Microsoft (NASDAQ:MSFT) is continuously upping its game in the public cloud arena, and recently announced the availability of Azure Communications Services. The new product is a library of APIs (an API is an application programming interface, a pre-defined operation that can be inserted into and executed by an app) for developers to embed communications capabilities into an organizations' operations or web and mobile apps -- everything from video to chat to traditional phone calls.  

2020 has presented many businesses with unique challenges, like keeping a suddenly remote workforce productive and staying in touch with customers while physical locations are closed. Cloud-based communications are helping solve those problems, and the sprawling Microsoft Azure ecosystem is well-suited for the task. But there's one problem: It stomps on the toes of cloud-communication API pioneer Twilio (NYSE:TWLO)

Four people standing against a wall using smartphones.

Image source: Getty Images.

The cloud war heats up

Tech outfits like Twilio that help customers navigate this new digital era are going gangbusters. Twilio itself reported a 51% year-over-year increase in revenue to $765 million through the first half of 2020 as users scrambled to embed communication and identification management into their applications. Total users of the library of APIs reached 200,000 at the end of June. However, not itself a public cloud operator, Twilio and other companies like it rely on integration with Microsoft Azure, Amazon's (NASDAQ:AMZN) Amazon Web Services, and Alphabet's (NASDAQ:GOOGL)(NASDAQ:GOOG) Google Cloud to maximize the number of customers they can reach.

But Twilio and other cloud software businesses find themselves increasingly competing with the very public cloud providers they integrate with. Azure Communication Services is but another example of this, as the myriad of players in the fast-growing cloud industry start to encroach on each other's turf. For Microsoft, adding communication APIs alone to its long list of capabilities isn't going to move the needle. It generated $143 billion in revenue over the last trailing 12-month stretch. But for far smaller Twilio? Azure's new tricks could eat into its longer-term growth story.  

That's only an eventual problem, though. Twilio remains firmly established as the leader in the cloud communications market, and in the near term, Microsoft's competing service could simply validate the trend the API pioneer helped start in the first place.