While Amazon Web Services remains the dominant cloud services platform, Microsoft Azure and Google Cloud Platform are increasing their market share. As a result, companies are employing "multi-cloud" strategies that are changing the structure of the cloud industry and the power dynamics that lie within.
In today’s digital world, the use of cloud computing is becoming increasingly prevalent across industries.
Businesses around the world are looking to adopt cloud services as a way to lower infrastructure costs, accelerate software deployment, and increase operational flexibility.
Many are already leveraging the products and services from market leader Amazon Web Services (AWS), which offers one of the most comprehensive and reliable cloud platforms today.
But with a growing number of trustworthy, third-party tools, it’s becoming easier for businesses to migrate, manage, and monitor data across multiple cloud providers — not just AWS.
And many organizations are doing just that.
The adoption and utilization of services from multiple providers is called a multi-cloud strategy. These strategies benefit organizations looking to avoid vendor lock-in (dependency on one provider), increase application reliability, reduce costs, and/or leverage the best services that each cloud provider has to offer.
These strategies also benefit cloud providers that compete closely with AWS, like Microsoft Azure (Azure) and Google Cloud Platform (GCP).
While the most significant impacts of multi-cloud strategies have yet to be seen, the power dynamics between AWS, Azure, and GCP are slowly shifting.
In this report, we dive into the rise of cloud computing, breakdown the technology’s various layers, assess the offerings of the three major cloud providers, and dig into some emerging trends across the space.
TABLE OF CONTENTS
- A Brief History of Cloud Computing
- The Cloud Computing Stack
- The Emergence of Cloud Wars
- The Dominance of Amazon Web Services
- The Enterprise Expertise of Microsoft Azure
- The Long Game of Google Cloud Platform
- The Rise of Multi-Cloud Strategies
- Shifting Power Dynamics
- Concluding Sentiment
A Brief History of Cloud Computing
The earliest concepts of cloud computing were introduced by J.C.R. Licklider in April 1963. Licklider presented the idea of an Intergalactic Computer Network that would allow for “informational interaction among governments, institutions, corporations, and individuals.”
His initial research became the inspiration for ARPANET, which was established in 1969. ARPANET was an early packet switching network and the first to implement TCPs/IPs, which became essential frameworks for the Internet as we know it today.
While ARPANET expanded throughout the 1970s, it wasn’t until 1981 that access was extended to the Computer Science Network (CSNET). CSNET connected universities like California-Berkeley, Delaware, Princeton, Purdue, Washington, and Wisconsin for research purposes.
The interconnectivity of CSNET enabled access to computing resources and infrastructure throughout the network. This concept of leveraging shared, but geographically distant resources provided an early foundation for modern-day cloud computing.
The earliest known use (in writing) of “cloud computing” dates back to November 1996, when the term was used in a document shared internally by technology executives at Compaq. These executives were trying to understand how the “internet cloud” would impact Compaq customers.
While the term was shared in small, technical circles thereafter, cloud computing wasn’t mainstream until August 2006 at the annual Search Engine Strategies Conference, when then Google CEO Eric Schmidt expressed his enthusiasm for the emerging opportunity known as the “cloud”:
“What’s interesting [now] is that there is an emergent new model… I don’t think people have really understood how big this opportunity really is. It starts with the premise that the data services and architecture should be on servers. We call it cloud computing — they should be in a ‘cloud’ somewhere.”
By this time, Amazon already had 3 distinct cloud products as part of its AWS business — SQS, S3, and EC2. Collectively, these services provided a comprehensive cloud solution with connectivity (SQS), storage (S3), and computing power (EC2).
The idea quickly caught on with small businesses looking to avoid costly infrastructure spending — these organizations only paid for the computing resources they needed, without the burden of managing or upgrading their own infrastructure.
Amazon’s initiative was so successful that other companies with extensive computing infrastructure inevitably followed suit.
But before we dive into these players and their services, it’s important to understand the different layers of cloud computing that have given rise to this competitive landscape.
The Cloud Computing Stack
Cloud computing is comprised of 3 different layers — infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS).
Infrastructure-as-a-service refers to the foundational layer in the cloud computing stack where customers pay a provider to manage their network, storage drives, and servers, but nothing more. Organizations are tasked with providing and managing their own operating systems, databases, and development tools, in addition to managing the development and deployment of applications.
Platform-as-a-service, on the other hand, provides everything that IaaS does, plus the operating systems, databases, and development tools. Organizations only manage the development and deployment of applications.
AWS, Azure, and GCP are known primarily for their comprehensive PaaS offerings, providing everything required to build and deploy applications with ease.
Software-as-a-service refers to companies that provide a complete software product by managing the entire stack, including infrastructure, middleware, and the application itself. Salesforce is an example of a software-as-a-service provider — the company manages and deliveres an application, while also storing data input from millions of users on its worldwide data centers.
The individual analysis of AWS, Azure, and GCP will focus primarily on the infrastructure and platform layers of the cloud computing stack, while later analysis of third-party tools and acquired businesses will focus primarily on software-as-a-service businesses.
The Emergence of Cloud Wars
Microsoft introduced the Windows Azure platform in February 2010, while Google released a number of products starting in 2008 before releasing Google Compute Engine — Google Cloud’s core component — in late 2013.
By 2014, these organizations began replicating each other’s products and services. They also reduced prices to undercut one another and attract new business. As a result, a fierce rivalry between Amazon, Microsoft, and Google emerged.
Since then, these three companies have competed for share of the cloud computing market, which is expected to reach $278B by 2021. While both Azure and GCP have made significant progress with their respective cloud offerings, the early and uncontested start of AWS has served as a wide competitive moat.
The Dominance of Amazon Web Services
As Amazon was scaling its e-commerce business in the early 2000s, it was regularly purchasing computing infrastructure to support future needs of its site. This ensured that the site would run without service disruptions even as demand for the company’s products and services grew.
But as was the case with many organizations, Amazon had to buy infrastructure before it was needed. Instead of leaving these excess resources idle, Amazon turned its regular computing expenditures into a source of recurring revenue. Amazon Web Services was born.
In addition to changing the way Amazon scaled, these services also changed the way technology businesses scaled. At its launch, then VP (now CEO) of AWS Andy Jassy noted why the service was so transformative:
“Amazon S3 is based on the idea that quality Internet-based storage should be taken for granted. It helps free developers from worrying about where they are going to store data, whether it will be safe and secure, if it will be available when they need it, the costs associated with server maintenance, or whether they have enough storage available. Amazon S3 enables developers to focus on innovating with data, rather than figuring out how to store it.”
AWS, as the only cloud service provider, benefited from the “virtuous cycle” (known commonly as economies of scale). It provided Amazon with the ability to generate profit while supporting its growing client base. Over time, the company continued to buy infrastructure in large quantities (to support both the growing e-commerce and AWS businesses), which allowed Amazon to purchase these resources at a lower cost per unit. This, in turn, allowed AWS to pass the cost savings along to its customers.
Today, while AWS pricing is competitive, it isn’t known to be the lowest cost provider. This is due in part to the number of services offered to clients — more developer and IT resources warrant higher prices.
But this hasn’t always been the case for AWS. Early on, SQS, S3, and EC2 were the only infrastructure-as-a-service products offered by the company.
As the AWS business expanded, the company started adding new products and services. Amazon’s common practice of reinvestment allowed for additional computing and storage capabilities as well as databases and developer tools.
AWS inevitably became the first comprehensive platform-as-a-service, providing developers with everything required to build and release applications.
The business currently offers approximately 140 unique services across 19 different categories. Some of the company’s newest services focus on machine learning, AR/VR, and the Internet of Things (IoT).
The breadth of services makes AWS an obvious choice for many organizations. It’s safe, reliable, affordable, and seems to have almost everything a business could ever need.
This reputation has led to consistent revenue (and earnings) growth for AWS — certain organizations spend hundreds of millions of dollars annually with AWS.
In 2017, the company generated approximately $17.5B in total revenue, while expectations for 2018 exceed $25B. If AWS was to become its own independent business, it would be the fifth largest enterprise technology company in the world by revenue.
At its current growth rate, AWS’ annual revenue may overtake the annual revenue of SAP in coming years. This consistent revenue growth has also earned the company a third of all combined IaaS & PaaS market share.
While these figures fluctuate regularly, AWS has maintained a relatively stable share. Even so, AWS CEO Andy Jassy acknowledged last year that there will be many winners in the cloud industry:
“There won’t be just one successful player. There won’t be 30 because scale really matters here in regards to cost structure, as well as the breadth of services, but there are going to be multiple successful players, and who those are I think is still to be written. But I would expect several of the older guard players to have businesses here as they have large installed enterprise customer bases and a large sales force and things of that sort.”
One company with a large enterprise customer base is Microsoft. Microsoft’s Azure is the second largest cloud business behind AWS, with approximately 13% of all combined IaaS & PaaS market share.
The Enterprise Expertise of Microsoft Azure
When Satya Nadella replaced Steve Ballmer as CEO in February 2014, Microsoft underwent a radical transformation.
Prior to Nadella’s arrival, the company made a number of costly consumer bets that had failed to pay off. So in Q4’15, Microsoft officially retired its music business, Zune, and pushed all paying subscribers to its Groove streaming service. But that, too, shuttered in Q4’17 along with the Windows Phone, which cost Microsoft $7.2B in 2014 when it acquired Nokia’s handset business.
But these moves were necessary for Microsoft as it reallocated resources to its high growth enterprise initiatives, including its cloud business. Azure remains one of the highest growth businesses for the company.
Hybrid-cloud, in particular, has been a primary driver of growth for Azure and one of the company’s greatest competitive advantages. Hybrid-cloud computing is an infrastructure architecture that connects public cloud services to private, local area, or on-premise cloud services.
Many of the world’s largest organizations use hybrid-cloud as a way to benefit from the scalability and flexibility of the public cloud while maintaining the security and control of on-prem infrastructure.
For example, InterContinental Hotels Group uses Azure’s hybrid-storage, security, and management tools to support the IT needs of more than 5,200 properties in almost 100 countries.
Other companies use hybrid-cloud computing as their initial foray into the public cloud, moving first to a hybrid architecture before going all-in on public cloud. Either way, Azure supports all use cases for hybrid-cloud systems.
And once the needs of these organizations change, Azure already has a proven track record and a foot in the door.
Microsoft’s 40-year history in enterprise technology helps with the negotiations that stem from when clients experience shifting business goals. Microsoft knows how CIOs evaluate vendors, and knows how to keep clients on board — while the needs of each organization vary, cost is always a common consideration.
Cloud pricing is complex and context specific, but Azure has shown to be less expensive than AWS or GCP for certain virtual machine (VM) instances.
Virtual machines are secondary operating systems (guest operating systems) operating on top of your current operating system (host operating system). The guest OS runs in a separate window on the desktop of the host OS, just like any other application.
For example, it’s possible to run a Windows application or program on a Mac using virtual machines.
The table below illustrates the cost difference between the three cloud providers for various types of VMs — in many cases, Azure is the cheapest option.
While both AWS and GCP bill per-second for VM instances, Azure bills per-minute, rounding down to the nearest minute. Since VMs provide full operating systems (like Microsoft’s own Windows and open-source Linux Ubuntu), they typically run for longer periods of time. For this reason, billing per-minute and rounding down can save customers money.
Another consideration for CIOs is access to a worldwide network of data centers. While Azure doesn’t necessarily have the most data centers, it has a presence in more regions than AWS or GCP. As a matter of fact, Azure is present in more than twice as many regions as each of the aforementioned providers.
Operating in regions without AWS and GCP provides a competitive advantage for Azure. For example, Azure is the first of these 3 providers to break ground on data centers in South Africa (available soon). This will provide Azure with an uncontested opportunity to grow its market share in this region.
While neither AWS nor GCP have plans to launch data centers in Africa at this time, they are able to provide cloud services through their globally connected networks. They serve clients with reliability and speed, even when the nearest data center is a continent away.
GCP, in particular, has one of the best content delivery networks available.
The Long Game of Google Cloud Platform
Today, GCP counts 17 regions, 52 zones (locations within regions), and over 100 points of presence (PoPs) across 35 countries. PoPs are where Google connects its network to the rest of the internet via peering, which allows for greater control, better performance, and reduced costs when exchanging traffic across networks.
In addition, GCP has thousands of miles of fiber optic cable used to move information with limited latency, or delay. Together, these elements make up Google’s robust cloud and content delivery network. According to research conducted by Cedexis (acquired by Citrix in 2018), Google Cloud offers the fastest and most secure way to deliver content globally (offering the fastest SSL).
This network has caught the attention of companies like Netflix, Spotify, and Apple, which have migrated data from AWS and/or Azure to GCP.
A notable example is Spotify, which moved 1.5B files from AWS to Google starting in 2016. The company is now in the process of migrating all of its data storage to GCP, according to one of Spotify’s recent filings.
Spotify is one of GCP’s early, high growth “anchor clients” and provides a steady stream of recurring revenue. The music streaming platform plans to spend nearly $450M on GCP over the next 3 years, according to recent reports.
As Google continues to attract more big business, it will allow the company to focus more on emerging initiatives such as artificial intelligence (AI) and machine learning (ML).
One of the company’s main initiatives in this area is its open-source, deep learning library TensorFlow, the most popular ML library available today. Its widespread use has created a large, engaged community and, therefore, further open-source data documentation.
But TensorFlow is only one of the many open-source projects backed by Google. As of August 1st, 2018, Google has backed 42 open-source projects focused on the cloud with dozens more dedicated to databases and developer tools.
The company is also focused on emerging areas like IoT. In addition to more than a dozen open-source projects, the company announced the public release of Cloud IoT Core in February 2018 and its Edge TPU during the Google Cloud Next conference in July 2018.
Together, Cloud IoT Core and Edge TPU allow companies to connect, manage, and ingest data from millions of globally dispersed IoT devices. The platform also allows users to process, analyze, and visualize IoT data in real-time.
According to Schlumberger VP of Digital Technology Chetan Desai, the oil and gas company has “been able to build quick prototypes by connecting a large number of [IoT Core] devices … and performing real-time monitoring using [Google’s] Cloud Dataflow and BigQuery.”
These big data tools are also two of GCP’s secret weapons. Big data collection and analysis are in Google’s DNA. As a result, Cloud Dataflow and BigQuery provide GCP with a slight advantage over its competitors.
Together, these products and services, as well as GCP’s intuitive user interfaces, have earned the company a higher rank in cloud IaaS customer satisfaction rating than its peers.
While this survey provides an ongoing review of each provider, GCP is clearly a leader when it comes to delivering a quality cloud platform.
As GCP continues to grow, it will continue to focus its efforts on emerging technologies and partnering with young, growing companies. At the recent Google Cloud Next conference, CEO Diane Greene made a point to highlight this strategy:
“We’re playing the long game. This thing is early. Some people estimate that only 10 percent of workloads are in the big public clouds. And if it’s not in a public cloud, it is going to be in a public cloud.”
While GCP currently lags behind AWS and Azure in total revenue, the company has made significant progress. Just last year, the company signed a 5-year, $2B contract ($400M/year) with Snap, Inc. to support Snapchat’s core functionalities and content delivery.
The Rise of Multi-Cloud Strategies
Companies are witnessing the benefits of using cloud providers, but many are finding it less efficient to limit usage to just one platform.
Organizations employ multi-cloud strategies to avoid vendor lock-in, increase application reliability, reduce costs, and/or leverage the best services that each cloud provider has to offer.
Companies like Snap have discussed their multi-cloud strategy on earnings calls, according to CB Insights’ Earnings Transcripts tool. The former CFO Drew Vollero highlighted how Snap’s multi-cloud strategy has saved the company money:
“We’ve been able to moderate user cost growth through the successful execution of our multi-cloud strategy. Specifically, hosting costs per user dropped from $0.72 a year ago to $0.70 in the quarter. That’s great progress in a year when our sales have more than doubled and engagement metrics have grown substantially.”
And Snap isn’t the only company adopting and discussing these types of strategies. Multi-cloud strategies have been a popular topic on recent earnings calls, according to CB Insights data.
According to an annual survey conducted by cloud management company RightScale, 81% of respondents (technical professionals) now have a multi-cloud strategy, leveraging 4.8 clouds on average.
One of the primary drivers enabling the adoption of multi-cloud strategies is the growing use of microservices. Microservices operate as smaller, individual services (snippets of code) that connect together to form a comprehensive application. For example, a retailer’s e-commerce app may feature a variety of microservices — one for the login authentication, another for the store locator service, etc.
Microservices live within containers, which provide everything required to run the microservice independently (libraries, configuration files, etc). Even so, containers are lightweight, which makes them less resource-intensive, more cost-efficient, and portable across cloud platforms.
Containers communicate using application programming interfaces (APIs). APIs allow microservices to work together to operate a complete application, no matter where they are located (even across multiple cloud providers).
When an application needs to be updated, developers only need to edit the individual microservice. There is no longer the need to update an entire application.
For example, if the retailer above wants to edit the store locator function on its app, it can do so without updating the entire app itself.
But while the introduction of microservices and containers have improved software development, deployment, and run time, they have also introduced additional complexity — there are more components operating in more environments.
As a result, a number of third-party tools have emerged to improve today’s cloud computing ecosystem.
Our list of private market, multi-cloud tools includes companies improving security & governance, the management of containers & microservices, the orchestration & automation of disparate resources, the integration & migration of data, the logging & monitoring of application performance, and the reduction of overall costs.
This market map is not meant to be exhaustive of all companies in the space. Categories are not mutually exclusive. Clients with expert collections can download and edit the Market Map using our Collections tool here.
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Startups on our Multi-Cloud Ecosystem Market Map offer tools aimed at simplifying the relationship between various cloud providers or improving the management of individual resources from multiple providers.Track the Multi-Cloud Ecosystem Startups
Cloud providers make sure to support the tools that developers value most — none of the platforms want to be the one provider that fails to support a popular third-party multi-cloud tool, as it could be a costly mistake.
GCP has gone so far as to build its own proprietary container management and orchestration tools. But unlike those of AWS and Azure, Google’s tools are open-source and can be used to manage containers across multiple cloud platforms.
As a matter of fact, GCP openly encourages the adoption of multi-cloud strategies. And Kubernetes, Google’s open-source, multi-cloud container-orchestration platform, is a primary example.
Kubernetes has seen drastic growth across all cloud platforms since its release 4 years ago. Even so, third-party Docker is the most popular container management and orchestration tool used today.
On June 13th, 2018, Docker announced its initial support of application management across multi-cloud environments. Chief Product Officer at Docker, Scott Johnston, highlighted the need for a single platform that can manage distributed containers in varying environments:
“With an estimated 85 percent of today’s enterprise IT organizations employing a multi-cloud strategy, it has become more critical that customers have a ‘single pane of glass’ for managing their entire application portfolio. [Docker] delivers on the promise of the cloud by offering customers the portability benefits of containerized applications and the portable management of those containerized applications across all infrastructure.”
According to the RightScale survey cited earlier, nearly half of all respondents use Docker today. Not only is it the most popular containerization tool, but it is also one of the most popular DevOps tools overall.
Even though Amazon, Microsoft, and Google have proprietary tools of their own, developers often prefer these third-party products that provide greater homogeneity and portability across cloud platforms.
The growing adoption of a third-party service like Docker offers an advantage to providers who look to attract customers away from AWS.
Shifting Power Dynamics in Cloud Computing
Both Azure and GCP have attracted big business in recent months. In July 2018, Walmart signed a 5-year deal with Azure, while Google CEO Sundar Pichai announced that Target would be “migrating three areas of its business to Google Cloud Platform.”
Target has been working with Google since early 2017 when it first started its migration away from AWS. The company continues to employ a multi-cloud strategy, but Target aims to avoid vendors that threaten its core business. The same goes for Walmart.
Even though AWS operates rather independently of Amazon, it does generate the majority of the company’s earnings. These earnings, in turn, fuel the company’s expansion.
And as Amazon continues to disrupt a growing number of industries, there may be conflicts of interest for the AWS business. Walmart and Target may be the first of many businesses to boycott AWS due to Amazon’s growing dominance — Walmart has already asked some of its vendors to migrate away from Amazon’s cloud services.
It is not yet clear if these types of strategic migrations will impact AWS’ bottom line. Even so, Azure and GCP are doing everything they can to draw clients away from AWS and close the market share gap.
Since 2013, both Azure and GCP have acquired twice as many cloud-related companies as AWS. AWS has only acquired 12 businesses, while Azure and GCP have each acquired 24.
One of the most notable acquisitions during this period was Microsoft’s recent purchase of GitHub ($7.5B in June 2018), which provides version control and source code management tools for more than 28 million developers worldwide.
While Azure will certainly benefit from GitHub’s proprietary tools and 57M+ repositories, the community will likely provide ongoing lead generation for the business.
GitHub generates approximately $100M in revenue from enterprise customers, according to Business Insider. Combining this business with Azure’s suite of cloud services may lead to big business for Microsoft.
But acquiring external businesses isn’t the only strategy employed by Azure.
In 2015, Microsoft exceeded Amazon’s annual cloud-related patent application activity for the first time since 2011 (a year after Azure’s initial release). In the following year, Microsoft’s cloud-related patent application activity was twice that of Amazon’s (and nearly 6 times greater than Google’s).
It’s important to note that there is typically a 12-18 month delay between the time a patent application is submitted and the time it is published. These companies may also adopt new terminology for their cloud services over time, terminology that would not be captured in the above analysis.
That said, if Microsoft’s application and acquisition pace continues, it may soon have an arsenal of intellectual property to further differentiate its services and improve its market position. The same goes for Google as it continues to acquire promising businesses and pursue open-source projects like Kubernetes, which facilitate the adoption of multi-cloud strategies.
The annual growth of Azure and GCP exceed that of AWS by nearly 2X, though it is important to note that AWS is a larger business than both Azure and GCP.
If these growth rates continue, the power dynamics will certainly shift to favor Azure and/or GCP.
While Amazon remains a dominant force in the combined IaaS & PaaS markets, businesses can no longer take comfort in one cloud provider. Especially one that may threaten the core business of its customers.
The adoption of multi-cloud strategies allows organizations to diversify reliance away from one provider, reduce costs, and increase reliability.
Containers now provide homogeneity to otherwise heterogeneous public cloud environments, and where containers have introduced complexity, there is a budding ecosystem of third-party solutions. As a result, the cloud computing industry is becoming modular.
While the cloud revenues of Azure and GCP are dwarfed by the $25B+ run rate of AWS, their growth rates are twice the size. This is a promising sign for Azure and GCP, two providers that continue to acquire more companies, apply for more patents (Microsoft), and support more open-source projects (Google).
However, these efforts won’t necessarily shrink the market share of AWS. It’s more likely that the share of each provider grows — though at faster rates for Azure and GCP — as there is greater market consolidation.
While the future of cloud wars may be undetermined, there are two apparent certainties: first, further competition will benefit cloud customers in a variety of ways. And second, in the words of AWS CEO Andy Jassy, “there won’t be just one successful player … there are going to be multiple successful players, and who those are I think is still to be written.”