Market Share AWS vs. Azure

Amazon AWS is one of the most exciting businesses of the last decade.

Born as a side effect of making an order to the jumbled mess that had become Amazon’s infrastructure.

AWS has become a tech giant on its own, contributing to Amazon’s profitability.

In fact, if you were to spin off AWS from Amazon, not only would the e-commerce company be highly unprofitable, but its market value might be cut in less than half!

While by 2021, Amazon was still profitable without AWS, by Q3 of 2022, Amazon turned into huge net losses without AWS.

Not only that, but Amazon turned from positive free cash flow, which is the main KPI the company uses to track its progress, to negative free cash flows.

In the last decade, AWS has become a juggernaut.

It took years for competitors like Microsoft to be able to compete against AWS.

How come prominent players like Microsoft and Google couldn’t compete with AWS for years? 

Two things: 
– Early timing. 
– Bezos played a trick on his competitors. 

When Amazon officially launched Amazon AWS in 2006, none imagined what a cash machine it was and what it would become.

And Jeff Bezos was pretty smart about it. 

What was the trap he employed? 
Indeed, when AWS officially launched, it was priced as a utility.

Bezos wanted to avoid “Steve Jobs’ mistake” of pricing the iPhone at such high margins to attract competition quickly.

Instead, Bezos initially made AWS a low-margin business, and over time, it became a highly profitable segment.

AWS rolled out its first mass-market product, Simple Storage Service, or S3, on March 14, 2006. 

That is the official date of birth of AWS!

Still, in 2014, Steve Ballmer said to the Charlie Rose show:

“In my world you’re not a real business until you make some money.”

Yet, instead, AWS would turn into the most profitable business in the world.

Of course, in the meantime, Microsoft has changed leadership, and with Satya Nadella in charge, the company, with Azure, managed to become a real competitor of Amazon AWS.

Yet, today the cloud war is played on a different playground.

Indeed, computing power today is all about empowering the next generation of AI companies.

That is, for instance, why Microsoft already placed a bet of over $1 billion in 2019 on OpenAI!

And by October of 2022, Microsoft was in talks to invest even more into OpenAI.

If you haven’t realized yet, GPT-3, which is the main language model of OpenAI, has already turned into a business platform, empowering hundreds of apps:

There is an explosion of commercial use cases on top of it. In the end, the generative models that will have more apps built on top might be the ones that will dominate the AI industry.

And guess who will win the war in the cloud business?

Whoever can capture all that GPU consumption generated by the AI industry!

And, if you’re Microsoft Azure or Amazon AWS, you want to make sure to own the AI pipeline, as otherwise, in the next decade, the whole cloud business might get commoditized.

If AI companies have the leverage to negotiate with multiple cloud vendors regarding their GPU consumption, it becomes easy to engage in price wars between cloud players.

Whereas instead, cloud players like Microsoft, Amazon, or Google control the main AI models that power up the AI app economy, they can force these businesses to pay for GPU on top of their cloud infrastructure!

This is the cloud business playfield for the coming decade!

Read Next: Amazon Business Model (2022 Update), Amazon Flywheel, Amazon Mission Statement and Vision Statement, Is Amazon Profitable Without AWS?, Amazon Revenues Breakdown 2015-2021.

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