Second-Quarter Cloud Vendor Highlights

The second-quarter highlights based on the cloud vendors’ conference calls are now in, and all reports seem to indicate another strong and healthy quarter in the public cloud space. The companies that have reported in and are a part of this highlight are Amazon, Microsoft, Google, IBM, Oracle, and SAP. While the overall cloud marketplace with these vendors remains healthy and growing, there are a couple of areas within the marketplace to showcase.

First up is Everything as a Service (XaaS). This space is reporting revenue of around $16.4 billion, a forty-two percent increase year over year, but down from the previous quarter’s year over year of forty-five percent. The big services to report are Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). These services together are reporting revenue of about $9.0 billion, an increase of forty-eight percent year over year, which is higher than the previous quarter’s year over year of forty-seven percent. This growth has an interesting breakdown. Microsoft Azure and Alibaba have outperformed in the IaaS and PaaS marketplace, while Amazon, Microsoft, and Oracle have outperformed in the XaaS space. Clearly, Microsoft is continuing on its path of dominance and is showing no signs of slowing down anytime soon. In fact, Microsoft’s Azure has widened the gap by five hundred basic points; in other words, it has increased the gap by another half percent in the IaaS and PaaS marketplace.

Another commonality among the various public cloud providers is the steps they are taking to adapt to the growing demand for more hybrid cloud solutions. In response to this demand, Microsoft is set to launch the Azure Stack (integrated hardware) in the third quarter of 2017. Microsoft expects Azure Stack to help it differentiate its service from others, but is targeting customers with regulatory requirements and companies with remote locations, such as cruise ships and oil rigs. Microsoft has also released a preview of Azure Container Instances (ACI), which is a new container management and deployment tool, and Functions, a serverless instance. Meanwhile, the Google and Nutanix integration is due to hit the marketplace in the first quarter of 2018, and Google Cloud Platform is launching Transfer Appliance, a large sneakernet data transfer appliance, around the same time. AWS is releasing Snowball, its own solution for large data transfers. Oracle Cloud has also expanded its services to feature an all-Oracle SaaS offering in addition to its PaaS and IaaS. Finally, an area we do not get to spend much time talking about in the time of the cloud is mainframe computing. IBM’s z14 mainframe refresh is expected in the third quarter of 2017; this release should complement hybrid services and Bluemix offerings going forward.

Another positive item to note from the vendors’ reports is an increase in CapEx spending. This shows that these vendors’ investment in growth has accelerated since the reports from the first quarter. This would seem to indicate strong demand to invest in tomorrow, and with that, a positive outlook for the future. There also seems to be a consensus that there is plenty of room for multiple vendors in the cloud space. This increased enterprise corporate acceptance as well as heightened focus on the hybrid cloud could also have a positive affect with regard to some of the legacy vendors in the space. As a result, I believe that the vendor partners should see increased benefits from the shift in spending to more traditional enterprise customers and their workloads, as vendors look to scale and optimize their businesses.

Artificial intelligence (AI) and machine learning (ML) remain some of the biggest opportunities for some of the more mature customers and partners in the space, like Capital One, NASA, Vonage, and Motorola, to name a few. Other customers are starting to take advantage of Lex to create chat bots, Polly for text-to-speech in a drive to enhance their customer engagements, and Rekognition for image and facial recognition user cases. Databases and big data are another area of strong interest and demand for the cloud vendors, with services like Azure Database, Cosmos DB, Data Warehouse, Data Lake, and SQL Server. Jet.com has recently reported using Cosmos DB to process trillions of transactions every day.

In closing, I want to stress that the highlights from this quarter continue to showcase Microsoft’s dominance in the cloud space. I have indicated in past posts my belief that 2017 could be the year when Microsoft becomes the new monarch of the cloud by overtaking Amazon. The highlights from this quarter appear to reinforce this belief. Regardless of the placement at the end of the year, the second-quarter cloud vendor highlights indicate another strong and vibrant quarter that brings with it more signs of a continued positive outlook for the industry.

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