IDC estimates that global spending on public cloud services will hit $266 billion by 2021 as compared to $128 billion last year. With so much revenue in play, tech giants Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are having a go at each other to carve a bigger slice of this pie for themselves.
The story so far
Amazon's public cloud platform -- Amazon Web Services (AWS) -- has established a clear lead in this space. AWS reportedly held 68% of the public cloud market at the end of 2017, according to KeyBanc Capital Markets. Second place Microsoft was far behind with a market share of 20%.
However, the market share trends clearly indicate that the tables have started turning. AWS' share of the public cloud market was down by 6 percentage points from the prior-year period, according to a CNBC report on the data, while Microsoft's Azure cloud computing platform gained 4 percentage points. What's more, Azure adoption has reportedly been growing at a faster pace than AWS in recent quarters.
Microsoft's Azure revenue increased 98% in the last-reported quarter, boosting the company's commercial cloud revenue by 56% to $5.3 billion. A striking thing to note is that Microsoft's Azure cloud growth has been accelerating lately, clocking 93%, 97%, 90%, and 98% growth over the past four quarters.
On the other hand, AWS revenue increased 44.6% last quarter. So, Microsoft seems firmly on track to cut into Amazon's lead in the public cloud computing market, and it isn't going to let its foot off the gas anytime soon.
Microsoft recently announced that it is going to expand its cloud services in Europe and the Middle East. The company will establish new data centers in the United Arab Emirates and Switzerland, add new services in Germany, and commercially launch the Microsoft Azure and Microsoft 365 platforms in France.
This is a smart move by Microsoft, because spending on public cloud services in Europe is expected to reach $52 billion in 2021. In fact, IDC forecasts that public cloud spending in Western Europe is going to more than double from 2016 to 2021.
But there's more to Microsoft's cloud strategy than just deploying new data centers. The company is capitalizing on the artificial intelligence (AI) craze by offering the widest set of pre-built AI tools when compared to other leading cloud vendors, according to KeyBanc. This makes it easy for potential Microsoft customers to deploy AI applications quickly.
What's more, Microsoft's AI tools are more widely available from its data centers around the globe, giving the company a leg up on the competition. Not surprisingly, 49% of organizations who have just started adopting the enterprise cloud rely on Azure as compared to AWS' 47%, according to a survey of 1,000 respondents by RightScale.
According to the RightScale data, the percentage of respondents running apps on Azure jump from 34% last year to 45% in the most recent report. Meanwhile, those running apps on AWS increased from 57% to 64%.
Microsoft also recently announced that it will use the Azure cloud platform to deliver AI tools for the healthcare industry and expanded its cloud service offerings for government applications late last year. Amazon has dominated the government cloud market so far, but Microsoft's focus on blockchain technology could help it land more government contracts in the future.
In the end, Microsoft is pulling the right strings to carve a bigger share of the cloud computing market for itself as it closes on Amazon.