Microsoft is making waves by winning blockbuster deals for its cloud computing business known as Azure. The unit’s chief technology officer says the business is only just getting started.
Late last week, the Defense Department said Microsoft was awarded a cloud-computing contract worth up to $10 billion over 10 years if all options are exercised. Microsoft beat out Amazon’s (AMZN) Amazon Web Services, the current leader in cloud computing. Analysts are now enthusiastic that Microsoft’s win could set the stage for a wave of other large deals with enterprises and the government.
Barron’s recently met with Azure Chief Technology Officer Mark Russinovich at Microsoft’s New York City office. The interview came just before the Defense Department announced the Microsoft deal. Russinovich explained how the company is trying to stand apart in a competitive world of cloud computing.
Azure sales grew 59% year-over-year in its most recent quarter, versus a growth rate of 35% for Amazon Web Services. Those data points suggest that Microsoft is gaining ground in the cloud race.
According to Gartner, Amazon Web Services was number one in public cloud computing services with a 47.8% market share last year, followed by Microsoft at 15.5%, and Alibaba Group Holding (BABA) at 7.7%. Alphabet’s (GOOGL) Google and IBM (IBM) are a distant No. 4 and No. 5, with 4% and 1.8% of the global cloud market, respectively.
Cloud computing is one of the rare spending categories that can do well even in a lackluster economic environment. Companies are shifting huge sums of their technology spending to the cloud because it offers better reliability, an easier path to scaling up, and greater cost efficiencies versus traditional on-premises computing equipment.
Microsoft’s cloud traction is a big reason why its shares have significantly outperformed the market this year. Its stock has risen about 42% year-to-date, versus the S&P 500’s 21% return. Amazon stock is up 18% this year.
Here’s an edited transcript from our interview with the Microsoft executive.
Barron’s: The market share numbers suggest that Google and IBM are having a tough time competing with Amazon and Microsoft. What’s happening there?
Russinovich: If you take a look at Gartner, for example, on their Magic Quadrant [capability matrix], Google is a distant third at this point in terms of the way they measure cloud capabilities. And that’s pretty consistent with what we hear. IBM, if you look at the Gartner Magic Quadrant, is down in the niche category.
I think at this point, these [cloud] platforms they’re becoming ecosystems. It’s not just selling the cloud. It’s selling an ecosystem. It’s do you have developers that understand the cloud? Do you have people that know how to operate it? Do you have ISVs [independent software vendors] that are developing for it? That is part of the whole value proposition now. It’s not just, do you have storage.
IBM, Microsoft, and other companies all talk a lot about the “hybrid cloud,” but it seems everyone has a different definition. What’s your definition?
Even at Microsoft, I don’t know if we’ve got crisp, clean definition, but I’ll share mine with you—I interpret hybrid as IT infrastructure running IT workloads connected to the cloud in some way. So either the cloud is managing those resources or those resources are taking advantage of cloud services from on-premise applications.
When you go to market against Amazon Web Services and Google Cloud, how do you differentiate Microsoft Azure?
If we’re talking to enterprise customers, I would say it’s our understanding and relationship with the enterprise, as evidenced by the understanding that they’re going to be hybrid. So building services that meet the requirements for migrating workloads into the cloud. For example, we’ve got the broadest portfolio of compliance offerings. That is specifically because we knew that enterprises, especially ones in regulated industries, were going to either want or have a [compliance] requirement. Our cloud has to meet those compliance requirements to get their workloads up.
So that’s for enterprises? How are you appealing to startups?
Microsoft has been developer oriented from the start. We’ve got the number one developer productivity tool [Visual Studio Code]. We’ve got the number one, effectively, social network for open-source software development with GitHub [a recent acquisition]....We also differentiate in our approach to open source. We’ve got incredible, deep relationships with open-source partners. We bring open-source technologies to our cloud with deep engagements, including unique ones like Azure Databricks [analytics]. When it comes to Kubernetes [the open-source container system for automating application deployment and scaling to the cloud], we think our service is best-of-breed.
Thanks for your time Mark.
Write to Tae Kim at tae.kim@barrons.com
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