7 Reasons Why Azure Might Beat AWS in the Cloud Wars (and it has nothing to do with technology)

Before I proceed, we at CloudThat are partners with both Amazon and Microsoft, and we work with some great people at both the companies. At CloudThat, we pride in being a vendor neutral provider of Cloud Consulting and Training, and we only work in the best interest of our clients and their requirements. We do not show bias towards a cloud provider. I am also an ex-employee of both Amazon Web Services and Microsoft, and I have nothing but love and respect for both the companies, and the wonderful people I have worked with. I have spoken at various conferences on AWS and Azure topics, written curriculum books for both AWS and Azure, and written blog articles on strategies of these companies to dominate cloud market.

Currently, AWS enjoys a healthy lead in the public cloud market share and almost looks invincible. AWS is also routinely looked as the most evolved public cloud. This article is my assessment of the long term competitive advantage that Azure possess to challenge and beat AWS in the long run. Below, I present my assessment; feel free to let me know in the comments below if you agree or disagree with my analysis of why Azure will beat AWS in the long run.

1.IT selling is all about relationships and Microsoft has deep inroads in most large organizations

Microsoft has been selling software to corporates for decades. In every major corporate Microsoft has a relationship manager, many of whom are in that position for many years, and has deep relationships with top management of those corporations. Under Steve Ballmer,Microsoft struggled to adapt to the cloud ecosystem, and was not able to morph that license selling machinery into selling cloud products. Under Satya Nadella, Microsoft has gone through a tremendous metamorphosis and has become a cloud focused company in just a few years. In Satya Nadella, Microsoft has a leader they believe in. Almost every division is talking the language of cloud. Right from Office, Windows, Power BI, and MS SQL to BizTalk, every product line has embraced cloud. The same machinery that sold licenses for Microsoft has become very efficient under Satya Nadella to sell cloud. I see more and more companies adopt Azure because of these relationships they have with Microsoft, and sweet bundles that Microsoft is generating, rather than pure technological assessment. For example, we were helping a company with about 50,000 employees evaluate AWS vs Azure. The company already used Office 365, so all their employee accounts were synced to Azure Active Directory in Single Sign-On mode. The architects told us that the even though the engineers preferred AWS, the decision to go with Azure was taken by higher ups, potentially because the company had deep relationship with Microsoft, and Microsoft made the deal sweet enough that the top management didn’t even want to evaluate AWS.

AWS is just starting to get in the game and is aggressively hiring enterprise relationship managers, but AWS has a long way to catchup in this space. No doubt that in the past, a lot of large organization went with AWS, as Microsoft didn’t have all their ducks in a row regarding Azure, but now the leaner-meaner Azure machinery is giving a tough fight to AWS.

2. Microsoft’s cash reserve and other profitable business units allow it to deeply discount Azure

Microsoft is sitting on a cash war-chest of USD 113 Billion as of Dec 2016. This is 3200% greater than Amazon’s cash reserve of USD 3.44 billion. In addition, Microsoft has a lot of high profit margin units like Windows and Office and runs it overall business with profit margin of 19.57%. Amazon on the other hand is barely profitable with profit margin of 1.81%.What this means is, that Microsoft can deeply discount Azure to gain market share, and Microsoft is actually doing it. We have helped two large SIs come up with RFPs and design docs for migration from AWS to Azure. I heard through the grapevine that Microsoft is providing up to 50% discounts on Azure, if a large enough corporation agrees to move to Azure from AWS; and we already have helped a couple. Also, new organizations moving to Azure are getting sweet deals on Azure. This makes Azure an even better option for many large organizations, who might have chosen AWS otherwise. AWS does not have a lot of leverage to compete with this kind of pricing, as they need to worry about their profitability and cash flow, unlike Microsoft which has more liberty in this area.

3. Microsoft is a more Partner driven company

Microsoft has learned very clearly, possibly with long history of trial and error, that IT delivery is all about having a strong partner ecosystem. With so many nuances in IT services with different company sizes and structures, different domains, and different geographies, having a skilled and motivated partner ecosystem is a must. Microsoft has put a lot of effort in developing this partner ecosystem. Satya Nadella said in the Microsoft Partner Conference keynote that "Microsoft is a Partner-First Company". For example, in training, Microsoft publishes curriculum and delivers 100% of the training through partners. On the other hand, AWS does not publish curriculum, and delivers a lot of training themselves or through a handful of large organizations.

Microsoft openly discloses that 95% of their commercial revenue comes from partners, and they put a lot of emphasis on Partners. Thus, I believe Microsoft partners have more faith in Microsoft.

4. AWS is convinced of being invincible, which can hurt them

Recently I went to consult a large Indian System Integrator (SI) with 300K employees who is a partner with both AWS and Azure. The day I was at their office in Chennai, two of very senior Azure partner managers had flown in from Bangalore. The SI team I was working with was frustrated with AWS, and said getting support to acquire new projects or even support for large projects is very difficult, and AWS folks are hard to get hold of (he was being polite). On the other hand, Microsoft’s senior leadership routinely visits them, and makes sure they have all they need to acquire new Azure projects. They even provide free training and certification vouchers for the large SIs. The team told me that their Azure pipeline for projects is 10x (1000%) the AWS pipeline. These should be worrying sign for AWS. Imagine that in such a condition, the larger SIs might push Azure ahead of AWS for any project where they might be able to justify it. I have heard similar stories from other large SIs as well. Thus, AWS team has acquired the sense of being invincible, and that is dangerous.

5. Microsoft loves being No. 2 and they are dangerous to ignore at No.2

Microsoft has historically been good catchup player. In a lot of technologies like IE Browser, Windows Operating System, and workplace software like Office, Microsoft was second for a long time. They were persistent and eventually acquired number 1 position to a point that in terms of market share, Windows and Office have virtually no competition.

In cloud, AWS IaaS services had a head start of seven years. First AWS service S3 was launched in 2006, while Azure IaaS services were launched in 2012. Despite this, under Nadella, Microsoft has transformed itself into a very efficient system producing new cloud services at a very rapid pace. Azure has launched more services in the last 12 months compared to AWS and is catching up rapidly with AWS in terms of services and functionalities.

Moreover, in domains like Machine learning, IoT, and Analytics, Azure has actually overtaken AWS. AWS regained some of the momentum recently by introducing new services at AWS re:Invent conference, but the fact that Azure is actually leading in certain domains tells you that Microsoft has the capability to lead this race. Combine the sense of invincibility of AWS and the great job Microsoft does being number 2, and you sure are looking for a close fight in the near future.

6. Multi-cloud is the new in thing 

A bigger threat to dominance of single cloud player is that, large corporations are wary of being dependent too much on a single cloud provider. Also, AWS have had some major outages. S3 service was down for hours just a few months ago. This is resulting in many organizations doing multi-cloud setup. Large corporations will possibly have primary infrastructure on one cloud provider, and secondary active-active or Disaster Recovery (DR) setup on another. As the skills of multi-cloud increases in the market, and more companies move to multi-cloud, it will be easy to move to Azure from AWS, given the above points like Azure reducing the prices, and Microsoft’s network of Relationship Managers. Thus, multi-cloud architecture could put a big dent in the lead that AWS enjoys at the moment.

7. AWS’s Hybrid cloud story is incomplete at best. Microsoft has a more complete solution

Microsoft has been heavily invested in the data center management space for the longest time. It has its own hypervisor Hyper-V, a set of popular tools like System Center and it had already taken first step towards private cloud setup. Now with Azure Private Cloud Stack they have a solution that works seamlessly in providing a true hybrid solution on Azure. And as most large corporations will want some form of hybrid functionality at least initially, Azure will look more attractive to those corporations.With AWS, if you want hybrid cloud, the private cloud runs a stack which is different from what is running in the public cloud. Although it is doable, many organizations will not want the additional complexity. Of course, AWS might soon release a private cloud software, but then getting traction for private cloud software might not be that easy. Also, AWS has tied up with VMWare recently to plug in this gap by providing VMWare native cloud on AWS.

Although, it is yet to be seen, if two very different companies like VMware and AWS can efficiently collaborate and provide something which is a worthy competitor to the Azure Private Cloud and Azure Public cloud combination.

Overall, AWS is a leader, but if they don’t correct some of the things mentioned, we might see Azure taking a lead. What do you think?

Also read about my assessment of Oracle cloud's strategy and Google cloud's strategy to compete with AWS and Azure.

Reference: All financial information referenced is obtained from ft.com

This article was first published on blog.cloudthat.com.