Why Microsoft can't close AWS's $2bn revenue lead on Azure
Despite Azure revenues growing much faster than Amazon Web Services', Microsoft hasn't managed to close a $2bn gap on Amazon's cloud behemoth, according to investor publication Barron's.
Its analysis shows that Microsoft isn't catching up with Amazon's $10bn cloud business, and Azure's revenue gains aren't large enough to offset declines hitting its much larger on-premise enterprise server business.
Microsoft doesn't disclose Azure revenues, but it does report growth. At its Q3-FY16 earnings Microsoft said Azure revenues grew 120 percent year on year.
Barron's estimates Azure revenues for the quarter at $560m. That figure compares with AWS's $2.566bn Q4 2015 reported earnings, up 64 percent on $1.566bn a year ago.
So, even through Microsoft more than doubled Azure revenues over the past year, on a quarter-on-quarter basis, AWS' $2bn revenue lead remained constant, Barron's estimates. Amazon reported $2.405bn revenues in Q3 2015, and based on current growth Amazon CEO Jeff Bezos is confident AWS will be a $10bn business this year.
Microsoft threw out its own $10bn figure at its Q3 fiscal earnings, highlighting that its "Commercial cloud annualized revenue run-rate exceeds $10bn", which includes Azure and Office 365. Last year Microsoft said it was aiming for a run-rate of $20bn by 2018.
But Barron's points to another potentially worrying trend: Microsoft's gains on Azure and Enterprise Services are not enough to offset revenue declines in its traditional on-premise Server Products category.
Barron's estimated a $600m quarter-on-quarter decline in server products, compared with estimated $300m quarter-on-quarter growth in Azure and Enterprise Services.
However, Microsoft's transition from selling licenses to an on-demand model is looking brighter on the Office front. Barron's reckons that Microsoft Office 365 revenues are now about $900m less than Office commercial on-premise revenue, which is down from $2.3bn in the previous quarter.