Amazon vs Google: The IaaS wars

Amazon vs Google: The IaaS wars

Summary: Google cut cloud prices. Amazon follows suit. Skirmish over, but war continues. Who will win?

TOPICS: Storage, Amazon, Cloud, Google

As buyers of cloud services you have two major competitors to look at, Amazon and Google. Unlike most competitors in major, capital intensive industries, these two have very different business models.

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Amazon is a wholesaler with global consumer reach. They rely on selling huge volumes at low margins to millions of customers.

Google is an advertising company. They rely on access to consumer info to provide highly profitable targeted advertising to millions of businesses.

Amazon invented the wholesale infrastructure-as-a-service business. While Google had similar opportunities in IaaS, they've focused on software-as-a-service.

Significant competitors include Microsoft, Rackspace, Apple, IBM, HP, EMC, where significant refers more to potential than current business.

Amazon vs. Google on money

Amazon's results reflect the wholesaler mentality. Their profit margin is a thin 0.38 percent on revenue of $78.12 billion, while Google earns a hefty 20.91 percent on revenues of $62.29B. (All figures from 2013 annual 10-Ks.)

Both are growing fast with year-over-year quarterly revenue rising 22.8 percent for Amazon and 19.10 percent for Google. Both spend billions each year on R&D and — vital for the cloud segment — property, plant and equipment (PP&E).

Amazon vs. Google on strategy

Amazon makes its money selling products to consumers and businesses. Its financial strategy is based on free cash flow — cash flow less buys for PP&E — that is both conservative financially and radical in its long-term view.

Google makes its money selling information about users to advertisers to maximize ad effectiveness. It works well and has produced a gusher of cash used to grow its advertising revenue while also funding a number of services such as Google Apps, Gmail and Android that support consumer involvement and data sharing along with "moonshot" projects such as self-driving cars, FTTH, Google Glass, and more.

Amazon vs. Google on IaaS

Gartner recently estimated that Amazon Web Services (AWS) offers five-times the utilized compute capacity of the rest of the cloud providers. Amazon's revenue category (Other) that includes AWS is showing accelerating growth, more than doubling from 2011's $1.6B to 2013's $3.9B. They've aggressively rolled out new services too.

Google came late to the IaaS war — launching in 2012 — but their recent price cuts, which Amazon matched, heralds a focus that is new. Like Amazon they've been an innovator in scale-out architectures and have a massive internal compute infrastructure.

The Storage Bits take

What does all this mean? While Amazon has thin margins, their free cash flow model means they take a long view on investing for the future, which is good for companies who want a long-term cloud provider. They're ramping up their sales and support for cloud customers as well, an area where they've been weak.

Google's much smaller effort is just one of many competing projects, but is supported by Google's much higher profitability and deep technical bench. But it isn't clear that Google's cloud offerings are core to the company's "organize the world's information" mission. Nor does it seem likely that their stellar ad sales teams can transfer customer skills to IaaS.

Bottom line: this is Amazon's race to lose. Their wholesaler model and first-mover advantage means they will continue to build on their substantial lead, with a goal of long-term profitability based on scale and service. 

That's a combination that most enterprises will embrace. That is, assuming our friends and fellow Americans at the  NSA don't destroy American IaaS competitiveness. Which is a big if, sadly. 

How do you handicap the race?

Topics: Storage, Amazon, Cloud, Google

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  • Azure much

    Or are you totally bi-focal?
    • Will Amazon or Google win IaaS? NO!

      MS' offering is overall the most competitive at this point.
      x I'm tc
      • quickest way to understand the power

        Of Azure IaaS and PaaS is spend 20 minutes watching the first few examples of

        you will be a convert. Google doesn't come close
  • Azure...

    Google cloud is a Joke.
  • The IaaS war is about more than Amazon and Google.

    I think you accurately stated the facts of Amazon vs Google, but you left out a few other significant players in the cloud market. And those omitted may be more of a competitor to Amazon than Google will be.

    Microsoft has the technical chops to go head to head with Amazon--this is a tech-heavy firm that has been doing huge networks far longer than Amazon. Also, to Microsoft, the cloud represents a much more important segment of its overall strategy for long term success than it does to Google. IaaS may be a side show for Google. But for Microsoft it is more crucial. Microsoft also has the deep pockets to fund its cloud strategy, and it is committed to the long haul.

    Two other potential players that have the technical and financial ability to compete with Amazon and Microsoft are IBM and HP. Both these firms have a long history of network skills, although they have both been more involved in the private cloud than the public side. However, IBM has bought its way into the private side with its recent purchase of Softlayer. On the downside, IBM has always stressed its devotion to high margin products, and the cloud storage and IaaS markets do not fit into that category.

    Because of this focus, I think IBM will attempt to cherry pick its prospects for cloud consulting services and push that side of the business over pure IaaS facilities. IBM is also somewhat committed to hybrid deployments, and it stresses its long experience in networking and virtualization to bolster its higher prices for the service.

    HP is similar to IBM in its past involvement in the private cloud and its focus on higher margin products, but it has to make profound internal changes if it is going to compete with Amazon and Microsoft for the low margin private cloud services. It is also stressing its long ties to servicing large enterprises, and it is embracing open source hypervisors and other infrastructure elements that address the so-called locked-in problem that IT managers dislike.

    My bet is that these four companies will be the eventual winners in enterprise cloud services, but Microsoft and Google may be the bigger winners in service the individual cloud user community. It is a mistake not to include these player in the cloud space.
    • Good points!

      Microsoft - and others I mentioned, particularly EMC - have a lot of potential. I've written about some of the great work coming out of Microsoft Research that supports Azure - search on StorageMojo Microsoft Azure - and they have a strong position in the enterprise, but right now they're in the also-ran category.

      This is a huge market though, and still young. If Microsoft puts money and focus on cloud they could be a strong #2 to Amazon. But they've gotten a late start and their misadventures in phones and tablets are, IMHO, a major distraction from what is a much larger cloud opportunity.

      R Harris
      • Late Start?

        You mean like IBM - 2011 or Oracle - 2012? I'm not sure that a year between all these implmentations of cloud centers & computing would equate to a "late start". I actually believe Microsoft is the only real competitor to Amazon. Google will be a distant third place and IBM and Oracle probably getting the left-overs.
  • Lawyers

    Only the lawyers win and make the big money off of this.
  • We really need to read comparisons

    of more than two companies. I know it is more difficult to compare more than two companies, but only 2 companies is not reality. There are quite a few companies providing IaaS, not just Amazon and Google. From what I can tell, Google isn't even much of a competitor in this area compared to Microsoft or IBM.
    • Thoughtful comment

      Google and Microsoft have similar strategies: leverage SaaS to integrate IaaS services. The question is: will that give them the scale to successfully compete with Amazon?

      The answer to that depends on large part how the economies of scale shake out in this market. AMZN, GOOG and MSFT all have massive infrastructures, but is IaaS a winner-take-all market as we've seen in CPUs and desktop OSs, where interoperability drive many companies to want to share the same IaaS provider?

      R Harris
  • Amazon vs Google on CARING FOR THE CUSTOMER

    Amazon wins, hands down. At any price. We've seen how Google loves to trash its customers, in Youtube. That taints anything it sells.

    We've long seen how Amazon breaks its back to serve its customers, and although maybe there are complaints, more and more sellers join Amazon for that reason. Happy camper, moi, with anything Amazon umbrella sells, or sells outright. Try PrimePantry, their latest foray. Prices are the same as my local store, plus $7 delivery fee the following week. So if I don't want to buy in bulk and schlep it home, if I don't want to or cannot due to illness or work get in the car and drive (and last week, my car was in the shop) -- Amazon delivers faster what my local delivery service, won't.

    Faithful in little, faithful in much.
  • Competition is a good thing

    the more providers the better. One consideration should always be, What is google doing with that data? Do you trust google with your data?
    • The real question is whether you can trust ANY of them with your data.


      Even Gates has admitted Microsoft can look at your data...
      • Wow. Your obsession with MS likely would make a good psychiatric case study

        As you danced over the part where Google has always said "We want to make all data available to everyone". Including yours.

  • What about MS?
    • As the press release at the URL you gave says:

      "IBM and Microsoft too can claim impressive cloud revenues, but in their cases much of the cloud revenue comes from software/SaaS, cloud-related hardware products or associated professional and technical services."

      Not IaaS.

      R Harris
  • multiple winners

    The margins are fairly high so there will likely be many (over a dozen) winners for many years... Amazon and google and pretty much any vendor cost at least double rolling your own private cloud at a remote colo facility if you require enough servers 24x7 to be doing over $10K/month. Google lacks too many enterprise features to even be considered as a potential solo winner at this stage. Even if Google could win on the low end because of price, they are not suitable for large enterprises at this point.
    John Lauro
  • Blithely ignored Azure in this context - but Google has one HUGE advantage

    As I understand it, MS is 2nd in the overall combined-cloud picture (IaaS + PaaS + SaaS). Actually, that may no longer be true after 1st quarter 2014 - the stand-down of all the Olympics-related infrastructure no doubt significantly reduced their market share (and unclear if Brasil will return to Azure in 2016).

    However, though behind, Google has a HUGE advantage that's not mentioned - their world-wide network infrastructure. They've self-hosted their own services (including the bandwidth-heavy Google Earth and Google Maps) with no CDN agreements, growing their own grass-roots CDN-like capability from within. This infrastructure, and its very scale, gives them a very real advantage over the other contenders in competing against Amazon.
  • It's not clear to me Google even takes this seriously

    Bring in MS or AWS to show their IaaS and they're all over it with demos, free tiers, architects, etc. As a comparison, see if you can get Google to even come talk to you about how it works or why I would use it. Their answer "...utilize our strong community of evangelists...". Huh? I don't think that's how you sell me on using your IaaS.