A Closer Look at the Cloud Infrastructure Landscape
The adoption of cloud has been one of the most significant trends in the Technology sector over the course of the past decade and a half. Everyone from businesses to consumers would have noticed the shift from on-premise solutions to cloud-based ones for everyday productivity tools like G Suite, One Drive, and Dropbox. However, perhaps an even more impactful development is the growth of cloud infrastructure as a service (IaaS) with the rise of on-demand cloud computing platforms like AWS and Azure. Cloud IaaS is a form of cloud computing where the provider supplies on-demand access to computing resources such as networking, storage, and servers. Within the providers’ infrastructure, the user can run their own platforms and applications. On-demand cloud infrastructure services have become almost ubiquitous for software companies that provide hosted solutions given their accessibility and ease of use for outsourcing data storage and computing power.
Cloud Infrastructure Landscape
The cloud-based infrastructure offers many advantages to businesses as it provides them access to storage and computing resources that would otherwise only be available through purchasing and maintaining expensive infrastructure and equipment. Additionally, it also provides the flexibility to access applications and data from any location and from any device with an internet connection.
Amazon became an early adopter of the cloud in the mid-2000s when it invested heavily in servers to help support its core e-commerce business. It quickly realized that it could rent excess capacity to other businesses to generate additional revenue. Users of Amazon’s computing resources were happy to pay for its use, given that it allowed them to forego making large investments and paying maintenance on their own servers.
The current market for cloud infrastructure as a service (IaaS) is massive and rapidly growing – in 2019 it was $40.3bn and is projected to grow 25% this year. The overall public cloud market is even larger at $227.8bn as of 2019 and projected to grow 17% this year. Although Amazon has maintained the dominant position in the cloud infrastructure market (representing roughly half the market as of 2018), its competitors are beginning to creep up.
Source: Gartner.
Battle of the Giants – AWS and Azure
The two clear leaders in the cloud infrastructure market are Amazon’s AWS and Microsoft’s Azure, representing 49% and 16% of the market respectively in 2018. Although AWS has been the long-time incumbent, Azure has grown at an incredible pace in the past few years – expanding its revenue by 60% in 2018 from $3.1bn to $5.0bn.
Source: Gartner.
At their core, AWS and Azure offer similar basic base capabilities. However, AWS differentiates on the wide range of services it offers to developers around key features like developer tools, database, analytics, networking, IoT, and more. Azure on the other hand, differentiates on its strength in enterprise computing which allows customers to satisfy their enterprise computing needs through one solution – leaning on Microsoft’s ability to bring in integration with Office 365 and Teams.
Competition between the two cloud computing giants has heated up over the last year with Microsoft being awarded the Joint Enterprise Defense Infrastructure (JEDI) cloud computing contract by the US Department of Defense in October 2019, which was reported to be valued at ~$10bn. Amazon was originally thought to be the favourite to win the contract and subsequently filed with the Court of Federal Claims over the contract being awarded to Microsoft.
Cloud Infrastructure Going Forward
The cloud infrastructure market has already reached wide public adoption and is growing increasingly complex and competitive. That said, there is still a wave of later-adopters that have yet to enter the market with a vast majority of software products still being deployed on-premise as opposed to hosted through a cloud platform.
With the current environment around COVID-19 and employees being forced to work from home, even traditionally strictly on-premise users have started experimenting with cloud-based solutions that allow them secure access to their networks and applications remotely. A recent example was the US Air Force tapping Austin-based start-up Coder, which provides a cloud-based portal solution that allows engineers to securely access and work on code.
It is expected that the cloud computing market will continue to grow at a rapid pace and catalysts like the recent outbreak will only serve to accelerate further adoption.
Written by Sampford’s Allen Fu.
About Sampford Advisors
Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom (TMT) companies. We have offices in Toronto, Ottawa and the US and have done more mid-market tech M&A transactions than any other adviser.