By Dana Mattioli and Aaron Tilley
A new storm is building in the cloud.
Amazon.com Inc. and Microsoft Corp. are turning up the pressure
on each other as they battle to supply corporate America with
remote computing power, stoking a fight that is expected to
dominate the tech world over the next decade. Revenues from this
business--known as cloud computing--jumped 246% in the previous
decade, according to a 2020 estimate from research firm Gartner
Inc.
Some of the sharpest barbs are now coming from Amazon, long the
dominant provider of data storage to large multinationals. Andy
Jassy, chief executive of Amazon Web Services, targeted Microsoft
in remarks last month to attendees of the company's annual
cloud-computing gathering in Las Vegas.
"They are not prioritizing what matters to you guys as a
customer," said Mr. Jassy of Microsoft. Rivals, he said, were often
mere copycats. "There are a lot of companies that have become
pretty good at being checkbox heroes, where they kind of look at
something we have and they rush to have it out there and say we
have it too."
Some of Mr. Jassy's customers took note. In a private dinner
involving some CEOs of companies that use Amazon's cloud services,
attendees discussed Amazon's apparent anxiety about rivals,
particularly crosstown rival Microsoft. Now No. 2 in the cloud,
Microsoft last year won a giant Pentagon cloud-computing contract
for which Amazon was favored. The deal is valued at up to $10
billion over the coming decade. Amazon is contesting the outcome in
court.
To lure customers, Microsoft has been telling potential clients
that, unlike with Amazon, when they sign up for the company's Azure
cloud-computing business they won't be placing valuable customer or
product information into servers run by a potential rival.
"We're not about using customer data and competing with them,"
Julia White, corporate vice president of Microsoft Azure, said in
an October interview.
Amazon is the undisputed leader in the cloud, but the lead is
narrowing. Amazon had 47.8% of market share for renting out cloud
infrastructure in 2018, down from 49.4% of market share the year
before and 53.7% in 2016, according to Gartner. Microsoft is the
second-biggest public cloud player with 15.5% of the market in
2018, up from 12.7% the year before and 8.7% in 2016, according to
Gartner.
Amazon was early to embrace the cloud. The company was already
investing heavily in computers and servers to run its core business
more than a decade ago and realized it could rent some of that
capacity to others. Customers could simply pay to use Amazon's
computing horsepower and forego big investments to buy and maintain
their own equipment.
The business took off as more large multinationals looked to
outsource their data storage. and represented around 13% of
Amazon's total sales through the first nine months of 2019. The
Amazon Web Services cloud business, known as AWS, last year likely
generated around $35 billion in sales for Amazon, according to
company figures and analysts estimates. But that success also has
put a big target on Amazon. Many of its rivals had a much longer
history of working with business customers and grew tired of losing
out. They have now ramped up their push to claw back sales.
Alphabet Inc.'s Google, a distant fourth in terms of global
market share measured by Gartner, is increasing the size of its
cloud sales team to catch up to Amazon and Microsoft and last June
agreed to buy data-analytics firm Looker in a bid to bolster that
part of its business. Similarly, Oracle Corp. last year announced
it will bolster the size of its cloud-computing workforce to help
secure more business. International Business Machines Corp. in 2019
closed a $34 billion deal for Red Hat Inc. to strengthen its cloud
offering.
The companies competing for this business have built huge data
centers known as server farms around the world that allow customers
to rent storage space and tap some of the large computing
horsepower the vendors offer to analyze that information. Customers
pay for the amount of data they store and what features they use.
Some customers sign up to pay-as-you-go models, others for other
pricing packages. Costs to store a gigabyte of data can vary by
market.
Cloud computing is expected to generate $266 billion in revenue
this year, according to Gartner, and balloon by another 30% before
2023.
Amazon's success in the cloud, more recently, has suffered
setbacks beyond the lost Pentagon deal. Last year, one of its
biggest banking customers, Capital One Financial Corp., had more
than 100 million customer records stolen that were stored on
Amazon's cloud. And more big corporations are turning to other
cloud vendors. Some are worried the online retail giant could
become a competitor, according to people familiar with the matter.
Many large multinationals have longstanding relationships with
Microsoft or Oracle, but not with Amazon.
"What we're seeing now is there's another wave of late-adopter
customers coming to market. These are customers that have never
used cloud before, so they're investigating," said Raj Bala,
research director at Gartner. "A fair number of these customers
will certainly end up at [Microsoft's] Azure, because they meet
that profile: they run a lot of Windows, they tend to want to play
it safe, and the decision makers in that camp tend to favor Azure
to a large extent."
Amazon has tried to fight the perception that in its expansion
into new markets, such as logistics or health care, incumbents in
those sectors using AWS need to worry about their data being used
against them. "We've realized that could be a problem from day
one," Peter DeSantis, vice president of AWS's global infrastructure
business said in an interview. That's why AWS treats Amazon's
retail arm as just another customer, he said. Amazon preserves the
privacy of that data and doesn't use it for other purposes, he
added.
Amazon, in AWS sales pitches, also has tried to address those
concerns head on. An official for a health care company that
recently was shopping for cloud services said Amazon pointed to
streaming video company Netflix Inc. as an example of a business
that was comfortable with its service even though the retail giant
has a competing online offering. The health care company signed up
for Amazon's cloud services.
Retail companies were among the first to be skittish about using
AWS, given Amazon's competitive clout. Walmart Inc., as early as
two years ago, told vendors not to use the Amazon platform.
Unilever PLC, the consumer goods giant that has brands including
Ben & Jerry's and Vaseline, is using data analysis tools
Microsoft offers for Azure to crunch some of its most sensitive
customer and third-party vendor data, according to a person
familiar with Unilever's cloud strategy. That is even though
Unilever works with Amazon in other areas, including to sell some
of its wares. Unilever didn't respond to requests for comment.
Amazon, which didn't comment on Unilever's decision, said its
consumer business doesn't get access to AWS data. "The vast
majority of companies that compete with Amazon's consumer business
use AWS," a company spokeswoman said.
Microsoft said sales for its Azure cloud business grew 59% in
the most recent quarter compared with the year prior. AWS quarterly
sales grew 34.7% from a year earlier, the latest in a series of
quarters that saw growth slow.
Amazon has been trying to fight back on multiple fronts.
At an earlier annual AWS conference, Mr. Jassy held a private
lunch with private-equity executives from firms such as Carlyle
Group for the first time, according to a person familiar with the
gathering. The aim was to woo private-equity firms, which own
dozens of more mature companies, to Amazon's cloud, according to
the person familiar with the event. Such links would give Amazon
access to a pipeline of new customers as the private-equity firms
buy new companies, invest in technologies such as cloud-computing
to help lower costs, and then sell or take them public.
Amazon has taken out ads to battle back. In one, it asserts that
running a specific Windows database management system would cost
half as much on AWS than on Microsoft's own cloud.
AWS Chief Technology Officer Werner Vogels, last year, took to
Twitter to take a jab at Microsoft, calling a change in the rival's
software licensing terms "bait+switch." The remark is out of
character for Amazon, whose CEO Jeff Bezos has publicly spoken
about focusing on customers, not competitors.
Microsoft declined to comment.
Amazon also is playing defense on other fronts. It has filed a
case in the U.S. Court of Federal Claims against the Pentagon's
decision to award Microsoft the Joint Enterprise Defense
Infrastructure, or JEDI, contract. That selection process had been
fraught, amid multiple conflict-of-interest allegations and legal
challenges.
Amazon is suing the government, claiming bias against the
company's bid. While the competition was still running, President
Donald Trump expressed concerns about the pending contract. "I'm
getting tremendous complaints about the contract with the Pentagon
and Amazon," Mr. Trump told reporters at the time. "I will be
asking them to look very closely to see what's going on."
Following the award to Microsoft, at the AWS jamboree last
month, Mr. Jassy said "if you do a truly objective and detailed
apples to apples comparison of the platforms, you don't end up in
the spot where the decision was made."
Pentagon acquisition chief Ellen Lord last month said the
Defense Department was moving forward on the JEDI contract
irrespective of Amazon's legal challenge.
-- Asa Fitch contributed to this article.
(END) Dow Jones Newswires
January 04, 2020 00:14 ET (05:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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