Cloud computing is one of the biggest investment themes of the current age. When the results are in, it's expected to show that the overall cloud market grew 18.5% in 2017 to $260 billion, according to Gartner. That figure includes several sub-sectors, like infrastructure, platform, software, business processing, security, and advertising as a service.
The fastest-growing category is infrastructure as a service (IaaS), which allows corporations to outsource storage and computer functions, thereby paying only for what they use, instead of having to build their own data centers. That market is estimated to have grown 36.6% in 2017, double the rate of the overall cloud market, to roughly $35 billion. What's more, there are only a handful of companies with the financial and technical resources to scale a cloud infrastructure business. These include Amazon (AMZN 0.78%), Microsoft (MSFT 0.25%), and Google (GOOG +0.52%) (GOOGL +0.56%). Let's look at how these companies fared in the cloud wars of 2017.
Cloud infrastructure is a fast-growing oligopoly. Image source: Getty Images.
Amazon
This is the company that pioneered cloud computing, giving it a multiyear head start as other tech giants were slow to catch on to the innovation. That's why Amazon currently has a leading 44% IaaS market share, much bigger than No. 2 Microsoft at 7.1%.
For the year ended in 2017, Amazon Web Services (AWS) grew an impressive 43% to $17.5 billion. While that number is mostly made up of infrastructure, the success of AWS has enabled Amazon to roll out other platform and software products as well. For instance, at the company's November re:Invent Summit, Amazon unveiled several innovations, like an artificial-intelligence-as-a-service platform called SageMaker, and an edge machine operating system for the Internet of Things called FreeRTOS.
The company continues to expand its data center footprint, opening a new region in France and a second in China last quarter. That brings AWS up to 18 regions, further divided into 52 zones, and the company plans to open 12 more zones across four regions in 2018.
Microsoft
Microsoft is estimated to have 7.1% IaaS market share, good for second place by a wide margin. Last quarter, the company grew "commercial cloud" revenue by 56%. Of course, commercial cloud includes Microsoft's dominant software businesses like Office 365 and Dynamics 365. Microsoft doesn't break out its Azure infrastructure service separately but does report its growth rate, which came in at 98%. Even better, Azure's premium services grew by triple digits for the 14th straight quarter. Microsoft is growing off a much smaller base than Amazon, but that is still quite impressive considering it's the No. 2 player.
Microsoft is likely benefiting from retail-oriented companies that don't want to use AWS; for instance, in June, Walmart (WMT 1.30%), Amazon's main e-commerce rival, asked some of its vendors not to use AWS.
Microsoft actually has the most cloud regions in the industry, with 36 regions open and six more announced.The company also completed construction on its hyperfast and future-proofed undersea cable called Marea in September, linking the U.S. and Europe. I expect the company's cloud division to continue to do well this year.
Google is the third-ranked U.S. cloud infrastructure company, with just 2.3% market share, according to Gartner. Still, the company is investing aggressively, announcing the construction of three different undersea cables to better connect its 15 regions and 44 zones all over the world. Google, like Microsoft, doesn't break out cloud revenue separately, putting it in its "Google Other" category, which also includes the Play app store and Google's hardware division. That segment grew 37.7% in the fourth quarter to almost $4.7 billion.
Although Google is in third place, management has really emphasized the cloud of late, saying most of the 2,000-plus headcount additions in the fourth quarter were in the cloud segment, on the technical and sales sides. CEO Sundar Pichai also announced that Google Cloud, which includes infrastructure and G Suite cloud software, had reached $1 billion per quarter, and noted Google was the fastest-growing public cloud provider in 2017, according to third-party data.
The company also forged new partnerships with IT leaders salesforce.com, Cisco, and SAP, beefing up on its enterprise relationships. While technically successful, Google had lagged in the enterprise relationship department behind Amazon and Microsoft, but that could be changing. On the recent conference call, Pichai said: "... the past two years, we've put a lot of effort to make sure we are enterprise scale ready. So, now we can handle any type of enterprise, any kind of regulatory complexity, security complexity, and so on."
You're all winners!
While sports often have definitive winners and losers, business is not always like that. With a huge market and a limited number of players, all three of these companies can win in the cloud wars, and 2017 was a successful year for each.
