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Amazon dominates cloud infrastructure, cloud app platforms a 4-way race

  • Though Amazon Web Services (AMZN) has been seeing intensifying competition in the cloud infrastructure (IaaS) market, Synergy Research's numbers, like Gartner's, suggest AWS continues to dominate.
  • Synergy estimates AWS had a 35% IaaS share in Q3, or 5x that of #2 IBM, whose position has been bolstered by SoftLayer. All other vendors are assigned shares below 3%.
  • The situation is a little different in the cloud app platform (PaaS) market. Salesforce's (CRM) Heroku, long a major player, is given a market-leading 18% share. But AWS is close behind at 17%, and so are Microsoft's (MSFT) Windows Azure (14%) and Google's (GOOG) App Engine (13%). All other vendors are estimated to have sub-5% shares.
  • Altogether, Synergy thinks Amazon grew its IaaS/PaaS revenue by 55% Y/Y, outpacing the 46% growth seen by the overall market. Moreover, AWS' IaaS/PaaS revenue is believed to have eclipsed that of Microsoft, Google, IBM, and Salesforce combined.
  • The report drives home the competitive challenges faced by Rackspace (RAX), VMware (VMW), Red Hat (RHT), and other firms striving to take IaaS and/or PaaS share from market leaders.
  • Synergy thinks the traditional Web hosting market, which Rackspace remains well-exposed to, and which has been pressured by the IaaS market's rise, only grew 3% Y/Y in Q3.
  • Last week, Stanley Druckenmiller cited AWS and its disruptive impact on traditional enterprise IT as a reason for shorting IBM.
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Comments (8)
  • SWCEO
    , contributor
    Comments (58) | Send Message
     
    Paulo and the other consistent bears on Amazon that write columns on this site regularly need to read this excellent fact based post. As a long time user of AWS I can say that most people just do not have an appreciation for how much of a lead AWS has on every other competitor in the IaaS space and I am not just talking market share as the above discusses. The more important lead is in how mature, deep and broad their services they offer are compared to everyone else. This is because they started with the winning Cloud IaaS model right from the start and they had no legacy business to defend which meant they could approach it from a clean room strategy basis. They also had one other very important advantage to all their competitors, they have a low margin business model across their other businesses and all their competitors have a high margin model that they have to defend as well. From that great starting position they have now had six or seven years of; the high innovation of the services and automation creation needed for IaaS, a largest scale creating agressive worldwide buildout in a what is going to be a scale wins business, mistake making and correcting of how to operate at scale an IaaS, and lastly pricing learning curve where they now have the most sophisticated pricing system in the business which is going to be one of the most important competitive weapons in IaaS going forward.

     

    This is a classic case of disruption (a word I use very, very sparingly) where all their competition has different motives than straight up competing with AWS in IaaS. I could go into each competitors problems but I will just handle the two biggest and easiest to understand Microsoft and IBM:

     

    First MSFT, they have a huge interest in protecting their software operating system assets and a lock them in mentality versus an open mentality when it comes to software architecture. This made Mr. Softy go with a PaaS only model at first where you had to rewrite your application in Azure .Net architecture to operate on top of Azure, even if you had a MS .Net architectured application to begin with, this was a non starter for most of us wanting to port existing application to the Cloud or even build new ones. So in effect MSFT actually created a self imposed barrier to being successful on Cloud IaaS. MSFT has shifted now but they have lost so much time that they are going to find it hard to catch up with AWS at this point and in the end it is going to force MSFT investors to accept lower and lower operating margins which I doubt will be good for the stock or the board's incentive to continue to invest in Cloud.

     

    Second IBM, they have even worse problems than MSFT actually, they have made their money on serving IT shops or outsourcing them in total. Cloud IaaS has for a number of years been taking this model out and killing it. First IBM tried to defend by telling the world that you should build private IaaS clouds and offer services and software to help you do this (this goes for VMWare/EMC and others as well) but when this didn't go over they have now started to work on public cloud. But they have a huge outsourcing/traditional hosting business to defend and if they sell one of their hosting customers a conversion to a true public Cloud IaaS service they would in fact have to cut the customers bill by up to 90% (I have in fact done this so I know first hand). This means that they will have to cannibalize higher revenue and margin contracts just for the pleasure of selling a much lower margin and revenue producing service, not likely to happen, again classic Innovators Dilemma disruption.
    27 Nov 2013, 02:38 PM Reply Like
  • joesmileyyy
    , contributor
    Comments (26) | Send Message
     
    You are very high on Amazon's cloud services. I see that.
    Can you tell me something good about Microsoft's efforts in the cloud with Azure? I read they are having success with Hybrid cloud services and may be ahead of or gaining on Amazon?

     

    The numbers put out about Azure seem to be good and increasing. Maybe the market is large enough for more than one major player. It is a sure thing Microsoft will continue to put a ton of effort into the cloud just the same as Amazon. "the board's incentive to continue to invest in Cloud" will remain pedal to the metal. If you doubt this then you are wrong.

     

    Is there anything you like about Azure despite the fact that your horse is AWS?
    27 Nov 2013, 04:08 PM Reply Like
  • Jiaberg-Sydney-OZ
    , contributor
    Comments (156) | Send Message
     
    I am very saddened by the rise of Cloud computing.

     

    In the early 80's while at university, the experiences with intra-cloud network of VAX-VMS were like waiting for one's tooth pulled out by a sadist dentist. Making it worse, the dentist was often slow and clumsy in the execution. Intra-cloud like VAX-VMS which modern day Cloud are copying were just junk.

     

    When Mac and pc arrived, computing suddenly became available for all to us. This facilitated the fast developments-growth of the many associated industries. Even MP3 players, smartphone and tablets are evolutionary outcomes of the POPULARISATION of the pc away from Cloud like experiences.

     

    Cloud computing, like intra-cloud networks of VAX-VMS in the early 1980's, assume continuous good internet connection and friendly software providers who would not dictate users experiences. By all accounts, IBM, Digital Computing and VAX-VMS were disliked by their CAPTIVE users.

     

    The rise of modern Cloud Computing is what I describe as Empire Strikes Back. Amazon, Adobe, Google, IBM, etc are all the death stars.

     

    Apple, please remain the Skywalker's fighting on our behalf against the evil empire, its death stars and numerous storm troopers.
    27 Nov 2013, 04:08 PM Reply Like
  • BillCarmody
    , contributor
    Comments (4) | Send Message
     
    Are there any website or YouTube videos you would recommend for learning more about IaaS and PaaS?
    27 Nov 2013, 09:37 PM Reply Like
  • littup
    , contributor
    Comments (409) | Send Message
     
    And all this is worth 180 bln bucks?
    28 Nov 2013, 05:22 AM Reply Like
  • Momintn
    , contributor
    Comments (4283) | Send Message
     
    IBM has over 1400 cloud-related patents. http://bit.ly/1k3EeCD
    How many does Amazon have?
    2 Dec 2013, 07:15 PM Reply Like
  • littup
    , contributor
    Comments (409) | Send Message
     
    Any investor worth his weight in peanuts knows that you cant be confident in a business that is still unproven. And that's just the "do not go long" argument.

     

    The short argument tells you that Amazon is selling for a gazillion times earnings, price considers that amazon will be the absolute monopoly in its market and that it will beat everyone etc etc.. bottom line: if it does become the monopoly, what will you earn? duh..
    2 Dec 2013, 08:06 PM Reply Like
  • Andrew T
    , contributor
    Comments (6) | Send Message
     
    There is so much focus on the computing power, with the business press piling on. IBM has been shifting away from commoditized HW for a decade, starting with selling off the low ends such as PCs, POS, storage drives, printers where HW rev is now a small fraction of its revenue. What no one talks about is the business value and what customers will pay for. Enterprise clients rely on IT expertise to drive innovative solutions, business outcome and provide a sustainable advantage in their industry. That means services and software which is driving the bulk to IBM's revenue today. So who is doing the integration work on an AWS cloud and who an enterprise client is willing to pay for? Think IBM.
    20 Dec 2013, 11:40 AM Reply Like
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