft's cloud could cut that time to as little as 4-5 years.

Forrester revises cloud growth projections upward
Faster-than-expected cloud growth is a result of customers opting to replace legacy systems with cloud-hosted alternatives, and has prompted Forrester Research to increase its previous cloud growth forecasts by 20%. The research firm cranked up its forecast for business spending on cloud services and software in 2014 to $72 billion, and expects the overall market to hit $229 billion by 2020, up from its earlier estimate of $191 billion.

The improving economy is inspiring confidence in companies and their IT managers to upgrade existing hardware and legacy systems. In most cases, companies are choosing to outsource their data centers, rather than invest in their own equipment. Businesses view cloud services as a means to cut costs because pound-for-pound, the cost of cloud-based IT services is usually far lower than that of in-house systems.

Why IBM is the biggest winner
The rapid growth in cloud services will be a major revenue boon for all of these tech companies. For IBM, however, its significance could be far greater than it is for the other four.

IBM's overall revenue has been declining, and fell 5% last year to $95 billion in fiscal 2013. Practically all the company's business segments have been faltering, with the exception of its software and cloud businesses. The company reported revenue of $22.48 billion in the last quarter, a 3.9% drop from a year ago.

IBM's cloud business is currently its saving grace, showing the most promise, and could help stem declines in other segments. The company recorded an annual growth rate of 100% for its cloud-delivered-as-a-service to $2.3 billion last year. IBM's cloud business is now almost as big as its traditional server division.

IBM's SoftLayer cloud service sports special features such as bare-metal cloud capabilities, which give it a competitive edge over rivals. IBM has also been ramping up its cloud businesses by adding a host of new features. Big Blue has been relying on this edge to maintain higher cloud prices, and the company did not participate in the recent cloud price wars. This advantage might be significant, as cloud services become commoditized and companies cut their prices to the bone.

IBM's strong cloud growth can help it offset declines in its other businesses in about three years, after which the company should see overall revenue growth.

Bottom line
Overall, the cloud market is growing rapidly, with the market leaders recording robust growth in their respective services. Microsoft's cloud is growing at a blistering pace, and has catapulted the company to the second position behind Amazon.

Meanwhile, IBM's strong cloud growth should help it offset declines in its overall business within three years, after which the company should see overall revenue growth powered by its cloud business segment.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

 


Read/Post Comments (1) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2014, at 10:41 AM, mwlconsulting wrote:

    If you've had email (been around for a long time) you've stored your data in the cloud. If you've had a website, hosted server, you've been in the cloud. It's not "the cloud" that the problem, it's the Internet itself.

    Whether local or global, data has and will always be subject to being accessed across some transport. Currently, the Internet is the most widely used, the probably the mobile phone companies are next in line.

    Either way, we will be subject to anything else "good" in life. Bad things will happen. Hackers or Burglars, Cyber or Brick and Mortar.

    Eventually, "The Cloud" will become a utility IMHO and just like current utilities, it will be mandated. What are we to do then?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2947764, ~/Articles/ArticleHandler.aspx, 10/25/2014 5:12:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement