2/5/2013 1:30 AM ET|
Tech giants clash in the cloud
Amazon.com has the lead in the lucrative niche of providing businesses with cloud services. But its traditional rivals are starting to catch up.
Microsoft and Google are increasingly trying to unseat Amazon in the lucrative business of renting out computing storage and number-crunching to thousands of companies.
Amazon dominates the market through its Amazon Web Services business, or AWS, which helps companies handle digital tasks, such as streaming Netflix (NFLX) movies over the Internet, and analyzing auto-accident records at insurance consultant Validus.
Now Amazon is trying to sell AWS to many of the big companies that are Microsoft's bread-and-butter, while Microsoft and Google are seeking to skim off the startups that have been AWS' best customers.
Along the way, the trio are poaching each other's employees, slashing prices, talking trash and upending long-held strategies to control one of the fastest-growing areas of technology, known as "cloud services."
"The great tech wars are expanding into nearly every area of business, and cloud services are the latest battlefield," said Bill Coughran, formerly Google's senior vice president of engineering and now a venture capitalist at Sequoia Capital. "Amazon has captured the hearts and minds of developers, but Google and Microsoft are gaining ground."
Firebase, a San Francisco software startup, has benefited from the battle. When Firebase got off the ground, Amazon offered it a $12,000 service credit for AWS.
Another competitor, Rackspace Hosting (RAX) offered $36,000 in free service. Firebase also got offers from Microsoft and Amazon through one of its investors, New Enterprise Associates, if it and other NEA-backed companies chose their cloud services.
James Tamplin, Firebase's co-founder, said his company opted for AWS "largely because Amazon has a more advanced infrastructure."
Firebase now pays Amazon monthly, so when people surf to Firebase's Web services, AWS computers -- and not Firebase's own -- handle the load. Tamplin declined to disclose how much he pays for AWS. But consulting firm McKinsey & Co. last fall calculated a small computer server would cost a company an average of $31.55 a month to buy and maintain, while a comparable amount of cloud service from AWS or others costs an average of $16.06 a month.
Amazon, Microsoft and Google don't disclose revenue from their cloud products, but research firm IDC estimates "public cloud" services are among the fastest-growing areas of information technology, with a total market size of $40 billion last year.
Amazon has a roughly 70% share of the slice of public-cloud market for renting computing capacity and data crunching, Forrester Research estimates. AWS generates $2 billion or more in annual revenue from these services, according to Wall Street estimates.
There is more than money at stake. With cloud services, Amazon, Microsoft and Google are also vying to win the loyalty of software developers, and lock in companies to sell them more services over time.
For years, Amazon was largely unchallenged in the cloud market after launching AWS in 2006, giving it a chance to build a lead in an emerging market. AWS' rise also was aided by a boom of tech startups like Zynga (ZNGA), which found it cheaper and simpler to let Amazon manage the software and servers their businesses needed to operate.
Last summer, however, the cloud war heated up. In June, Microsoft overhauled its cloud services, called Windows Azure, and added more bite-sized offerings similar to AWS, such as the ability to rent more flexible "virtual" computers that squeeze out extra computing horsepower on the cheap.
That same month, Google, which had previously dabbled in the cloud services market, unveiled an offering called Google Compute Engine to allow companies to run their Web applications on computers managed by the Internet-search giant.
The companies immediately began battling in pricing. Within roughly one week last fall, Google announced it was dropping prices on its computing-storage by about 20%, to a starting price of 9.5 cents a month for each gigabyte. Amazon quickly matched Google's lowered starting price, prompting Google to announce a further price cut to a starting monthly price of 8.5 cents per gigabyte.
Microsoft followed a few days later by announcing it was slashing Azure costs to similar levels. Amazon said it has cut AWS prices 25 times in its history.
For its part, Google is leaning on its résumé. "Our offering takes all the infrastructure we developed over the past 14 years that runs Google, YouTube . . . and we just make it available to others," says Shailesh Rao, who runs Google's cloud platform group.
Amazon, Google and Microsoft also are poaching employees from one another, leading to lawsuits. In October, Amazon sued to stop former AWS senior executive Daniel Powers from working at Google's cloud business. In December, a federal court in Seattle barred Powers until March from helping Google use his confidential knowledge of Amazon to pitch current, former or potential AWS customers.
Google, Amazon and Powers declined to comment on the litigation. A judge has scheduled a trial date for November.
Amazon also has hired more salespeople and warmed to selling the service through corporate-technology "resellers," a conduit to big businesses. Amazon in November announced a new "premier" designation with 15 resellers that it blessed to sell AWS to corporations.
Amazon "recognizes now that they have to start catering to the enterprise," said Nand Mulchandani, CEO of ScaleXtreme, which helps companies manage and use AWS.
Microsoft, meanwhile, has stepped up its courting of tech startups -- typically AWS' sweet spot -- for Azure. Satya Nadella, the Microsoft president in charge of the Azure business, takes regular trips to Silicon Valley to learn from venture capitalists and tech entrepreneurs how to make Azure better for them, and for bigger businesses that will have similar needs.
In a move controversial inside of Microsoft, Azure last June made it easier for developers to use the service with computer-programming languages that are popular with startups but that were long seen as a threat to Microsoft. At an Azure event last June in San Francisco, Microsoft also moved an executive presentation to 1 p.m. from 9 a.m. to accommodate night-owl startup workers.
"A lot of those (startup) companies will grow up to be very big businesses," said Bill Laing, Microsoft corporate vice president for server and cloud. Startups "are not encumbered with legacy; they tend to experiment and try things out."
Microsoft officials and some corporate-tech buyers said Amazon is underestimating the difficulty of selling tech services to big businesses, which often want years-ahead peeks at product changes, specialized services and reliable customer support.
"Amazon is nowhere near ready for this battle in the enterprise," said Bill Hilf, general manager of product management for Microsoft's Azure.
Adam Selipsky, vice president of marketing for AWS, said AWS doesn't discuss the competition, but added that "traditional technology companies" have conflicting businesses that make them incapable of giving customers honest advice about cloud services.
More from The Wall Street Journal:
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There are some serious issues with cloud services, independent of the provider. 1. Do you really want to leave your critical data with some company, without having your own backup? What if they lose your data and you don't have another copy? 2. What if the cloud provider is your competitor? Wouldn't that competitor have a built-in incentive to have temporary outages with the client? (Not saying it was on purpose, but I believe that Netflix is using Amazon. Now, Amazon and Netflix both have streaming movie services. If you ran Netflix, would you want this conflict of interest?) 3. The APIs into the cloud services, in general, are pretty klunky. For example, most of the database services aren't very advanced, so that doing complex queries are not trivial. Not that I like Microsoft, but I believe that their SQL service might be one of the best, because I think the APIs are similar to standard SQL queries. (I haven't tested them though. I've only used Amazon's.) 4. Most, if not all, of the APIs from the different providers are different. Unless you code an adapter layer, if you decide one day to use a different provider, you're looking at a rewrite to do it. 5. Etc. etc.
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