Google (NASDAQ:GOOG) (NASDAQ:GOOGL) wasn't the first to dive into the deep end of the cloud pool, Amazon.com's (NASDAQ:AMZN) Amazon Web Services, or AWS, business unit took the cloud-hosting lead as far back as 2006. By the time Google got around to entering the cloud race in 2008, Amazon.com had established itself as the unquestioned leader, and the search king is still trying to make up ground to this day.
Which brings us to Google's Cloud Platform Live event in San Francisco on Nov. 4, where it promised to unveil a bevy of new cloud solutions, and there were even rumors that further pricing cuts were in the offing. Turns out, the rumors were true, on all fronts, as Google took the wraps off several new cloud features, and slashed its cloud hosting and architecture prices -- in some cases, drastically. Not to be outdone, Amazon.com announced enhanced features of its own cloud services on the same day as Google's big event. Unfortunately for Google and Amazon.com, they're both barking up the wrong tree.
The war is on
Google's cloud event, in which it touted "the next generation of cloud computing," was attended by thousands of developers, either in-person or remotely, to see first-hand what Google had up its sleeve. In its effort to make the dev and deployment process simpler, Google upgraded its virtual app engine so developers can focus on, "applications rather than the plumbing."
For Google's bigger clients, its Cloud Interconnect promises seamless, worldwide network connectivity along with an easily scalable enterprise architecture to grow along with the needs of its hosting clients. Interconnect provides two ways to access Google cloud, with a virtual private network, or VPN, alternative coming next month. Google announced several other features for tech geeks, including compute engines, and an autoscaler to handle short-term spikes in data loads, among others.
But perhaps the biggest news, and what will likely prove to be the largest waste of time and energy, was Google's decision to cut its cloud hosting prices -- again. If this song sounds familiar, it's because Google and Amazon.com have seemingly taken turns lowering their respective cloud fees for much of the past year. From cloud storage to its compute engine, and several features in-between, Google announced its reducing prices from 10% to as much as 79%, depending on the service.
Amazon.com's response to Google Cloud Platform Live news was to throw a cloud-related bone to its Prime customers, who now enjoy unlimited storage of photos. Customer's pictures can be uploaded to Amazon.com's Prime Photo from virtually any mobile or PC device. The enhanced feature became effective immediately.
Playing in the wrong sandbox
It's nearly impossible to accurately compare cloud revenues between the big hitters, as many, including Google and Amazon.com, couch those sales in "Other" revenue silos. However, according to industry pundits, not only is Amazon.com close to being unseated as the cloud leader, both it and Google are growing cloud revenues at a snail's pace compared to the (likely) leader, Microsoft (NASDAQ:MSFT).
In Q2 of this year, Microsoft blew away the competition in the race to gain cloud revenue share, growing a whopping 164%. That compares to AWS's 49% jump and Google's 47% cloud revenue growth. Two quarters ago, Microsoft cloud revenues were tracking at an annual run-rate of nearly $4.5 billion. CEO Satya Nadella and team followed that up by announcing 128% growth year over year in cloud revenues in its recently announced fiscal 2015 Q1, and there's no indication Microsoft's cloud momentum will slow anytime soon.
Again, cloud revenues for Amazon.com and Google are estimates as neither see fit to break out sales, but estimates suggest AWS will generate $4.7 billion this year, while Google's cloud suite is in the $1 billion range. Considering how late Microsoft was the cloud, its run to the top is nothing short of spectacular.
How is Microsoft growing its cloud sales so quickly, compared to Amazon.com and Google who have actively pursued the market for so long? Microsoft is playing in the right sandbox, whereas Amazon.com and Google continue to slash prices and battle over what amount to cloud revenue crumbs: hosting. Microsoft, on the other hand, is driving its stellar cloud growth via its Software-as-a-Service, or SaaS, offerings like Office 365 and Dynamics CRM.
Final Foolish thoughts
Cloud hosting, as demonstrated by Google's and Amazon.com's pricing wars, has already become a commodity. Sure, more businesses will continue shifting to the cloud and Google, AWS, and other hosts, including Microsoft's Azure platform, will continue earning their relative pennies, while end-to-end cloud providers that offer SaaS solutions, like Nadella and team, reap the rewards.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.