An unredacted Microsoft document reportedly revealed that the vendor’s Azure cloud server business revenue in the 2022 fiscal year generated half the revenue of rival Amazon Web Services – and less than the amount some analyst firms had assumed.
News outlet The Information reported that a Microsoft document from June 2022 was accidentally published on a U.S. district court website, revealing that the Redmond, Wash.-based company expected Azure cloud server business revenue of $34 billion for the 12 months ended that month.
The figure is about half that of the $72 billion AWS reported for the same period, according to The Information. What’s more, the figure “means Azure’s share of the market was several percentage points smaller than some analyst firms had estimated.”
Microsoft 2022 Azure Revenue Revealed
Ethan Simmons, managing partner at Norwood, Mass.-based AWS partner Pinnacle Technology Partners, told CRN in an interview that he is “not surprised” by the lower-than-expected figure for Azure given that among his customers that leverage both Azure and AWS, they turn to AWS for actual application development and services consumed.ADVERTISEMENT
“Our customers, when they decide they’re going to build something new or they’re going to develop something, they’re developing in an AWS – Azure doesn’t seem to be their choice,” Simmons said. “They’ll use Azure for normal Microsoft services – spin up Active Directory or Office 365 or whatever, I’ll run that in Azure. But if I’m going to develop anything, or I’m going to deliver new services, I’m gonna deliver that in AWS.”
From Simmons’ view, startups and brand new companies choose AWS for native building.
“I don’t have to convince them to build in the cloud, and I don’t have to convince them to build in AWS, either,” he said.
Kelly Yeh, president of Chantilly, Va.-based Microsoft and AWS partner Phalanx Technology Group, told CRN in an interview that while Azure itself composes around 20 percent of his business, the services he provides around Azure adds to the revenue plus all of his sales conversations with customers center on cloud adoption and cloud strategy.
Even if Microsoft saw less sales in cloud than expected, his company has seen new business brought in by Azure, Yeh said.
“Our strategy is to get every single one of our clients 100 percent in the cloud,” Yeh said. “That is the stated goal that we tell each of our clients.”
Clients are usually won over by the cost savings of using compliance-ready Azure instead of building around federal cybersecurity standards themselves, not to mention the pay-as-you-go consumption-based model, he said.
Only recently becoming an AWS partner, Yeh said that he still finds Microsoft’s partner program more mature than its cloud vendor rival. He said he sees greater transparency from Microsoft around its roadmap and that he has experienced better access to Microsoft sellers and subject matter experts (SMEs).
Microsoft Chip Plans Also Revealed
That $34 billion figure came from documents posted on a U.S. district court website that hosts files related to the lawsuit by the Federal Trade Commission (FTC) concerning Microsoft’s $69 billion acquisition of gaming company Activision Blizzard, according to The Information. The Azure documents and others were removed from the court website due to improper redaction.
The document also revealed that Microsoft put its global cloud server market share at 16 percent compared to AWS’ 38 percent. Around that time, research firm Gartner put Microsoft at 21 percent and AWS at 39 percent, according to The Information. The gap between the two vendors has possibly changed since then.
In the June 2022 document, Nadella warned about slowing Azure growth and less spending from 79 Azure customers meant Microsoft falling below an undisclosed internal target, according to The Information.
On Microsoft’s July 2022 earnings call, Chief Financial Officer Amy Hood said that Azure consumption growth saw a “slight moderation” while Nadella focused on “larger and longer term commitments” during the vendor’s July 2022 earnings call.
The vendor also blamed “partner transition work” for a hit on the vendor’s revenue during that call.
Microsoft reported its “intelligent cloud” segment – which includes Azure – made $75.3 billion in revenue for the 12 months ended June 30, up 25 percent year over year. Operating income was $33 billion for that period, up 25 percent year over year, according to Microsoft.
Microsoft has long reported the quarterly growth rate of Azure, software subscriptions and other cloud services combined. This has given analysts difficulty when comparing Microsoft’s revenue to AWS – which does report cloud server sales, according to The Information.
The documents also revealed that Microsoft had plans in 2022 to design silicon chips for cloud and AI efforts and may partner with hardware makers for custom chips, according to The Information.
Microsoft also wanted to make Windows 365 operating systems available to customers to compete against Google Chromebooks. For now, Microsoft only offers those systems to enterprise customers, according to The Information. Microsoft estimated that in June 2022, it had 62 percent of the global computer OS market share. Google had 20 percent and Apple had 18 percent.
For just customers, Microsoft had 46 percent share, according to The Information. Google had 25 percent. Apple had 28 percent.
At the time, Microsoft was also interested in an acquisition to grow in the mobile application market, according to The Information.
Partners See Opportunity
Both Yeh and Simmons agreed that a silver lining for all partners from the Microsoft report is that AWS and Microsoft “only had” $106 billion in revenue in a market they see as much larger and growing.
“The overall corporate adoption of cloud is probably still 25 percent,” Simmons said. “And there’s a lot of migration work still to do.”
Wade Tyler Millward is an associate editor covering cloud computing and the channel partner programs of Microsoft, IBM, Red Hat, Oracle, Salesforce, Citrix and other cloud vendors. He can be reached at [email protected].
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