Microsoft's Azure Has Become A Terror To Other Cloud Computing Players
Sep. 28, 2017 2:40 PM•MSFT
Summary
The tech giant's cloud computing interface is increasingly business friendly.
Microsoft may well be in a position to start stealing significant market share from Amazon and Alphabet.
The hybrid IT market prompting the upgrades of Azure will almost tripe by 2020.
More than once over the course of the past few months I've touted Microsoft (MSFT) as a buy worthy name, not for the reasons that were easy for the average layperson to understand, but because it's doing things only the average IT pro could fully appreciate. That's where the money is, literally and figuratively, so while the money making strategy of giving away Windows 10 or offering free online access to skinny versions of its Office productivity suite may not make superficial sense, know that's not how the company makes the bulk of its money any more. The future is the cloud, and Microsoft recently took a big step in that direction. Would-be buyers would be wise to take note.
Azure is The Real Deal
This week, in Orlando Florida, Microsoft is hosting its annual Ignite conference ... an annual event that essentially unveils all the new projects Microsoft is working on, or has completed.
CEO Satya Nadella spoke, of course, and of course, attendees were on the edge of their seat. It was a less-touted presentation from Scott Guthrie, executive vice president of Microsoft's cloud and enterprise group, that got my attention though. For his part, Guthrie explained the recently improved version of its Azure platform, and while the average investor may have had little idea what he was talking about, cloud computing insiders know that Microsoft's cloud business is becoming a beast.
But first, a step back to explain a concept.
Hybrid cloud computing, in simplest terms, is the use of cloud computing and on-site servers at the same time. The dual nature of the arrangement solves some significant problems for organizations that need to centralize access to databases and apps. Namely, for processes where that can't afford to suffer any latency or simply need to send and receive a massive amount of data, in-house servers are the right solution. For data that isn't as time sensitive or abundant though, cloud access is a viable and reliable choice.
The hurdle in using the two together is the integration of two unlike technologies housed in two separate locations. Companies are getting pretty good at syncing up cloud and on-premise servers though, creating "hybrid" IT. In fact, I pegged Hewlett-Packard Enterprises (HPE) is one of the leaders of this budding market back in April. Though that trade's not done much in the meantime, I stand by my pick.
That hybrid cloud IT pick doesn't stand alone though.
Fast forward to this week, and to Guthrie's presentation in particular. In his talk he unveiled some of the new things Microsoft will be offering to cloud computing clients. Chief among them was a new feature of Azure, or the interface Microsoft's cloud computing customers use to access their information and manage their cloud service.
Though Amazon.com (AMZN) remains the leader of the cloud computing race, rivals Microsoft and Alphabet (NASDAQ:GOOG) (GOOGL) aren't rolling over. It's now turned into a price war, with Amazon finally opting to change how it charges for use of its cloud computing servers. In short, Amazon Web Services will be lowering the amount of revenue it collects from cloud clients, matching the pricing schemes adopted by Alphabet and Microsoft long ago.
Guthrie says Microsoft is going to one-up Amazon though. At Ignite, the Microsoft VP was all too happy to point out that the newly-launched Azure Database Migration Service does what AWS can't do for clients seeking to move their data into the cloud.
All the Right Reasons to Switch
It was a self-serving example to be sure, but Microsoft's Azure SQL Database service (SQL is a certain kind of database management framework) doesn't require any programming to prep the data for transfer to Microsoft's servers -- they're already SQL-ready. That's in sharp contrast to Amazon Web Services' compatibility. The client company in question would have had to shell out $10 million just to migrate their SQL data from an in-house solution to AWS. Moving to Microsoft's solution is essentially free.
In the same vein, the company's new SQL Server 2017 platform is the first Microsoft database solution that can be run with Windows Server software, Linux and Docker.
That flexibility is an incredible marketing tool.
It's a tool that's working too. Insurer Geico and financial data powerhouse Dun & Bradstreet are just a couple of high-profile companies that have tinkered with Azure's hybrid IT potential just to see what it was, and were duly impressed.
Geico, which began a migration from its own servers three years ago, now plans on getting rid of its own data centers altogether now that Azure has proven itself. Geico was especially impressed by the fact that Microsoft's platform was built from the ground up to handle multiple apps, leveraging the newly-developed concept of "containers" that make it easier to develop larger applications.
Dun & Bradstreet was similarly impressed, though more so because of Azure's ease of use. The company's developers finished a new app ahead of schedule, largely because they were assuming the app would take just as long to build on Azure as it did with AWS. They were wrong. Azure was simply a faster tool for them to use, prompting Dun & Bradstreet to consider moving their older, existing apps to Microsoft's cloud computing platform as well -- a move beyond the hybrid IT solution it's employing now.
In that vein, Microsoft's cloud solutions were the only ones to gain meaningful market share over the course of the past four quarters.
Looking Ahead for Microsoft... the Company, and the Stock
The case studies are secondary to the point. Indeed, the fact that Microsoft's cloud product can more cost effectively do something than AWS can isn't even the point. The point is, Microsoft is setting itself up to win the cloud war, and with the weapons it now has, it would be surprising if it didn't start to chip away at Amazon's cloud computing market share.
And it matters.
I'll reiterate the numbers I touted back in April, which were Gartner's projection for hybrid IT revenue. By 2020, the all-things-tech research outfit believes the market will be worth more than $68 billion. That's a far cry from last year's $23.3 billion worth of revenue the hybrid IT segment of the technology market saw. I'm not sure I would have believed then that Microsoft was in a position to win the lion's share of that growth. In light of the upgrades Nadella has tacked on to Azure in the meantime though, I'm becoming a believer...
... enough of a believer to start mulling a position in MSFT solely because what Azure has already become, and the looming improvements we've even yet to see.
Competition free? No, that's not quite where we are. We're closer to that than you might think though.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.