Given the intensity of the cloud marketplace today, it seems incredible to countenance that Amazon largely had the market to themselves for a number of years, before the likes of Azure launched in 2010. In the intervening decade, however, competition has intensified, with IBM, Google, and Alibaba joining Microsoft in taking the fight to Amazon.
The growth of crowd-based services from these early roots has been considerable, however, with a growth of 12.6% leading to a projected market of $331 billion by 2022. Cloud computing powers everything from Spotify to Netflix, from the apps on our phones to the applications we use at work.
While Google and Apple dominate the mobile marketplace, however, Amazon and Microsoft have captured most of the wider value in the cloud space. The strategies of the major players are nicely chronicled in a recent case study written by French business school INSEAD.
Divergent strategies
The paper highlights that Amazon was the first out of the traps with the launch of AWS in 2006, and with the market largely to themselves were able to gain a significant foothold. This allowed Amazon not only to develop a sophisticated and comprehensive system but also to expand aggressively. The company quickly developed a lead in infrastructure-as-a-service and began to offer a wide range of cloud services, from AI and IoT offerings to things such as memory processing.
A key strength for AWS in these early days was that their offering was built out of technology that they were developing for internal needs. The huge e-commerce presence operated by Amazon required intensive server and processing capabilities, and it was this “inside-out innovation” that Amazon has largely deployed not just with AWS but with services like Marketplace and fulfillment, where a core capability developed before being offered commercially to others in the market.
When Microsoft launched Azure in 2010, it took a different approach, with the introduction of a range of tools to provide a “hybrid cloud”. This approach, which allows customers to keep local control of certain, often highly sensitive data, while also moving some processing to the cloud, is born out of the nature of Microsoft at the time, which still had a considerable client-server infrastructure. This allowed the company to drive sales of Azure alongside its existing products, such as Office and LinkedIn.
Google was even later to the party, with its Cloud Platform not launched until 2013. Like Amazon, they were investing significantly in data centers for their own services, and so were able to offer these to clients. They lacked the heft provided by Amazon’s retail presence and Microsoft enterprise pedigree, however, and so faced more hurdles than their two rivals in gaining a foothold in the market. Where they have a real edge, however, is in their AI capabilities, which has allowed the company to gain a foothold in sectors such as financial services.
Alibaba can often fly somewhat under the radar, but the paper highlights that they actually launched their Cloud platform before either Google or Microsoft. As with the other companies, however, the launch of Alibaba Cloud emerged out of their investment in the core infrastructure to underpin their enormous e-commerce ecosystem. The company rapidly grew to conquer the Chinese market, before expanding into Southeast Asia. To date, however, they have found the United States and European Union tougher markets to crack.
A top-heavy market
Despite the significant and growing interest in the cloud market, however, it remains one that is dominated by Amazon, which is believed to have 32% of the market. What’s more, their $35 billion in revenues is projected to grow by 36% year on year. Azure is the next biggest presence with 18% of the market, but it is predicted to grow by 64% per year. Both Google and Alibaba have a lower presence to date, with just 6% and 5% of the market respectively, but they too are projected to see considerable growth.
It’s undoubtedly the case that cloud computing has transformed the way IT services are procured and used. The COVID-19 pandemic has underlined the value of being able to adapt computing capabilities to the changing demands of the market without having to make costly investments in dedicated infrastructure. This has not only allowed companies to adopt a more responsive strategy but has also leveled the playing field by allowing even the smallest companies to utilize the most extensive IT solutions.
Despite the tremendous growth in the cloud market, the paper highlights that to date, just 20% of enterprise applications currently run on the cloud. This is due to the considerable investment companies have made in legacy IT systems and the relatively slow pace of change in many of these organizations. This means there is still plenty of room for cloud providers to grow their market share, but the lucrativeness of the market also means that companies like Oracle and IBM are also pushing for their share of the pie alongside firms such as Zoom and TikTok. In the midst of this competition, the opportunities for innovation and entrepreneurship will be considerable, with consumers the ultimate winners.
