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Amazon.com may currently be the biggest provider of Cloud infrastructure services, as measured by sales, but one company is poised to make a substantial dent in its market position: Microsoft.
In the last 12 months, Microsoft has experienced a 3-percentage-point gain in market share to 13% — the most substantial of any of the big five Cloud infrastructure service providers — while Amazon’s market share has held steady at 33%, according to Syngery Research.
Coupled with Microsoft’s 56% year-over-year growth in its commercial Cloud business, Microsoft’s bet on the Cloud is paying off. That is great news for investors looking for strong bets among technology and Cloud providers.
I see four core reasons why Microsoft is well positioned for continued growth in the Cloud space: market growth, product positioning, service adoption, and leadership.
Market growth: I believe Microsoft is gaining momentum and will continue to gain market share, not just from Amazon but potentially from other competitors as well, including Alphabet’s Google
Product positioning: Microsoft is much more focused on the enterprise than Google and Amazon. Its Intelligent Cloud business is made up of its Azure Cloud Infrastructure, which is similar to Amazon’s AWS, and its well-known Office 365 suite. Both Google and Amazon’s core businesses are consumer-focused, although their Cloud businesses certainly have plenty of enterprise customers.
Here is why this is important: Given the anticipated growth of the Internet of Things, Computing at the Edge, and the deployment of 5G networks and technologies, demands on data centers are certain to grow substantially over the next few years, meaning that enterprises will need to make larger investments in the Cloud in order to support data, workloads and applications that require large amounts of computing power. This is an opportunity for which Microsoft is perhaps better positioned than other Cloud infrastructure providers.
One of the best indicators of Microsoft’s impressive footprint in the enterprise can be found in the company’s own market data, which claims that the Microsoft Cloud is the most compliant (more than 70 compliance offerings are built into the Microsoft solution), is trusted by 90% of the Fortune 500, and growing at a rate of 120,000 new Azure customers per month.
Service adoption: Another reason Microsoft’s Cloud business should continue to see strong growth is the tremendous existing customer base in the Office 365 Cloud. With over 120 million active business users and well over a billion total users, the Microsoft Cloud is becoming part of an enterprise’s IT ecosystem even when it isn’t using Azure. This keeps the door open for Microsoft to expand its relationship with those Office 365 users, and potentially gain additional market share through them.
Leadership: Last, but not least, never underestimate the power of strong, visionary leadership. Microsoft appears to have such a leader in Satya Nadella. He has already demonstrated not only a strong ability to adapt to technological change but a great talent for capitalizing on market shifts and trends. Since Nadella became Microsoft’s CEO in 2014, he legitimized the company as a major player in the Cloud space with Azure and Office 365.
Cloud sales reached $7.9 billion in the quarter ended March 31, more than 17% higher than a year earlier, while operating income for the business surged 24% to $2.7 billion..
In the 51 months since becoming CEO of Microsoft, Nadella has seen the company’s stock-market value surge from $302 billion to around $736 billion today. These results are not an accident. They are the direct result of bold leadership taken by Nadella and those he has put in charge of Microsoft’s Cloud business.
Daniel Newman is the principal analyst at Futurum Research. Follow him on Twitter @danielnewmanUV.