In the fourth quarter of last year, Amazon's AWS captured a 62% share of the commercial cloud service market, marking a slight decline from the 68% it held in the same period in 2016. Meanwhile, Microsoft continued to gain momentum, with its Azure platform increasing its market share from 16% to 20%. This shift has caught the attention of industry analysts, who believe that Microsoft’s steady growth could potentially slow down Amazon’s revenue expansion.
According to a report by KeyBanc analysts published on January 13, Amazon's market dominance in the commercial cloud sector is waning, while Microsoft remains strong and continues to grow. The report highlights that AWS's market share dropped significantly compared to the previous year, signaling a possible turning point in the competitive landscape of cloud services.
On Thursday, KeyBanc analyst Brent Bracelin noted in his analysis that Amazon's AWS had a 62% market share in Q4 2017, down from 68% in the same quarter the year before. In contrast, Microsoft Azure increased its share by 4 percentage points, reaching 20%, while Google's cloud services saw a modest rise of 2%, moving from 10% to 12%.
The data suggests a clear shift in market dynamics, with Microsoft gaining ground at Amazon’s expense. The image below illustrates the market share distribution for commercial cloud services in Q4 2017, showing Amazon’s decline and Microsoft’s modest but consistent growth.
Microsoft CEO Satya Nadella has been instrumental in driving the company’s cloud strategy, and the results are evident. According to the report, Azure contributed approximately $3.7 billion in revenue to Microsoft in 2017, out of a total revenue of around $96.6 billion. This indicates that Microsoft’s cloud business has more than doubled in growth, reflecting the strong performance of Azure over the past few quarters.
Despite Amazon reporting a 42% revenue growth for AWS in the third quarter, analysts are watching closely as Microsoft’s growth could impact future AWS performance. The competition between these two tech giants is intensifying, with each looking to strengthen its position in the cloud space.
KeyBanc also evaluated the artificial intelligence capabilities of the three major cloud providers. They found that Microsoft offers a broader range of pre-built AI models, accessible from data centers worldwide, giving it an edge over both Google and Amazon in this area.
As a result of Azure’s growing market share and Microsoft’s progress in AI, analysts have raised their 12-month target price for Microsoft stock from $94 to $106. On Friday, Microsoft’s shares closed at $89.60, suggesting potential for further gains.
Analysts commented, “After speaking with Microsoft executives, we believe that the majority of Microsoft’s revenue will come from infrastructure services rather than specific AI offerings. This is because Microsoft will need to invest heavily in model training and continuous development in the future.â€
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