Microsoft’s Azure Is Closing the Gap With Amazon’s Cloud Service

Last year software maker stopped relying on (AMZN) for its cloud services and turned to Microsoft (MSFT) instead. K2 Chief Executive Officer Adriaan van Wyk says he’s happy with the choice—most of the time. The developer tools of Microsoft’s Azure cloud service are superior, he says, and he likes its personalized customer service. Yet occasionally Azure is slow, and on Nov. 18 it suffered a global outage that lasted several hours. As insurance, Van Wyk has moved 5 percent of his business back to Amazon Web Services. “We still like Microsoft,” he says. “At the same time, it’s been a bit bumpy. The 5 percent makes sure if we have to move back to AWS we can do it quickly.”

Van Wyk’s divided loyalties underscore the challenges Microsoft faces as it tries to wrest market share from industry leader and crosstown competitor Amazon. Venture capitalist John Connors has dubbed the rivalry “The Battle in Seattle.” Synergy Research Group puts Amazon’s share of the $14.5 billion worldwide market for cloud infrastructure services at 27 percent as of this year’s third quarter, down slightly from 28 percent the year before, while Azure’s has climbed three percentage points to 10 percent. “It’s clearly a two-horse race now, whereas two years ago it was probably more of a one-horse race,” says Scott Guthrie, who leads Microsoft’s cloud and enterprise division.

While Amazon doesn’t break out financials for AWS, the unit accounts for the bulk of the $1.34 billion in revenue listed as “North America, Other” on financial statements for the quarter ended Sept. 30. That’s a 40 percent increase from the year before. Microsoft won’t detail Azure revenue—it also lumps it into a larger line item—but Synergy estimates Azure’s annual growth rate at 136 percent for the past year.

Amazon launched its cloud services business in 2006, four years before Microsoft got into the market. Ariel Kelman, worldwide marketing vice president for AWS, says his unit “is constantly iterating” when it comes to technology: “We think that’s how we’ve ended up with, by far, the broadest and deepest cloud platform.”


Estimated number of customers Microsoft’s Azure signs up weekly

Satya Nadella, who became Microsoft’s CEO in February, has made the cloud a priority as he tries to reinvigorate the company. In his previous role heading the cloud and server division, Nadella had pushed to add features first to the cloud version of its SQL database server and only later to the version companies deploy in their own data centers. He wants to dispel the notion that Azure is only for those who use Windows and write applications using Microsoft’s .Net programming tools. Azure now supports seven versions of Linux, a rival open-source operating system. “Microsoft was too insular and probably too confident in their past successes prior to this leadership change,” says Matt McIlwain, a managing director at Madrona Venture Group, an early backer of Amazon that’s invested in cloud startups 2nd Watch and Igneous Systems. “It’s early days, but the direction is different and positive.”

Microsoft is also trying to recruit customers among the young Web companies that are Amazon’s main market. It offers members of some tech accelerators or incubators $5,000 a month of Azure services at no cost for up to a year. In Vancouver an Azure salesperson maintains a desk at one of the co-working spaces local tech entrepreneurs frequent. Microsoft says 40 percent of Azure customers are startups or independent software vendors.

One of those is DocuSign, which has developed software to let users collect digital signatures. Chief Technology Officer Grant Peterson says the San Francisco company went with Microsoft’s cloud service when it decided to get rid of its own servers handling internal corporate functions. It hasn’t shifted DocuSign’s customer-facing sites onto Azure; Peterson says its performance isn’t reliable enough, though he sees it improving. “We’re close but not quite there,” he says. When asked about the Nov. 18 blackout, Jason Zander, a vice president for Azure, responded: “All companies will have outages. The big thing for me is how do I get my customers up and running as quickly as possible.”

Microsoft’s Guthrie says salespeople sign up more than 10,000 Azure customers each week. Still absent from the client roster, however, are buzzy tech names such as Airbnb, Spotify, and Pinterest, all Amazon customers. Another challenge for Guthrie is that his company’s hometown rival is actively wooing Microsoft’s traditional big business customers. Six years ago, Amazon had practically no staff dedicated to enterprise sales or support staff; now it has several thousand. At the AWS annual showcase last month, the re:Invent conference, Amazon hosted separate sessions, along with a fancy dinner, for a few hundred enterprise customers—it was the only part of the conference at which CEO Jeff Bezos spoke.

At the AWS confab, Amazon unveiled Aurora, a new database engine—a segment of cloud computing where Microsoft is seen as strong. And this month, Microsoft is releasing more powerful software to run complex applications in the cloud, a corner of the business where it has lagged AWS.

Microsoft remains under pressure on pricing. Whether on tablets or home delivery, Amazon has repeatedly demonstrated that it’s willing to sacrifice its profit margin to gain or protect market share. “Every service team is pushing to lower their costs all the time, and they are expected, on a somewhat regular basis as they lower costs, to subsequently lower prices,” Kelman says. “It’s just normal business for us.”

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11 December 2014 | 10:45 pm – Source:


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