Yet another killer cloud quarter puts pressure on data centers

Continued strong growth from Amazon Web Services, Microsoft Azure, and Google Cloud Platform signals even more enterprises are moving to the cloud.

cloud computing, AWS, Microsoft Azure, Google Cloud, data center
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You’d almost think I’d get tired of writing this story over and over and over… but the ongoing growth of cloud computing is too big a trend to ignore.

Critically, the impressive growth numbers of the three leading cloud infrastructure providers—Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform—doesn’t occur in a vacuum. It’s not just about new workloads being run in the cloud; it’s also about more and more enterprises moving existing workloads to the cloud from on-premises data centers.

To put these trends in perspective, let’s take a look at the results for all three vendors.

AWS keeps on trucking

AWS remains by far the dominant player in the cloud infrastructure market, with a massive $7.7 billion in quarterly sales (an annual run rate of a whopping $30.8 billion). Even more remarkable, somehow AWS continues to grow revenue by almost 42% year over year. Oh, and that kind of growth is not just unique this quarter; the unit has topped 40% revenue growth every quarter since the beginning of 2017. (To be fair, the first quarter of 2018 saw an amazing 49% revenue growth.)

And unlike many fast-growing tech companies, that incredible expansion isn’t being fueled by equally impressive losses. AWS earned a healthy $2.2 billion operating profit in the quarter, up 59% from the same period last year. One reason? The company told analysts it made big data center investments in 2016 and 2017, so it hasn’t had to do so more recently (it expects to boost spending on data centers later this year). The company reportedly described AWS revenue growth as “lumpy,” but it seems to me that the numbers merely vary between huge and even bigger.

Microsoft Azure grows even faster than AWS

Sure, 41% growth is good, but Microsoft’s quarterly Azure revenue almost doubled that, jumping 73% year over year (fairly consistent with the previous—also stellar—quarter), helping the company exceed estimates for both sales and revenue and sparking a brief shining moment of a $1 billion valuation for the company. Microsoft doesn’t break out Azure’s sales and revenue, but the commercial cloud business, which includes Azure as well as other cloud businesses, grew 41% in the quarter to $9.6 billion

It’s impossible to tell exactly how big Azure is, but it appears to be growing faster than AWS, though off a much smaller base. While some analysts reportedly say Azure is growing faster than AWS was at a similar stage in its development, that may not bear much significance because the addressable cloud market is now far larger than it used be.

According to the New York Times, like AWS, Microsoft is also now reaping the benefits of heavy investments in new data centers around the world. And the Times credits Microsoft with “particular success” in hybrid cloud installations, helping ease concerns among some slow-to-change enterprise about full-scale cloud adoption.

Can Google Cloud Platform keep up?

Even as the overall quarterly numbers for Alphabet—Google’s parent company—didn’t meet analysts’ revenue expectations (which sent the stock tumbling), Google Cloud Platform seems to have continued its strong growth. Alphabet doesn’t break out its cloud unit, but sales in Alphabet’s “Other Revenue” category—which includes cloud computing along with hardware—jumped 25% compared to the same period last year, hitting $5.4 billion.

More telling, perhaps, Alphabet Chief Financial Officer Ruth Porat reportedly told analysts that "Google Cloud Platform remains one of the fastest growing businesses in Alphabet." Porat also mentioned that hiring in the cloud unit was so aggressive that it drove a 20% jump in Alphabet’s operating expenses!

Companies keep going cloud

But the raw numbers tell only part of the story. All that growth means existing customers are spending more, but also that ever-increasing numbers of enterprises are abandoning their hassle and expense of running their data centers in favor of buying what they need from the cloud.

The New York Times quotes Amy Hood, Microsoft’s chief financial officer, explaining that, “You don’t really get revenue growth unless you have a usage growth, so this is customers deploying and using Azure.” And the Times notes that Microsoft has signed big deals with companies such as Walgreens Boots Alliance that combined Azure with other Microsoft cloud-based services.

This growth is true in existing markets, and also includes new markets. For example, AWS just opened new regions in Indonesia and Hong Kong.

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