Amazon Web Services has long been a bonus package for Amazon.com Inc. (AMZN, Financial). The high-margin technology business, which also holds the number one market share position in public cloud infrastructure, has been a cash cow for the company, giving Amazon the extra leverage it needs to keep fighting the high-stakes war in the low-margin retail business.
The entrance of multiple deep-pocketed technology players into the public cloud market was expected to take some toll on Amazon’s fast-growing business, but, so far, nothing of that sort has happened. Recently released third-quarter data from Synergy Research Group shows the competition is actually helping Amazon Web Services instead of hurting it.
The research firm wrote in its report:
“The huge cloud market keeps on growing by over 40% per year while Amazon Web Services (AWS) is still managing to nudge its market share upwards, despite increasingly intense competition.
Microsoft (MSFT, Financial), Google (GOOGL, Financial) and Alibaba (BABA, Financial) are all growing their revenues much more rapidly than Amazon and they continue to gain market share, but the reality is that in this market Amazon remains bigger than its next five largest competitors combined.“
This data suggests the only way the top players are growing market share is at the expense of smaller companies and because of the expansion of the overall market opportunity.
The entrance of Google and Oracle (ORCL, Financial) increased the competition and put all the players on their toes, launching new services and features at an alarming frequency. In turn, this greatly helped increase awareness about public cloud and raised standards on several fronts.
For example, Oracle launched a first-of-its-kind autonomous database service called 18c, while Google launched several products that were able to bring its expertise in artificial intelligence to the fore. Salesforce (CRM, Financial) launched Einstein, its AI platform, a year ago, and IBM (IBM, Financial) launched Commercial Quantum Computing products.Â
The heightened level of competition has pushed the top players to be better, but it has had the added effect of increasing acceptance for and adoption of public cloud in the enterprise segment. That gives all the players more room to grow and improve their numbers.
Source:1reddrop.com
As illustrated in the graph above, Amazon Web Services, despite increasing its revenue, continues to post above-40% growth rates. Meanwhile, Microsoft has been increasing its cloud ARR (annualized run rate) by more than 50% every year. Both companies generate more than $15 billion in annual revenues from cloud services, and their growth rates are just as good as they were a few years ago.
The accelerating adoption of cloud services around the world is fueling Amazon and Microsoft's growth, who are now perched squarely at the top of the cloud computing market.
Instead of the elevated levels of competition hurting Amazon Web Services, it is actually helping the company grow at a faster clip despite the increasing size of its top line.
With the public cloud market expected to grow at double-digit rates over the next several years, Amazon Web Services should continue its own strong double-digit growth march in the infrastructure-as-a-service segment during that period.
Disclosure: I have no positions in the stocks mentioned above and have no intentions of initiating a position in the next 72 hours.
