Is There Really A 'Big 4' In Cloud? Jul. 27, 2
Post# of 17653
Posted On: 07/29/2015 9:08:26 AM
Is There Really A 'Big 4' In Cloud?
Jul. 27, 2015 11:06 AM ET | 22 comments | About: Amazon.com, Inc. (AMZN), Includes: GOOG, GOOGL, IBM, MSFT, ORCL
Disclosure: I am/we are long AMZN, GOOGL. (More...)
Summary
•New research indicates Amazon, IBM, Google and Microsoft are separating themselves from the cloud pack.
•But IBM and Microsoft are including a lot of software and platform revenues in their totals.
•Could Amazon's lead in the cloud be underestimated? And what does that mean for the market's future?
Synergy Research last week published a piece saying that the "big four in cloud" are continuing to move ahead of the pack.
It identified the "big four" as Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). It said their combined market share in the space has risen to 54%, and that their combined year-on-year revenue growth is 84% vs. 33% for the space generally.
I contacted Synergy and was told that the company does try to do apples-to-apples comparisons of vendors, but that each of the "big four" has certain hallmarks. IBM includes software and services in its numbers, Microsoft includes software like Office 365, while Google also includes Software as a Service. Only Amazon is reporting numbers heavily weighted toward infrastructure. The term "revenue run rate," used by all the vendors, including people following Amazon, is also ill-defined.
But if all this is true, it seems to me that the 29% market share being reported for Amazon is under-stated.
That's because, as Synergy notes, cloud is, financially, built out of layers. Infrastructure is the base layer, just as operating systems were the base layer in previous eras. If you control the base layer, you allow your customers to gain market share in platforms or software, in service or applications, simply by piggy-backing on your infrastructure.
Amazon customers, in other words, can compete effectively with IBM, or Microsoft, in cloud software and services simply by piggy-backing on Amazon's cheap infrastructure. They're renting it, not buying it, but they gain its benefits nonetheless.
Many companies understand this and are building substantial businesses on top of Amazon. Synergy tries to control for Amazon's infrastructure lead by getting regular briefings from cloud providers, by maintaining key industry contacts, and by doing secondary research that all feeds into their model and database.
But even given all that, I'm left with the inescapable conclusion that Amazon's lead in infrastructure is becoming what Microsoft's lead was in operating systems two decades ago, that is, the overwhelming fact of the market. Amazon's cost structure, in other words, is making it increasingly difficult for the other members of the "big four" to compete, except by inflating their numbers by adding money obtained from higher layers to them.
We may not have a "big four," in other words. What we may in fact have is a big one, a trailing three, and a lot of noise beneath. Amazon is taking control of the cloud market as Oracle (NYSE:ORCL) took control of the database market, as Microsoft took control of the PC market, and as IBM took control of the mainframe market in decades past.
Just as those companies were able to turn their base strength into dominance of applications, so may Amazon be able to gain cloud market control over time, by making competition in the upper layers dependent on it.
Seeking Alpha
Jul. 27, 2015 11:06 AM ET | 22 comments | About: Amazon.com, Inc. (AMZN), Includes: GOOG, GOOGL, IBM, MSFT, ORCL
Disclosure: I am/we are long AMZN, GOOGL. (More...)
Summary
•New research indicates Amazon, IBM, Google and Microsoft are separating themselves from the cloud pack.
•But IBM and Microsoft are including a lot of software and platform revenues in their totals.
•Could Amazon's lead in the cloud be underestimated? And what does that mean for the market's future?
Synergy Research last week published a piece saying that the "big four in cloud" are continuing to move ahead of the pack.
It identified the "big four" as Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). It said their combined market share in the space has risen to 54%, and that their combined year-on-year revenue growth is 84% vs. 33% for the space generally.
I contacted Synergy and was told that the company does try to do apples-to-apples comparisons of vendors, but that each of the "big four" has certain hallmarks. IBM includes software and services in its numbers, Microsoft includes software like Office 365, while Google also includes Software as a Service. Only Amazon is reporting numbers heavily weighted toward infrastructure. The term "revenue run rate," used by all the vendors, including people following Amazon, is also ill-defined.
But if all this is true, it seems to me that the 29% market share being reported for Amazon is under-stated.
That's because, as Synergy notes, cloud is, financially, built out of layers. Infrastructure is the base layer, just as operating systems were the base layer in previous eras. If you control the base layer, you allow your customers to gain market share in platforms or software, in service or applications, simply by piggy-backing on your infrastructure.
Amazon customers, in other words, can compete effectively with IBM, or Microsoft, in cloud software and services simply by piggy-backing on Amazon's cheap infrastructure. They're renting it, not buying it, but they gain its benefits nonetheless.
Many companies understand this and are building substantial businesses on top of Amazon. Synergy tries to control for Amazon's infrastructure lead by getting regular briefings from cloud providers, by maintaining key industry contacts, and by doing secondary research that all feeds into their model and database.
But even given all that, I'm left with the inescapable conclusion that Amazon's lead in infrastructure is becoming what Microsoft's lead was in operating systems two decades ago, that is, the overwhelming fact of the market. Amazon's cost structure, in other words, is making it increasingly difficult for the other members of the "big four" to compete, except by inflating their numbers by adding money obtained from higher layers to them.
We may not have a "big four," in other words. What we may in fact have is a big one, a trailing three, and a lot of noise beneath. Amazon is taking control of the cloud market as Oracle (NYSE:ORCL) took control of the database market, as Microsoft took control of the PC market, and as IBM took control of the mainframe market in decades past.
Just as those companies were able to turn their base strength into dominance of applications, so may Amazon be able to gain cloud market control over time, by making competition in the upper layers dependent on it.
Seeking Alpha
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