Seattle's sleepless 'cloud war' between MS and Amazon

 

Seattle, a home to famous IT companies: 

Seattle is home to many famous global companies representing the United States. First of all, there is Boeing. It's one of the world's leading aircraft manufacturers,

although it suffers from flaws in its 737-Max these days. The company's headquarters moved to Chicago, but the original headquarters was in Seattle, and Boeing's largest plant is still located in the city of Everett, north of Seattle.

As a manufacturer, there are so many jobs that it is, in fact, the company that has the biggest impact on Seattle's economy.

 

 

[caption id="attachment_5654" align="alignleft" width="300"] Microsoft Headquarters[/caption]

Microsoft (MS) is headquartered in Redmond, a suburb east of Seattle, and Starbucks, which needs no further explanation, and Amazon, the hottest company these days, are also based in Seattle.

In addition, the retailer Costco, the third-largest mobile operator in the United States, T-Mobile, and the online travel company Expedia also have their headquarters in Seattle

.
For a laid-back city in the northwestern corner of the United States, the density of global corporations is very high.

Industrial fields are diverse, from manufacturing to IT to distribution. While there are so many famous companies, none of the global Seattle-based companies have competed openly. At least until recently. But these days, Microsoft and Amazon are in bloody competition.

Cloud computing war between Microsoft and Amazon:

[caption id="attachment_5655" align="alignright" width="263"] Satya Nadella[/caption]

Why is Microsoft, famous for its Windows PC operating system, and Amazon, an e-commerce company, competing? Because both are betting on cloud computing.

Amazon Web Services (AWS), Amazon's cloud computing division, started in 2006 when even the concept of cloud computing was unfamiliar and has now grown to become the most profitable division of Amazon.

Microsoft began aggressively pushing cloud computing when Satya Nadella took over as CEO in 2014.Although the two companies have the 1st and 2nd largest market share in the industry,

Microsoft's size is indeed only a third of Amazon's. But , as the gap between the two companies is gradually narrowing, competition is intensifying.

[caption id="attachment_5264" align="alignleft" width="309"] Microsoft Azure vs Amazon Web Services[/caption]

In 2016, AWS's market share was a whopping 53.7%, while Microsoft's was only 8.7%. However, in 2018,AWS accounted for 47.8% and Microsoft accounted for 15.5%. Microsoft is being followed by Google, Oracle, and IBM.

First, let's take a look at how two Seattle-based companies, which are battling to become the best in cloud computing, got into the business. The 'pioneer' AWS was in the fall of 2003 and the location was the home of Amazon founder Jeff Bezos in Seattle.

 

Amazon Web Services (AWS):

 

An idea for a new business came up during an Amazon senior management meeting. It was about letting other companies use Amazon's IT infrastructure,

such as servers, storage, and CPU, and charging an hourly fee. You can use the infrastructure such as storage and database built by Amazon through the web and pay only for what you use.

Amazon can utilize the surplus IT infrastructure, and companies that use it can reduce investment in expensive IT infrastructure, which is a good thing.

An in-house venture-type team was formed, and after three years of preparation, ‘Simple Storage Service’ was first launched in 2006.Since then, AWS has been on the rise. Many companies, including Netflix, Airbnb, and Pinterest, have started using AWS.

[caption id="attachment_5660" align="alignright" width="299"] Amazon Web Services[/caption]

But, somehow, no one thought of following up with Amazon's huge business. Bezos once said this.

“In the world of business, if you're lucky, you can get an edge for two years or so. After starting Amazon, the offline bookstore Barnes & Noble followed by selling books online two years later, and when we released the e-book ‘Kindle’, Barnes & Noble released ‘Nook’ two years later.

Google launched Google Home two years after we released the Echo (artificial intelligence speaker). By the way, AWS has not had a competitor for 7 years. It was great luck.”

In this way, Amazon created the concept of cloud computing that did not even exist and became the world's best company in this field.

Microsoft's Azure business:

'Follower' MS Azure, On the other hand, Microsoft started betting on cloud computing about 10 years later than Amazon.

Microsoft's third-generation CEO, Satya Nadella, sends a note to his employees shortly after his 2014 inauguration.
In the memo of about 3000 words, Microsoft's flagship product 'Windows' is mentioned 10 times, while the word 'cloud' is used more than 20 times.

 

It was a memo to signal that Microsoft no longer revolves around Windows. Four years later, in 2018, Microsoft reorganized its organization so that Windows executives report to enterprise software, cloud computing, and artificial intelligence.

 

This is a huge change for Microsoft, where all the company's functions were based on Windows. Windows, which was at the peak of the company, has been reduced to a single division.

In Microsoft, the cloud computing sector, now called 'Azure', also has more sales than Windows narrowing gap AWS's 2019 performance is excellent.

All of them are projected to generate $35 billion in sales. It accounted for about 13% of Amazon's total sales through the third quarter of 2019.But growth is stagnating. In the most recent quarter,

AWS revenue grew 34.7% compared to the same quarter last year, a significant decrease from the 50% growth in the past. On the other hand, Microsoft's Azure cloud business grew 59% year-over-year in the latest quarter.

Divergence in Microsoft:

There are several reasons why this divergence has started.

MS 'Jedi' wins:

First, Microsoft took the contract for the Joint Enterprise Defense Infrastructure (JEDI), a large-scale cloud computing project of the US Department of Defense.

It was predicted that AWS would win this huge contract, which would be a $10 billion business over the next 10 years. However, contrary to expectations, MS, the second largest company in the market, was selected.

 

(There have been several rumors, including that US President Donald Trump hated Jeff Bezos, who owned the hostile newspaper Washington Post, and was pressured to give it to Microsoft, not Amazon.

President Trump was in the middle of a bid. He also publicly stated that he heard a lot of complaints about Amazon, which was an outright 'diss' to Amazon.)

AWS Information Leakage:

In addition, last year, one of AWS's largest customers in the financial sector, Capital One Financial Corp., had the information of more than 100 million customers leaked. It was information stored in the cloud of AWS. It was a fatal accident for a cloud computing company.

MS preferred outlook:

The outlook for the future looks good for MS. According to Gartner, among the companies newly interested in cloud computing, many companies already use Microsoft's software,

including Windows, and companies that have established business relationships with Microsoft for a long time, and these companies are using Microsoft's Azure rather than Amazon's AWS. It is expected that there is a high probability that

Distributors Reluctant to AWS:

Many retailers are reluctant to do business with AWS. Because they believe that entrusting their data to Amazon, the world's largest e-commerce company and competitor, is no different than entrusting a fish shop to a cat.

Of course, AWS strongly asserts that it never gives out customer information to Amazon. A prime example is Netflix. Amazon is a competitor to Netflix, which operates the streaming service Prime Video, but Netflix is ​​one of AWS's biggest customers.

In short, many of Amazon's competitors use AWS. But retailers think differently. Walmart, the world's leading retailer, is asking its traders not to use the Amazon platform.

Global household goods company Unilever does business with Amazon, such as selling products on the Amazon site, but uses Microsoft's Azure for cloud computing.

Amazon Counterattack, Of course, there is no way for Amazon to stand still in a situation where the gap is narrowing like this.

A never ending cloud war between MS and Amazon?

First of all, there was a problem in the selection process regarding the Jedi contract with the US Department of Defense and it officially filed a lawsuit against the US government.

As AWS CEO Andy Jassy once said, “If we had objectively compared the two platforms, we wouldn’t be able to make the decision we have today.”

Criticism of a competitor was very unusual for an Amazon senior executive. It was against Amazon's most basic philosophy of focusing on customers, not competitors. Amazon headquarters and Microsoft headquarters are sandwiched by a lake called Washington Lake.

Bezos and Microsoft co-founder Bill Gates are neighbors who live in that very wealthy lakeside neighborhood. However, the fierce battle between the two companies for dominance in the cloud computing industry appears to have begun.