Why Amazon Won't Catch #1 Microsoft In The Cloud: Because It's All About Software
(Note: After an award-winning career in the media business covering the tech industry, Bob Evans was VP of Strategic Communications at SAP in 2011, and Chief Communications Officer at Oracle from 2012 to 2016. He now runs his own firm, Evans Strategic Communications LLC.)
CLOUD WARS -- While I might not be the brightest bulb in the chandelier, only a fool would pretend not to recognize the extraordinary innovations and achievements Amazon Web Services has achieved with its revolutionary cloud-computing business.
Without question, Amazon was the prime mover and category king in the first wave of cloud computing, and almost single-handedly turned the concept of self-service access to high-volume computing power and infrastructure from the exclusive province of extreme techies to a commodity-like utility that millions could easily access and afford.
True to its corporate DNA, Amazon—tied for #2 on my Cloud Wars Top 10 ranking with Salesforce.com—delivered not only an unprecedented depth and breadth of products and services, but a simple and elegant user experience combined with relentless price-cutting loved by customers and loathed by competitors.
But as the Cloud Wars shift dramatically and strategically away from brute-force hardware to increasingly sophisticated and aften-dazzling software, I believe Microsoft--#1 on my Cloud Wars Top 10—will continue to reign supreme over Amazon and every other cloud competitor because of Microsoft's 42-year history of deep immersion in software.
In citing the supremacy of software, I'm not slighting infrastructure or its importance—hey, all that gorgeous code's gotta run on something, right?—but some comments Steve Jobs made back in 2010 perfectly illustrate the ascendancy of software that we are witnessing today.
Jobs made his remarks during a rare participation on a quarterly earnings call with analysts—he joined the call because Apple had just cracked the $20-billion mark in quarterly revenue for the first time—and as Jobs fielded questions from the analysts, he grew a little testy as they failed to grasp his point that the defining issue is software, rather than the hardware on which they were all focused. And remember, Jobs was sharing this paradigm-busting perspective seven years ago.
"You're looking at it wrong—you're looking at it as a hardware person in a fragmented world," Jobs said. "You're looking it as a hardware manufacturer that doesn't really know much about software, who doesn't think about an integrated product, but assumes the software will somehow take care of itself. . . . And you assume that the software will somehow just come alive on this product that you're dreaming of.
"But it won't."
So fast-forwarding back to today, as Artificial Intelligence is arguably the hottest and highest-potential new technology in the enterprise space, only a software-native company like Microsoft could even dream about the ability to launch an AI division with more than 5,000 computer scientists and software engineers. Not 50 great people or 500, but more than 5,000. Microsoft created that AI unit just over a year ago.
Only a truly software-native company like Microsoft could put forth a profound perspective like this one from Satya Nadella that elegantly transcends the in-the-weeds fixation so many people have today on what cloud computing is, and what it isn't, and which box and sub-category and micro-hierarchy some product does or doesn't fit into in the great chain-of-cloud being:
"We don't think of our servers as distinct from our cloud," Nadella said on an earnings call earlier this year. "In other words, this intelligent cloud and the intelligent edge is the architectural pattern for which we are building. Whether it's SQL Server 2017 or it's Windows Server, or the container service, everything that we do assumes the distributed computing will actually remain distributed.
"And it turns out that it's helpful to think about it that way, both for customers who are rationalizing their portfolios of apps that the lift-shift modernizes to what they run in their data centers, or in our data centers, but also forward-looking new workloads."
A CEO or a company can't express such a vision—let alone be able to deliver it—unless that CEO's DNA or that company's DNA is so completely and fully stuffed with software strategy and software vision and software culture that it becomes a very real and always-on manifestation of that person and that company.
That's the case with Nadella and Microsoft—they are singularly focused on creating powerful and intelligent software for businesses and for people. They're not involved in funding and creating vehicles for space exploration or becoming the world's leading retailer or media conglomerate or movie studio—they're all about software and only about software, all the time.
Consider this: in Nadella's 3-1/2 years as CEO of Microsoft, as he has restructured the company and reinvigorated its strategy and put cloud computing at the heart and soul of Microsoft, the company's market cap has gone up by about $250 billion. Two hundred fifty billion dollars!
That soaring valuation didn't come about by diversification or by financial wheedling or dabbling in mobile phones—it came about by tripling down on the thing that venture capitalist Marc Andreessen said is "eating the world": software.
Let's take a quick look at just a few of the product highlights that have resulted from Nadella's sweeping transformation and that allow Microsoft's cloud business to encompass every single element in what he calls customers' "digital estates":
- Microsoft 365: Introduced a few months ago, Microsoft 365 brings together Office 365, Windows 10 and Enterprise Mobility & Security in an integrated solution to "empower employees, safeguard businesses and simplify IT management." But in transcending old product silos to align with customer needs rather than with internal org charts, Microsoft 365 is an archetype for a radically new approach customers should expect in the future. As Nadella said, "Microsoft 365 is a fundamental shift in how we design, build and go-to-market to address customer needs."
- World's largest AI team: the 5,000-person division mentioned above.
- All three layers of the cloud: One of only a tiny number of tech vendors offering IaaS, PaaS, and SaaS, Microsoft has confidently projected that it will hit $20 billion in cloud revenue for its fiscal year ending June 30, 2018. That would make Microsoft the first cloud vendor to hit that revenue plateau.
- Both cloud and on-premises: Along with its booming cloud business, Microsoft remains fully committed to its on-premises business with SQL Server, and Nadella's working to position all of Microsoft's offerings—cloud or on-prem—as interrelated elements on a logical continuum built around what customers want and need as opposed to turning it into some all-of-nothing choice.
- Dazzling new developments: You can read all about this —and watch a gorgeous 2-minute video—in the last 3 paragraphs of this piece. I promise it will be worth the wait.
So back to Amazon: it does indeed dominate the cloud-infrastructure category (see the excellent chart nearby from Synergy Research Group), and in spite of Oracle leader Larry Ellison's vows to knock AWS from the top of the heap, it's difficult to imagine any company overtaking Amazon in the IaaS space—even one as capable and determined as Oracle, which Ellison will feverishly drive and inspire to achieve his stated goal. (Oracle is #6 on my Cloud Wars Top 10 list.)
But as is always the case with enterprise technology, sooner or later software becomes the ultimate competitive advantage, and that's exactly how it's playing out in cloud computing.
And so for Amazon, the fundamental question is this: does it have the software chops to compete with hugely successful competitors in the cloud that were born as enterprise-software companies, grew up as enterprise-software companies, and are refining themselves as cloud-centric enterprise software companies?
Can Amazon somehow find a way to amass in the next two years the level of world-class enterprise expertise and knowledge and culture that has taken IBM and Microsoft and Oracle and SAP 30 years or more to accumulate, step by rigorous step?
I don't think Amazon can do that—but not for a lack of trying. Enterprise-strength databases are among the most complex technological achievements that exist today, and it's taken IBM and Oracle and Microsoft decades to create and refine such products—and as good as those products are right now, they're being enhanced constantly.
Can Amazon close that gap in just the next 2 years? I don't think so, not even if those three formidable competitors were to stand pat and make no further improvements to their database products and services, which is certainly notgoing to be the case.
To be sure, Amazon's software aspirations are impressive—and I've listed a few of them below. And I recently recommended 10 cloud-software companies that Jeff Bezos could consider acquiring to help close the software-expertise gap with Microsoft. But take a look at these three software initiatives from Amazon:
First, Amazon's recruiting in Cambridge, Mass., for a "new service" that will migrate enterprise workloads from to the AWS cloud: "We are building a brand new service within the Amazon Web Services (AWS) Development Center located in Kendall Square, Cambridge, MA and are seeking a talented and passionate Software Development Engineer," its website says. "As a Software Engineer in this office, you will design and build a new service that will help large enterprise companies migrate their computing to AWS."
Second, Amazon's recruiting for software engineers in biotech and pharmaceuticals: "AWS allows you to have an agile, cost-effective, and compliant infrastructure to accelerate scientific discovery, enable operational efficiency, and simplify your global collaboration. Since agility and compliance are so critical, AWS customers can: deploy validated applications in development and manufacturing; rapidly innovate and coordinate with remote facilities and partners; use data analytics to make decisions about geographic expansion; and more efficiently leverage digital marketing resources to promote their product brands. With AWS, biotech and pharma companies can focus more on scientific discovery, clinical advancement, and sales, instead of IT administration."
And third: Amazon says businesses have chosen to migrate 35,000 non-Amazon databases to AWS, and surely that's a sign of growing software capabilities—and good for Amazon for offering a better alternative in those cases. And no doubt there'll be more to come as Amazon is able to offer some businesses a powerful combo of aggressive pricing plus well-matched IaaS for its Aurora database.
I'll leave you with this link to a short and compelling video showing how Microsoft's stunning HoloLens software is helping Ford revolutionize how it designs a car with the aid of Mixed Reality, AI, the Azure cloud platform, Teams collaboration software, and much more.
The Cloud Wars are now all about software. And maybe I'm impressed more easily than I should be because I'm not a developer or a software engineer—but I know a thing or two about business, and if Microsoft can deliver for Ford what this HoloLens story promises, then HoloLens becomes one of the primary reasons why Amazon simply can't catch Microsoft in the cloud: because Microsoft is simply overwhelmingly good at developing every type of software that businesses need—and even before businesses know they need it.
But Amazon shouldn't feel too bad—because as long as Satya Nadella is CEO of Microsoft, no other cloud competitor is going to be able to catch Microsoft, either.
As businesses jump to the cloud to accelerate innovation and engage more intimately with customers, my Cloud Wars series analyze the major cloud vendors from the perspective of business customers.