AWS and Google Cloud earnings beget laws of large numbers – and expectations – for cloud revenue

It is not only the law of large numbers which applies in cloud revenues, but also the law of large expectations. Amazon Web Services (AWS) reported revenues of $8.38 billion (£6.7bn) for its most recent quarter although a slight dip in growth saw pessimism from the analysts. Google Cloud, meanwhile, secured an annual run rate of $8 billion in its results to a much friendlier outlook.

Amazon’s downturn with AWS was seeing only 37% growth year on year, compared with 49% the previous year. AWS profit had risen almost 30% year over year, with the cloud infrastructure arm now comprising more than 13% of total revenues at Amazon.

Google, meanwhile, saw its ‘other revenues’ – of which Google Cloud is a part – climb to $6.18bn (£4.97bn) for the most recent quarter, up almost 40% year on year. Google does not disclose specific revenues around its cloud suite – for the second successive quarter, an analyst asked this very question – yet the noises were all good from Alphabet’s senior management.

“Customers are choosing Google Cloud for a variety of reasons,” Google CEO Sundar Pichai told analysts in what was described as ‘another strong quarter’ for the company. Pichai cited reliability and uptime, flexibility, scalable data management, and artificial intelligence and machine learning as key areas of differentiation.

Industry watchers will not be particularly surprised by these features, as it has been Google’s message for a while. In February Google Cloud chief exec Thomas Kurian – in his first major speaking gig since taking over the role – cited five ways Google differentiated from its hyperscale rivals, which essentially amounted to the above four alongside hybrid and multi-cloud capability.

Of the 42 bullet points which represented Amazon’s highlights over the quarter, AWS commanded 11 of them. Particular developments of note included the general release of Amazon’s managed blockchain service, as well as a major new customer in the shape of NASCAR. The quarter was more product-heavy from an AWS perspective than usual, including the launch of managed machine learning services Personalize and Textract, as well as AWS Security Hub, which gives customers a central area to managed security and compliance across AWS environments.

From Google’s side, key highlights included two acquisitions – storage provider Elastifile and business intelligence platform provider Looker – as well as the launch of a new data centre region in Osaka.

Ruth Porat, chief financial officer at Alphabet, added a little more context to the reporting. “[We’re] pleased with the performance of both [Google Cloud Platform] and G Suite,” she said. “Growth in GCP was led by strong customer demand for our compute and data analytics products and G Suite continues to deliver strong growth. Overall, GCP remains one of the fastest growing businesses in Alphabet, and we’re really pleased with how the team is executing on both.”

Amazon SVP and chief financial officer Brian Olsavsky told analysts it was a ‘really strong quarter’ for AWS and batted away concerns of a slightly lower performance. “We’ve been pretty transparent with our AWS revenue and income numbers – we’ve been breaking it out [from] 2015 and we’re very happy with the growth in absolute dollar terms,” said Olsavsky. “We’re seeing a pick-up from customers and their usage, their increased pace of enterprise migration, [and] increased adoption of our services, especially machine learning services.

“Continually again, AWS is being chosen as a partner to many companies because of our leadership position both in technology, our vibrant partner ecosystem, and also the stronger security that we offer,” Olsavsky added.

As far as this translates to the wider industry, the slight fall in yearly growth may have been expected. Indeed, analyst firm Synergy Research has been citing the law of large numbers in recent quarters; more than 100% growth across the hyperscale cloud providers simply could not go on forever. In terms of market share, Synergy notes AWS remains at a third (33%) of the market, with Microsoft at 16% and Google 8% respectively.

You can read the full Amazon earnings release here and the full Alphabet report here.

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