Sizing Microsoft Azure And AWS Revenue – Forbes
Deutsche Bank estimates AWS revenues are approximately $6B, nearly ten times the size of Microsoft Azure today.
Microsoft Azure is experiencing accelerating adoption today with Deutsche Bank Deutsche Bank saying that “Azure growth will be substantial in 2015”. The researchers learned that Microsoft has recently closed its first $25M enterprise Azure deal and are tracking above previous adoption estimates.
A Closer Look at Azure and AWS published by Deutsche Bank Markets Research on April 12, 2015 by Karl Keirstead and Imtiaz Koujalgi is based on calls the investment firm made with enterprise users of both Microsoft Azure and AWS recently. Deutsche Bank Market Research analyzes the differences between Microsoft Azure and AWS, making an estimate of Azure and AWS revenues ahead of Amazon’s decision to publically provide AWS financials in its 1Q15 earnings report.
Key take-aways from the report include the following:
- Gartner Gartner sizes the cloud infrastructure (IaaS) market at $17B in 2015 and doubling in size by 2018. Gartner sizes the cloud application development or platform (PaaS) market at $4.1B in 2015, attaining a compound annual growth rate (CAGR) of 65%+ through 2018. Deutsche Bank says large technology vendors are in a land grab right now, further fueling rapid innovation globally in this market.
- Deutsche Bank predicts that AWS will maintain its overwhelming lead in cloud infrastructure services over Microsoft Azure, Google, IBM and others. This is based on scale of operations and AWS’s success in moving “up the stack” to premium services. The researchers found Microsoft too tethered to the Microsoft stack to challenge the scale of AWS today, and a more open approach to third party technologies including Red Hat Linux have the potential to become growth catalysts. One respondent called AWS “the Microsoft of the next era”. Financial analysts’ consensus is that AWS and Azure are break-even at best.
- Azure and AWS rivals most frequently mentioned during interviews are IBM and Google. IBM’s acquisition of Softlayer in mid-2013 and recent announcement in late March 2015 of a $3B investment in a suite of cloud services for “Internet of Things” data continues to attract growing interest in enterprises. Google is a late entrant to the IaaS market and is well behind AWS.
- Microsoft Azure is averaging more than 10,000 new customers a week. Azure also has 350M Azure Active Directory users, over 2M developers registered with Visual Studio Online, and more than 60% of customer using higher services. This data was shared at the AzureConf 2014 event in October, 2014. The following chart was distributed at the event.
- Deutsche Bank predicts Microsoft Azure’s run rate is $175M/quarter and $600M a year based on the following assumptions. Azure revenues are included in the “Commercial Other” segment, which generated $2.6B for the quarter ended December, 2014. The largest percentage of revenue in this segment is from Enterprise Services, which Deutsche Bank estimates posted revenues of $1.3B, leaving $1.3B from commercial Office 365, Azure and Dynamics Online suite. The last time Microsoft disclosed commercial Office 365 revenues was during the March, 2014 quarter. The reported Office 365 had reached an annualized revenue level of $2.5B. As the table shows below, assuming an 88% year over year revenue growth rate, commercial Office 365 revenues potentially could have reached an annualized level of $4.5B. Microsoft disclosed last year the commercial Office 365 seat growth rate was approaching 88%. This would have made Office 365 a $1.125B business as of the December, 2014 quarter. The remaining revenues of$175M must come from Azure and Dynamics Online suite. Assuming a quarterly contribution of $50M from Dynamics Online, that leaves $125M in Azure revenue per quarter. The assumptions Deutsche bank made in arriving at their Azure revenue estimate are shown below.
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