If you’ve been around the tech industry long enough, recent market events held an eerie familiarity.
When Facebook badly missed its numbers for the quarter ended June 30, 2018, the company’s stock took an unprecedented pummeling, losing 20 percent of its value and tanking many other tech stock along with it. Watching the carnage, it was hard not to think back to the spring of 2000 when Microsoft lost its antitrust case, losing 15 percent of its value in a single day and signaling the end of the dot.com boom and the beginning of a historic bust.
But something is different this time.
When Microsoft — a bellwether company both then and now — suffered that epic defeat, it dragged down the entire NASDAQ by 8 percent. That didn’t happen when Facebook — also a bellwether stock for the tech industry — had its recent comeuppance.
One primary reason: The major cloud companies continue to show incredible growth. According to The New York Times:
“Competition to supply the foundation layer of computing and software — the cloud-era equivalent of an operating system — is heated and costly. The biggest players, analysts estimate, are spending up to $10 billion a year on their global networks of data centers. This core cloud business is a $60 billion-a-year market, which grew by 50 percent in the first quarter of this year, according to Synergy Research Group. In that fast-growing market, Amazon holds a 33 percent share, unchanged since the end of 2015. Over the same span, Microsoft’s share climbed from 7 percent to 13 percent, and Google’s doubled to 6 percent.”
Let’s take a look at the top players:
Amazon Web Services is still the elephant in the room
Amazon‘s cloud service business grew 49 percent to $6.11 billion in revenue, topping Wall Street expectations and providing the lion’s share of the company’s profits. CNBC noted that AWS revenue has jumped 255 percent in the last three years and cited KeyBanc analysts saying, “We remain confident that AWS revenue can double to $42 billion by 2020.”
The continuing growth acceleration comes despite increased competition from Microsoft and Google. AWS has the most customers, including giant firms spending more than US$100 million a year and thousands of consultants helping their clients use Amazon. It’s still considered the safe, default service.
According to John Dinsdale, a Synergy Research Group senior analyst quoted in The Street, AWS’s dominance is due to a big head start "building out data centers, operations, international expansion, staffing and a partner network … It has also had a ferocious focus on putting clients first and has continued to aggressively reduce prices. So, it is a combination of strategy, corporate focus, heavy investment, long-term vision and execution."
Microsoft is now 'the clear No. 2'
Nevertheless, Microsoft, now a cloud powerhouse itself (that Times article headline anointed the company “the Clear No. 2 in Cloud Computing”), reported “strong growth in all three of its major reporting areas — especially in cloud computing,” according to Business Insider.
How strong was Redmond’s cloud growth? Commercial cloud revenue, which includes services such as Azure, grew a whopping 53 percent, to $6.9 billion. Sounds good right? Well, it’s even better than that. According to CNBC, while Microsoft does not disclose Azure revenue, the company said it jumped by an incredible 89 percent. And other Microsoft cloud offerings also posted healthy growth.
Google hits 'meaningful scale'
Google’s parent company Alphabet posted blowout earnings for the second quarter. Its "other revenues" segment, which includes cloud, hardware, and the Play Store, rose 36.5 percent to $4.4 billion in revenue. CNBC noted that while Google's Cloud business still trails compared to Amazon and Microsoft, Google CEO Sundar Pinchai said it has achieved “meaningful scale, making at least $1 billion in revenue per quarter."
“In fact, we believe that Google Cloud Platform, based on publicly reported data for the twelve months ended December 2017, is the fastest growing major public cloud provider in the world. We are also increasingly doing larger, more strategic deals with customers. In fact, the number of deals worth over $1 million across all Cloud products more than tripled from 2016 to 2017,” he said.
Put it all together — add in IBM’s continued cloud success — and that kind of cloud growth more than makes up for Facebook’s little hiccup, and it should keep the tech market humming while longer yet. As long as we’re talking about the cloud, that is. Don’t count on that kind of ongoing happiness in servers and traditional data center networks.
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